Error Lets Energy Firms Avoid Fees

Energy companies will avoid paying billions of dollars in U.S. royalties normally owed on oil and natural gas drilled in the Gulf of Mexico because of language left out of the leasing contracts by mistake, the Interior Department told Congress on Wednesday.

A senior department official said language was “inadvertently dropped out” of about 1,100 lease contracts issued in 1998 and 1999 that would have ended royalty fee waivers for energy companies when the prices for crude oil and natural gas hit certain high levels.

Walter Cruickshank, deputy director for the Interior Department’s Minerals Management Service said that as a result of the error the government had lost several hundred million dollars in royalties and stood to lose many billions more if energy prices remained high.

This was the first public explanation the agency had given on how the companies were able to get the leases without the oil and natural gas price thresholds.

Testifying before the House Government Reform Committee’s energy and resources subcommittee, Cruickshank said his agency had not been able to determine whether this was an honest mistake or a scheme to benefit the energy companies.

He said nothing had been found in writing from the White House or Interior Department instructing that the language be dropped from the pacts.

Cruickshank pointed out that at the time the agency was rewriting its royalty regulations, whoever was handling the leasing contracts might have thought the price threshold language should be set aside until new provisions were finalized.