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Most Recent Action
Representative Barbara Cubin (R-WY), Chair of the House Resources Subcommittee
on Energy and Mineral Resources, has reopened the Project on Government
Oversight (POGO) controversy. According to EENews, "the Resources
Committee leadership may pursue a contempt of Congress full-committee vote
in order to punish [POGO] for refusing to turn over tax forms related to
the payments [to two federal employees involved in an interagency task
force that investigated allegations of underpayments in federal leases
in California]." More information is available off the hearing
charter from the May 4th event. Another hearing is scheduled
for May 18th.
Action in the 106th Congress
The debate on fair royalty payments to the US Treasury for oil and
gas leases on federal lands is a two-prong issue. One prong is establishing
a method by which the value of the oil extracted is rightly valued, a question
that has been the basis for much of the debate surrounding the proposed
MMS valuation regulations. The other prong is implementing a royalty-payment
system that is just to all parties and simple, a topic that brought about
most of the debate during the 105th Congress on developing a royalty-in-kind
(RIK) system. In the last Congress, Representatives Barbara Cubin (R-WY)
and Mac Thornberry (R-TX) were principal advocates for a national royalty
in-kind (RIK) system, a move strongly supported by the oil industry.
Thornberry introduced H.R. 3334, the Royalty Enhancement Act of 1998, during
the 105th Congress, which quickly became the rallying call for the oil
industry and other pro-RIK supporters. The RIK effort lost steam,
however, after the General Accounting Office (GAO) reviewed the bill and
reported strongly against a mandatory, national RIK program. This
report and a new Congress helped to change the focus of the debate on revising
MMS valuation regulations and providing tax incentives for oil producers.
Minerals Management Service's Proposed Rules
A 1996 report by the House Government Reform and Oversight Committee,
entitled Crude Oil Undervaluation: the Ineffective Response of the Minerals
Management Service, found that undervaluation of federal royalties
had shortchanged the US Treasury by millions of dollars. In response
to the report and frequent disputes and litigation with oil and gas companies,
the Minerals Management Service (MMS) issued revised valuation regulations
in 1998. According to the 1999 Environmental & Energy Issues
Guidebook, "The Interior Department says the intent of the rulemaking
effort is to reduce reliance on posted prices for royalty valuation, reflect
the true market value, provide certainty to all involved, and provide maximum
flexibility to adapt to changing market conditions." More information
on the history of the rulemaking process is available in AGI's 105th
Congress summary on Roaylty-In-Kind.
A legislative rider to the fiscal year (FY) 1999 Interior Appropriations bill placed a moratorium on the MMS rules release. In an Emergency Supplemental Appropriations Act that was signed by the President on May 21, 1999, the Senate Appropriations Committee included language in the bill that extended the moratorium to the end of FY 1999. During the debate on FY 2000 Interior Appropriations, a legislative rider supported by Senator Kay Bailey Hutchison (R-TX) that would delay the release of the rules until 2001, was tacked onto the appropriations bill. After last-minute debate between Republican leadership and White House staff, the moratorium was limited to last only until March 15, 2000. MMS, in response to the new date, re-opened a comment period on the proposed regulations, which is due to end on January 31, 2000. Information on the oil valuations regulations and on how to submit comments is available at the MMS Royalty Management Program website.
On March 15, 2000, MMS published the final rule for the valuing crude oil produced on federal lands that will take effect on June 1, 2000. A complete copy of the rule is available in the March 15th Federal Register. According to the MMS press release, the new rule would increase government revenues by nearly $67.3 million per year and would share close to $2.4 million of these revenues with California, Wyoming, New Mexico, Louisiana, North Dakota, Texas, Montana, Colorado, and Utah. "About 90% of the additional revenues will come from the major integrated oil companies. There are administrative savings in the new rule, therefore, the net increase to the industry will be an estimated $63.5 million." The new rule would allow independent producers to sell under arm's-length contracts as they did under the 1988 rule. After the June 1 effective date, companies will have a three month interest-free grace period to allow them to make system chance needed to implement the new rule.
Oil Valuation Legislation Introduced in the 106th Congress
Several bills on the royalty issues have been introduced, but few of
them have seen much action after their introduction. On May 19, 1999,
the House Subcommittee on Government Management, Information, and Technology
held an oversight hearing to look
at the Minerals Management Service's royalty valuation program. Other
than a couple of hearings in May 1999, the oil valuation debate seems to
be hottest in appropriations bills.
Controversy Surrounding MMS Oil Valuation
Rulemaking
The Mineral Management Service's (MMS)
proposed oil royalty rule, already mired in Congressional moratoriums and
oversight, has hit another brick wall amongst allegations of impropriety.
The controversy arose from payments of $350,000 from the Project
on Government Oversight (POGO) to two federal employees, Robert Bermen
of the Interior Department and Robert Spier, a former employee of the Department
of Energy. The two men were members of an interagency task force
that investigated allegations of underpayments in federal leases in California,
and the payments were a reward from POGO when it won a settlement over
oil royalty issues. The two were known to support the current MMS
oil royalty rule, and their potential role in the rulemaking has three
members from the Senate Committee on Energy and Natural Resources asking
the Department of the Interior to suspend oil valuation rulemaking until
the investigation of the two employees is complete. Senators Frank
Murkowski (R-AK), Pete Domenici (R-NM), and Don Nickles (R-OK) said in
a recent press
release, "To now discover that the two federal employees integrally
involved in the rule change, have financially benefited from their advocacy
strikes at the heart of the department's rule and calls into question the
propriety of the department's administrative process." In a hearing
on May 18, 1999, before the the Senate Energy Research, Development, Production,
and Regulation Subcommittee, Thomas Kitsos, Deputy Director of MMS, stated
that to his knowledge neither of the two men had any role whatsoever in
the current rule. The transcript and complete written testimony of the
panelists is available in PDF off to Senate Energy and Natural Resources
Minority website.
Background
In the nearly three years since President Clinton signed the Federal
Oil and Gas Royalty Simplification and Fairness Act into law, the Minerals
Management Service (MMS), oil industry, and Congress have been engaged
in a debate over how to develop regulations from the law. The debate involves
determining what constitutes fair valuation of oil and gas royalties and
how to simplify the collection of royalties from federal lands. Central
to the debate is the choice of a collection system -- whether to take royalties
in-kind or in-value. Many in the oil industry support a royalty-in-kind
system. Although MMS regulations allow the agency to receive royalties
in-kind, the agency is reluctant to take all royalties that way, especially
in remote regions and from low-yield marginal wells. More information on
events in the 105th Congress is available at the AGI
summary on royalty-in-kind.
Sources: Environmental and Energy Study Institute Weekly Bulletin, Department of the Interior, Thomas: The Library of Congress website, Hearing Testimony
Please send any comments or requests for information to the AGI Government Affairs Program at govt@agiweb.org.
Contributed by Kasey Shewey White and Margaret Baker, AGI Government Affairs, and AGI/AIPG Geoscience Policy Intern Scott Broadwell.
Posted June 24, 1999; Last updated May 11, 2000
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