Value of Oil From Public Lands

“The Great American Oil Rip-Off” (editorial, July 20) confuses two separate issues. The litigation in which California and a number of public-land drillers have been engaged is a disagreement about whether oil companies complied with the law, and it is a matter for the courts to decide. At the heart of the matter is congressional intent to keep a federal regulatory agency from rewriting federal royalty laws that date back to 1920. The Department of the Interior has repeatedly sought to change the basis by which royalties are established. This would have the effect of a change in the statute, authority that is exclusive to the Congress.

Current federal law states that the royalty on oil taken from federal land be based on its “wellhead” value, that is, its value at the time it is taken from the land. Since oil is typically transported, processed and marketed before being sold, it can be difficult to go back and determine that wellhead value. This has led to a complex array of regulations and lawsuits. Everyone, including the oil companies, recognizes the need to simplify the rules on oil royalty valuation.

Rather than proposing a simpler system of enforcement, the Interior Department, in 1997, without consulting Congress, attempted to disallow the deduction for transportation, refining and marketing costs. The purpose of the congressional moratorium was to halt any new regulation until there is a negotiated rule or until legislation is enacted that addresses the issue. Congress has already held several hearings on the issue and, in fact, the Interior Department recently reopened the period of public comment on its proposal.

KAY BAILEY HUTCHISON

Senator, R-Texas