Flawed drilling leases issued in 1998-99 are allowing oil companies to avoid federal royalty payments and the companies are now facing pressure to resolve them.
A mistake made 8 years ago omitted a provision in more than 1000 drilling leases that would have required royalty payments if the price of oil went above $36 a barrel.
Congress had set the $36 mark at that time to allow royalty breaks to spur deep-water exploration.
With the current prices being almost double the trgigger level, most of the leases would have been subject to royalty payments if the provision had not been forgotten.
Chevron Corp, which has recently announced the discovery of new oil in the Gulf of Mexico acknowledged that 2 of the 8 leases involved in the discovery were among those issued without the royalty threshold.
The new discovery made by Chevron and its partners, Statoil ASA of Norway and Devon Energy Corp is believed to contain as much as 15 billion barrels of oil.
Chevron said that the "majority of the discovered resource" including the test well is from leases subject to federal royalty payments but oil found in 2 other lease blocks could be exempt.
The company claimed that those 2 lease areas had not been drilled yet and any conjecture about royalties for those blocks is an academic exercise.
Executives from the company have also assured the Congress that they are ready to discuss reworking the royalty issue in the leases to reach a mutually satisfactory resolution.
BP PLC and Shell oil Co. have also agreed to make changes in the leases held by them. But the companies have argued that the leases are contractual agreements and care should be taken while tampering with them.
Congress is applying pressur eon the companies to reach a compromise with a provision being added in an Interior spending bill that would prohibit any company that refused to rework the leases from bidding on new oil leases. The spending bill has not received final approval.
The Government Reform Subcommittee is set to hold another hearing into the royalty relief controversy hoping to ferret out how the mistake was made in the 1990's and why it was not quickly corrected.
The mistake could cost the government $10 billion in lost royalties, even if the new Chevron discovery is not taken into account.
But getting to the bottom of the blunder "is especialy important in light of Chevron's recently announced new discovery."
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