Government, Oil Majors Discuss Royalties

Friday, June 23, 2006
Several major oil companies are apparently willing to discuss a change in their offshore-drilling leases that, because of a government error, could give the industry a $10 billion windfall, AP reported While some companies, such as Exxon Mobil, reportedly believe the lease contracts should be honored, others, including Shell, reportedly are open to a dialogue on the matter. The error in the 1998-99 lease contracts for deepwater drilling in the Gulf of Mexico could cost the government $10 billion in lost royalty payments given the current price of crude oil and natural gas, according to an analysis by the Government Accountability Office, Congress' auditing agency. The drilling-lease contracts, issued at a time when oil and gas prices were low, allowed leaseholders to avoid royalty payments as a way to spur drilling in the deep waters of the Gulf. But they also were supposed to have language that the royalty relief would end if oil prices exceeded a certain level. That language was omitted from the leases. Since then, prices have soared to more than double what had traditionally been the royalty trigger. (Source: AP)
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