Pay It Backward

Court ruling may save oil companies billions in royalties

Posted at 11:46 AM on 02 Nov 2007

A federal judge in Louisiana ruled this week that oil and gas companies who signed leases for deepwater drilling in the Gulf of Mexico between 1996 and 2000 do not have to pay royalties to the federal government when the price of oil and gas go over a certain threshold. The oil company Kerr-McGee sued the U.S. Interior Department after the agency tried to collect royalties for some production in 1996, 1997, and 2000. Kerr-McGee argued that the Outer Continental Shelf Deep Water Royalty Relief Act of 1995 exempted them from paying such royalties and that Interior overstepped its authority when it ordered them to pay up. U.S. District Judge Patricia Minaldi agreed. Critics of the ruling worry that bad things could happen if the ruling stands. "This ruling and the lawsuit ... have the potential to set a dangerous precedent that could lead to American taxpayers losing up to $60 billion they are rightfully owed by big oil companies for the privilege of drilling on public land," said Rep. Ed Markey (D-Mass.). The Interior Department may appeal the ruling and/or work with Congress to amend the 1995 law.

sources:  Houston Chronicle, Reuters, The New York Times, Oil & Gas Journal