U.S. missing out on oil royalties

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

The government could miss out on $7 billion in revenue over the life of the leases, said Rep. Darrell Issa, R-Calif., who called for an investigation to see if the unexplained change in lease language might have been deliberate.

Congress in 1995 exempted companies from royalty payments for oil and gas taken from leases issued in the Gulf of Mexico, but also required that the royalties be paid if oil or gas prices reached 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 in 1998 and 1999, allowing the companies to avoid royalty payments for years to come, said Walter Cruickshank, deputy director of the Minerals Management Service.