Gas Producers May Get Big Break on Payments

The Interior Department plans a $100-million retroactive reduction of royalty payments on price-controlled natural gas produced from federal leases on shore, the department announced Tuesday.

Regulations were changed last summer to calculate royalties according to contract prices, not the higher federal price ceilings, after Aug. 1, 1986.

An announcement from the department’s Minerals Management Service said a February publication is planned for a proposal to make the rules retroactive to various dates, depending on the classification of the gas in question, back to May 1, 1982.

Spokesman Tom DeRocco said he understood that the department’s studies had concluded that $100 million might be owed to gas producers.

Whether refunds would be sent out or credits given on future payments has not been decided, he said. The planned draft regulation will ask for comment on this point, and whether retroactivity should apply to Indian leases.

Royalties from leases for gas wells on federal land brought the federal government $329 million in 1985, the most recent year for which figures are available, and $371 million in 1984.

Lease operators pay the government either 12.5% or 16.7% of their gross proceeds.

Under a 1977 regulation, royalties were calculated on the ceiling price for price-controlled gas.

Some of that gas fell below ceiling prices in 1982, according to William Bettenberg, director of the Minerals Management Service. By January, 1985, when the majority of federal price controls were removed, gas that had been selling for up to $5.60 per thousand cubic feet was going for $3, Bettenberg said.

Uncontrolled gas in the spot market now sells for about $1.45 on the Gulf Coast.

Some companies have been required to pay double the normal royalty, Bettenberg said. “The proposed retroactive change would help rectify past instances of inflated royalty charges,” he said.

Operation of the reduction will not be automatic, but will be tied to the operation of sales contracts, the department said. Royalty reductions will take effect according to when clauses permitting purchasers to pay less went into operation.