US govt, energy companies fix old drilling leases

WASHINGTON, Dec 15 (Reuters) The U.S. government, which has lost about WASHINGTON, Dec 15 (Reuters) The U.S. government, which has lost about $2 billion from faulty offshore drilling leases issued in 1998 and 1999, has signed new deals with major energy companies to start collecting oil and natural gas royalties going forward, the Interior Department said.

Under the new contract terms, the companies -- BP Plc, ConocoPhillips, Marathon Oil Co, Shell Oil and Walter Oil and Gas Corp. -- will have to start paying royalties on oil and gas produced in the deep waters of the Gulf of Mexico as of Oct. 1 of this year.

However, they will not have to pay any of the past royalties that would have been due.

Companies generally pay royalties based on 12.5 percent to 16.67 percent of the value of the oil and gas they drill. Those royalties were waived on initial production levels starting in the 1990s, when energy prices were low, to make drilling more profitable in the deeper Gulf waters.

However, language ending the royalty relief was still in lease contracts in case prices increased again as they have now. The Interior Department's Minerals Management Service mistakenly left the provision out of the 1998 and 1999 leases.

''We appreciate and commend these companies for voluntarily signing these lease amendments. We encourage the remaining companies that have not yet agreed to sign to join us in resolving this issue,'' said Stephen Allred, Assistant Secretary of Land and Minerals Management.

All the faulty 1998 and 1999 leases have already cost the government about $2 billion in past royalties. If the mistake is not fixed with all the contracts, another $8 billion could be lost over the life of the leases, according to the Government Accountability Office.

In a separate statement, Chevron said it has met several times with department officials and ''put a reasonable offer forward'' on new terms for its 1998 and 1999 leases, but the company has not been able to reach a deal.

The MMS has also met with Exxon Mobil officials.

U.S. GOVT AUTHORITY QUESTIONED Republican and Democratic leaders of the House Government Reform Committee investigating the royalty fiasco asked Attorney General Alberto Gonzales on Thursday if the MMS has the legal authority to go after the past royalties, which the lawmakers would like. The MMS has said it can not force the companies to pay the prior royalties.

In a related matter, Interior Department Inspector General Earl Devaney has concluded that department officials knew much sooner about the faulty drilling leases than they have led Congress to believe, a government source familiar with the matter told Reuters.

The IG's findings will be in a final report about the defective contracts that will be sent to Congress next month.

The report will confirm the IG's preliminary findings that ''bureaucratic bungling'' caused the MMS to accidentally leave out language in the drilling contracts that would have ended royalty relief when oil and natural gas prices were high.

The final report will have a timeline contradicting the testimony MMS officials gave to the House subcommittee about when they became aware the price thresholds were left out of the drilling leases, the government source said.

Devaney briefed congressional staff this week on his findings, and also told them he has given information to the Justice Department on criminal behavior related to the MMS' collection of royalties. The criminal wrongdoing was not related to the 1998 and 1999 leases, the source said.

REUTERS DKS PM0642 billion from faulty offshore drilling leases issued in 1998 and 1999, has signed new deals with major energy companies to start collecting oil and natural gas royalties going forward, the Interior Department said.

Under the new contract terms, the companies -- BP Plc, ConocoPhillips, Marathon Oil Co, Shell Oil and Walter Oil and Gas Corp. -- will have to start paying royalties on oil and gas produced in the deep waters of the Gulf of Mexico as of Oct. 1 of this year.

However, they will not have to pay any of the past royalties that would have been due.

Companies generally pay royalties based on 12.5 percent to 16.67 percent of the value of the oil and gas they drill. Those royalties were waived on initial production levels starting in the 1990s, when energy prices were low, to make drilling more profitable in the deeper Gulf waters.

However, language ending the royalty relief was still in lease contracts in case prices increased again as they have now. The Interior Department's Minerals Management Service mistakenly left the provision out of the 1998 and 1999 leases.

''We appreciate and commend these companies for voluntarily signing these lease amendments. We encourage the remaining companies that have not yet agreed to sign to join us in resolving this issue,'' said Stephen Allred, Assistant Secretary of Land and Minerals Management.

All the faulty 1998 and 1999 leases have already cost the government about WASHINGTON, Dec 15 (Reuters) The U.S. government, which has lost about $2 billion from faulty offshore drilling leases issued in 1998 and 1999, has signed new deals with major energy companies to start collecting oil and natural gas royalties going forward, the Interior Department said.

