Breaking News!  House Approves Hinchey Amendment To Help End Royalty Giveaways To Energy Companies Profiting On Oil & Gas Taken From U.S. Waters Posted on 5-18-06

Measure Bars Future Contracts For Companies That Currently Don't Pay User Fees To Federal Government

Washington, DC -- The U.S. House of Representatives today adopted a measure by Congressman Maurice Hinchey (D-NY) that would help close a loophole that has allowed energy companies to profit on oil and gas taken from U.S. coastal waters in the Gulf of Mexico without paying a royalty, or user fee, to the federal government.  Hinchey offered his measure, which passed the House by a margin of 252 to 165, as an amendment to the Interior Appropriations bill for Fiscal Year 2007.

"The House voted today to stop letting oil and gas companies make money off of public property without paying the American people their fair share," Hinchey said. "For too long, energy companies have been taking oil and gas from the American people for free and then selling it back to them at record prices.  The House put its collective foot down today and sent a loud and clear message to energy companies that their days of taking oil and gas from the American people without paying for it are over.  After being taken advantage of by giant energy corporations, today the American people struck back, demanding that they receive billions of dollars in royalty payments.  Passage of this amendment also deals a stunning blow to the pending Kerr-McGee lawsuit, in which the energy company is seeking to relieve itself of $60 billion in royalty payments.  Under this amendment, Kerr-McGee would no longer be entitled to new leases with the federal government if it prevails in its lawsuit."

The congressman highlighted the need to stop energy companies from taking oil and gas from public lands and coastal waters without paying royalties, or user fees, to the federal government.  The Government Accountability Office (GAO) estimates that current royalty relief provided to oil and gas companies will end up costing the federal government at least $20 billion over 25 years in lost revenue.  That figure could grow to $80 billion if oil companies win a pending lawsuit that would expand the scope of royalty relief.

The Deepwater Royalty Relief Act of 1995 gave the Interior Department discretion to provide royalty forgiveness to the energy industry in order to spur deepwater exploration when prices of oil and gas were low.   That measure allowed the Interior Department to decide whether or not to put price thresholds into the leases that would trigger royalty payments to the federal government once oil and gas prices reached a certain level.  However, due to a clerical error, the Interior Department left out price thresholds on contracts signed in 1998 and 1999, allowing oil and gas companies to extract resources from public property without paying royalties, regardless of the price of oil or gas.  Many of those roughly 1,000 royalty-free leases are starting to produce oil and gas now, at a time when Americans are paying record prices. These leases are expected to produce about $60 billion worth of energy for the oil and gas companies, but the American taxpayers will receive no royalties under current law.  To make matters worse, Republicans extended the Deepwater Royalty Relief Act as part of the energy reform bill passed last summer.

Hinchey's amendment is aimed at getting energy companies with royalty-free contracts originating in 1998 and 1999 to rework their contracts so that they contain provisions for royalty payments to the federal government.  While the Hinchey amendment doesn't require energy companies to rework their contracts,  it does bar them from receiving future contracts unless they work with the Interior Department to redo the existing contracts that contained the royalty-free clerical error, thus providing energy companies with a large incentive to rework the existing contracts.

Hinchey worked closely with Congressman Ed Markey (D-MA) to draft the amendment.  Markey is the author of the Royalty Relief for American Consumers Act of 2006 of which Hinchey is a cosponsor.  Hinchey offered the amendment on the House floor on behalf of himself, Markey, Congressman Nick Rahall (D-WV), Congresswoman Carolyn Maloney (D-NY), Congressman George Miller (D-CA), Congressman Raul Grijalva (D-AZ), Congressman Bernie Sanders (I-VT), Congressman Jim Moran (D-VA), and Congresswoman Rosa DeLauro (D-CT).


 

The Interior Appropriations bill, to which the now-approved Hinchey amendment is attached, is expected to be approved late Thursday night.  The Senate will take up its own version of the Interior Appropriations bill in the coming months.

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