UNITED STATES: Bill approved by House requires payments at certain price thresholds

Gulf royalties targeted again
The House on Friday resurrected a plan to go after scores of oil and gas companies that have been pumping crude in the Gulf of Mexico royalty-free.

By a vote of 231-191, the House approved a massive farm bill designed to funnel billions of dollars in aid to American farmers.

The legislation would provide $2.4 billion over five years to promote greater use of clean energy sources such as wind, solar and biomass.

These provisions, argued Andy Olsen, senior policy advocate for the Chicago-based Environmental Law & Policy Center, would help address energy security and environmental and rural economic development concerns.

To help pay for these measures, the bill reaches back to a portion of an energy bill the House passed in January soon after Democrats took control.

That language tries to address an error by the U.S. Minerals Management Service that already has cost federal coffers over $1 billion. The agency neglected to include price triggers in lease agreements signed in 1998 and 1999, which would have forced operators to pay royalties when oil and natural gas prices reached certain thresholds.

While some of these companies have reached new agreements with the federal government, others have not.

The bill would give the holdouts a choice: pay royalties on production dating back to Oct. 1, 2006, or pay "conservation of resources" fees totaling $9 per barrel of crude and $1.25 per million British thermal units of natural gas when prices reached certain levels.

Any leaseholder that refused to accept one of those two options would be barred from leasing any more federal acreage.

The Senate, when approving its own energy bill last month, rejected a proposal that was widely viewed as targeting these same companies holding the royalty-free leases.

That measure would have imposed a new severance tax ranging from 12.5 percent to 14 percent on oil and natural gas produced from the federal waters of the Gulf.

The oil companies are vehemently opposed to any effort to "unilaterally amend existing contracts," said Erik Milito, a senior attorney with the American Petroleum Institute.

"The only way to change contracts that are in existence is to have parties mutually agree to change them," Milito said.

Sen. Pete Domenici of New Mexico, the ranking Republican on the House Energy and Natural Resources Committee, argued that while the error has cost the federal treasury, "a punitive provision such as the one in the House farm bill will not solve the problem.

"In fact, it will make it worse by ensuring years of litigation," Domenici said.

Via: Chron

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