Washington, D.C. – The Senate Energy & Natural Resources Committee today held an oversight hearing on oil and gas royalty management at the Department of Interior.

 

“Good morning.  I want to thank Chairman Bingaman for holding this hearing.  I also want to thank today’s witnesses from the Department of the Interior and the General Accounting Office for testifying at this important proceeding.

 

“We are here today to focus on oil and gas royalty management at the Department of the Interior.  In recent months, it has become clear that there are significant challenges facing the Department in carrying out these responsibilities.  These challenges are bipartisan.  As the evidence shows, the problems we will hear about today date back to the previous Administration and continue to face us today.  I hope that we keep the focus of this hearing on finding solutions.

 

“This issue is of enormous significance to the American people and to our nation’s fiscal well-being.  As we know, the Minerals Management Service is charged with the responsibility of collecting, accounting for and distributing royalties paid by lessees for the extraction of oil, gas and other minerals on federal lands and Indian properties.  The stakes of getting this right are terrifically important.  According to the Interior Department, in Fiscal Year 2005, the MMS collected $9.9 billion in royalties from approximately 27,800 producing leases.  We will hear from today’s witnesses about instances when the Federal Government has not collected the appropriate amount of royalties due.

 

“We will also hear testimony regarding the failure of the Department of the Interior under the Clinton Administration to include so-called price thresholds in deepwater oil and gas leases issued in 1998 and 1999.  From all accounts from that time, it appears that the omission of these thresholds were the result of negligence and not nefarious actions.  Nevertheless, according to an initial estimate from the GAO, this failure of the previous Administration’s Interior Department could cost the taxpayers approximately $10 billion over 25 years.  I understand that some dispute this estimate, but nevertheless it has been made and I will ask our witnesses to comment on the accuracy of this estimate.

 

“Last summer, I sponsored an amendment that passed in the Appropriations Committee that, among other things, encouraged renegotiation of the 1998 and 1999 leases and provided the Secretary of the Interior with the clear authority to renegotiate these leases to include price thresholds.    In December, six companies renegotiated the terms of the agreements to include price thresholds.  I am informed that the Department of the Interior believes that this will bring in an estimated 20% of the outstanding lost royalty revenue as a result of the error on the 1998 and 1999 leases.  I will also ask about the accuracy of that estimate.  Also, I continue to encourage all companies who hold these leases to follow the lead of these six companies and to come forward and renegotiate with the Department of the Interior.  It is important for our nation’s fiscal stability.  As significant, it is important to get this issue resolved so that the Department of Interior and these company lease holders can get back to doing what they do best – that is produce American oil and natural gas supplies to help reduce our energy dependence on foreign, unstable regions of the world.  As we heard at last week’s global oil hearing – this is an economic security issue, it is a foreign policy issue and a national security issue.  And, we should not lose focus of that fact.

 

“Additionally, I want to make it clear that the Deepwater Royalty Relief Act of 1995 was a good thing.  We should not confuse the failure of the Clinton Administration implementation in 1998 and 1999 with the substantive policies advanced and achievements made as a result of that Act.  Since President Clinton signed that Act into law, our domestic oil and gas in the deepwater has increased dramatically.  In 2005, oil production was over 400% greater than 1995, and natural gas was over 340% greater than 1995.  According to the Department of the Interior, in 2004 the deep-waters of the Gulf of Mexico accounted for 67% of the oil and 37% of the natural gas produced in the Gulf of Mexico.  The chart speaks for itself with respect to the increase in deepwater domestic production since this Act passed.  Also, according to the Department of the Interior, after deep water royalty relief was put in place, there was a significant increase in competition for leasing.

 

“The Interior Department estimates that the Federal Treasury received over $2 billion in additional revenue from deep water leases issued between 1996 and 2000 on over 1,300 leases that would not have been leased without the incentive.  When we speak of the revenues lost, I hope we also consider that estimate from the Department. Finally, according to the Department of the Interior, the proportion of non-major companies bidding on these leases has increased from 18% prior to the incentive, to 49% in the years 1996 to 2000.  In 2002, the independent Energy Information Administration stated that, “the Deepwater Royalty Relief Act of 1995 apparently has helped stimulate interest in developing deep-water leases in light of the significant increase in deep-water exploration and production since its implementation.”

 

“As we hear testimony and begin to make our judgments on how to resolve this issue of the 1998 and 1999 leases, I trust that we examine the important and difficult legal issues -- contractual and property and Constitutional  -- that this quandary presents for all of us.  I hope that this Congress will resist the temptation of the headline and act in a thoughtful, practical way.  We should know that the eyes of the world – and Mr. Chavez and Mr. Putin – are watching how we treat holders of property and contract rights on our federal lands.

 

“I thank the Chairman for holding this important hearing and I look forward to hearing from my colleagues and the witnesses.”

 

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