U.S. May Lose Billions in Oil, Gas Royalties Because of Law

Despite record profits, oil and gas producers may avoid billions of dollars in royalty payments to the government because of a decade-old law designed to spur production when energy prices are low.

The Interior Department estimates that as much as $66 billion worth of oil and natural gas taken from the Gulf of Mexico between now and 2011 will be exempt from government royalty payments. That could amount to the government losing an estimated $7 billion to $9.5 billion based on anticipated production and current price projections for oil and gas, according to an analysis in the department's five-year budget plan.

The analysis assumes oil prices will hover around $50 a barrel and natural gas around $8 to $9 per thousand cubic feet between now and 2011.

Johnnie Burton, head of the department's Minerals Management Service, said yesterday that the revenue losses would be subject to many variables, but that more than $7 billion was "in the range" of probability. The industry windfall was first reported by the New York Times.

The disclosure prompted calls in Congress yesterday to curtail or end the royalty relief that lawmakers made available in 1995.

"The American people are getting stood up and hung out to dry by an administration that favors sweetheart deals with Big Oil," said Rep. Edward J. Markey (Mass.), one of six Democrats who said they plan to introduce legislation to end the royalty relief.

Sen. John F. Kerry (D-Mass.) said he plans to introduce a resolution to put the Senate on record against the royalty break. "No one in their right mind thinks oil companies turning record-high profits and squeezing Americans at the pump should now get to keep $7 billion," he said.

Although Kerry was among those who voted for the royalty relief in 1995, when oil cost an average of $18.43 a barrel, his spokeswoman said the relief is no longer needed when oil prices are near $60 a barrel.