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Oil-drilling leases to get further scrutiny

Jeff Tyler Jan 10, 2007

KAI RYSSDAL: I’m not sure exactly where we’ll be on the Democrat’s 100-hour legislative clock by next Thursday, but that’s when the House is set to take up a new energy package. The Bush administration, though, isn’t waiting around to see what happens. Late yesterday the Interior Department raised the cost of deep-water drilling in the Gulf of Mexico. Oil and natural gas companies will have to pay higher royalties on new lease agreements. That’s expected to boost the government’s coffers by $4.5 billion over the next 20 years. But critics argue loopholes in existing leases will cost the country twice that much. Marketplace’s Jeff Tyler explains.

JEFF TYLER: Oil companies have enjoyed record profits over the last few years. Secretary of the Interior Dirk Kempthorne acknowledged as much when unveiling the new royalties rates.

DIRK KEMPTHORNE: That will help ensure that during this time of high energy prices, the American public receives its fair share of the value of oil and gas extracted from federal waters.

While Kempthorne says the agency is concentrating on royalties going forward, plenty of others are looking closely at the current arrangement. Much of the focus centers on an error in the current leases — an omission that has allowed some oil and gas companies to pay no royalties.

Congressional auditors estimate the mistake has cost the government around $2 billion so far, and could grow to 10 billion over the life of the leases.

MAURICE HINCHEY: They have been very happy to take advantage of this situation and not pay the royalties that are owed to the people who own the product, which is the citizens of our country.

That’s Democratic Congressman Maurice Hinchey. He says the royalties will get scrutinized next week as Congress considers an energy bill.

HINCHEY: The purpose of that energy bill is to, among other things, include language that would close this royalty loophole.

Hinchey proposes that companies renegotiate the current, flawed leases in order to be considered eligible for future leases.

HINCHEY: So that, in fact, they would be paying royalties in the future on those leases that exist currently.

The royalties issue has prompted investigations by the Government Accountability Office and the Interior Department’s inspector general. In addition, the FBI and Justice Department are looking into possible criminal activity by agency officials.

I’m Jeff Tyler for Marketplace.

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