Under the new contract terms, the companies -- BP Plc, ConocoPhillips, Marathon Oil Co, Shell Oil and Walter Oil and Gas Corp. -- will have to start paying royalties on oil and gas produced in the deep waters of the Gulf of Mexico as of Oct. 1 of this year.

However, they will not have to pay any of the past royalties that would have been due.

Companies generally pay royalties based on 12.5 percent to 16.67 percent of the value of the oil and gas they drill. Those royalties were waived on initial production levels starting in the 1990s, when energy prices were low, to make drilling more profitable in the deeper Gulf waters.

However, language ending the royalty relief was still in lease contracts in case prices increased again as they have now. The Interior Department's Minerals Management Service mistakenly left the provision out of the 1998 and 1999 leases.

''We appreciate and commend these companies for voluntarily signing these lease amendments. We encourage the remaining companies that have not yet agreed to sign to join us in resolving this issue,'' said Stephen Allred, Assistant Secretary of Land and Minerals Management.

All the faulty 1998 and 1999 leases have already cost the government about $2 billion in past royalties. If the mistake is not fixed with all the contracts, another $8 billion could be lost over the life of the leases, according to the Government Accountability Office.

In a separate statement, Chevron said it has met several times with department officials and ''put a reasonable offer forward'' on new terms for its 1998 and 1999 leases, but the company has not been able to reach a deal.

The MMS has also met with Exxon Mobil officials.

U.S. GOVT AUTHORITY QUESTIONED Republican and Democratic leaders of the House Government Reform Committee investigating the royalty fiasco asked Attorney General Alberto Gonzales on Thursday if the MMS has the legal authority to go after the past royalties, which the lawmakers would like. The MMS has said it can not force the companies to pay the prior royalties.

In a related matter, Interior Department Inspector General Earl Devaney has concluded that department officials knew much sooner about the faulty drilling leases than they have led Congress to believe, a government source familiar with the matter told Reuters.

The IG's findings will be in a final report about the defective contracts that will be sent to Congress next month.

The report will confirm the IG's preliminary findings that ''bureaucratic bungling'' caused the MMS to accidentally leave out language in the drilling contracts that would have ended royalty relief when oil and natural gas prices were high.

The final report will have a timeline contradicting the testimony MMS officials gave to the House subcommittee about when they became aware the price thresholds were left out of the drilling leases, the government source said.

Devaney briefed congressional staff this week on his findings, and also told them he has given information to the Justice Department on criminal behavior related to the MMS' collection of royalties. The criminal wrongdoing was not related to the 1998 and 1999 leases, the source said.

REUTERS DKS PM0642 billion in past royalties. If the mistake is not fixed with all the contracts, another billion could be lost over the life of the leases, according to the Government Accountability Office.

In a separate statement, Chevron said it has met several times with department officials and ''put a reasonable offer forward'' on new terms for its 1998 and 1999 leases, but the company has not been able to reach a deal.

The MMS has also met with Exxon Mobil officials.

U.S. GOVT AUTHORITY QUESTIONED Republican and Democratic leaders of the House Government Reform Committee investigating the royalty fiasco asked Attorney General Alberto Gonzales on Thursday if the MMS has the legal authority to go after the past royalties, which the lawmakers would like. The MMS has said it can not force the companies to pay the prior royalties.

In a related matter, Interior Department Inspector General Earl Devaney has concluded that department officials knew much sooner about the faulty drilling leases than they have led Congress to believe, a government source familiar with the matter told Reuters.

The IG's findings will be in a final report about the defective contracts that will be sent to Congress next month.

The report will confirm the IG's preliminary findings that ''bureaucratic bungling'' caused the MMS to accidentally leave out language in the drilling contracts that would have ended royalty relief when oil and natural gas prices were high.

The final report will have a timeline contradicting the testimony MMS officials gave to the House subcommittee about when they became aware the price thresholds were left out of the drilling leases, the government source said.

Devaney briefed congressional staff this week on his findings, and also told them he has given information to the Justice Department on criminal behavior related to the MMS' collection of royalties. The criminal wrongdoing was not related to the 1998 and 1999 leases, the source said.

REUTERS DKS PM0642