oil blunder..heavy price

Oil Blunder Heavy Price
Updated: 06:23, Thursday March 02, 2006

An error has allowed oil and gas companies to avoid paying US federal royalties on hundreds of offshore leases issued in the late 1990s, an Interior Department official has revealed

One lawmaker said the mistake could cost the government £4bn in revenue over the life of the leases.

An investigation has been urged to see if the unexplained change in lease language might have been deliberate.

In 1995 Congress exempted companies from royalty payments for oil and gas taken from leases issued in the deep waters of the Gulf of Mexico.

However, it also required that the royalties be paid if oil or gas prices reach a certain threshold.



Now that prices have soared well above the threshold, royalties should be paid on many of the leases, which still have decades to run.

But the threshold provision was "inadvertently dropped" from an addendum attached to more than 1,100 leases issued by the department's Minerals Management Service in 1998 and 1999.

This has allowed the companies to avoid royalty payments for years to come, an agency official told a hearing of the House Government Reform subcommittee on energy and resources.

The Interior Department estimates that as much as £38bn worth of oil and natural gas that will be taken from the Gulf of Mexico between now and 2011 falls under the royalty relief law enacted by Congress in 1995.