Audit: Gov't could lose billions in royalties

[June 06, 2008]  WASHINGTON (AP) -- If oil and natural gas prices stay as high as they've been in recent months, the government could lose as much as $53 billion over the next 25 years in energy royalties because of an adverse court ruling, according to congressional auditors.

The Government Accountability Office said in a report released Thursday that the soaring price of crude oil and natural gas also means the windfall that companies will enjoy from the court ruling also could increase by billions of dollars.

In October 2007, a federal court ruled in a claim originally filed by Kerr McGee Corp. that the government cannot require companies that are exempt from paying royalties on oil and gas taken from federal land and waters to pay them if market prices reach a certain level.

The Interior Department has urged that the case be appealed but has left the decision to the Justice Department.

The GAO report said if the court case stands up, government losses could range widely, depending on oil and gas prices and the amount of production in the outstanding leases. The leases were issued from 1996 through 2000, but many of them last for up to 25 years.

The GAO said the losses to the U.S. Treasury could range from a low of $21 billion to a high of $53 billion over the life of the leases.

The $21 billion figure assumes low production levels, oil prices averaging $70 a barrel and natural gas prices at $6.50 per thousand cubic feet. The high figure of $53 billion assumes high production, $100 a barrel oil and gas price of $8 per thousand cubic feet. If prices remain even higher, the losses will be higher.

Oil for July delivery closed Thursday at nearly $128 a barrel on the New York Mercantile Exchange. Natural gas prices for July deliver settled at $12.519 per 1,000 cubic feet.

The case is based on a claim filed by Kerr-McGee, which was purchased by Anadarko Petroleum Corp., in 2006.

Anadarko had argued successfully that the Interior Department's Minerals Management Service had overstepped its authority when it imposed royalties on oil and gas taken from deep waters of the Gulf of Mexico under a royalty relief program enacted by Congress in 1995.

Congress at the time provided the royalty break for deepwater exploration to encourage energy development in those areas. The Interior Department contends it had the authority to lift that royalty relief once prices reached a certain level -- prices that are far below what crude oil and natural gas is now costing.

[Associated Press; By H. JOSEF HEBERT]

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