News Release Senator Pete V. Domenici
FOR IMMEDIATE RELEASE CONTACT: CHRIS GALLEGOS
MAY 18, 1999 (202) 224-7082
www.senate.gov/~domenici/press
DOMENICI WANTS TO SHUT A BACKDOOR SCHEME
TO RAISE OIL & GAS ROYALTIES
Senate Energy Subcommittee Investigates A Duty to Market Issue at Hearing
WASHINGTON -- A key Senate subcommittee today began debate on a bill cosponsored by Senator Pete Domenici to once again clarify that the federal Mineral Management Service (MMS)cannot use backdoor means of imposing higher royalty payments on oil and gas producers who use
federal lands.The Energy and Natural Resources Subcommittee on Energy Research, Development,Production and Regulation today gathered testimony on S.924, the Federal Royalty Certainty Act,introduced by Senator Don Nickles (R-Okla.) and cosponsored by Domenici.
The bill would resolve the critical duty to market issue that pits MMS's desire to change existing rules in order to set royalty collection at the highest possible market price against the traditional system of assessing royalty payments at the wellhead.
Duty to market is a matter exclusively within the jurisdiction of Congress. It is not the job of MMS lawyers to use a dubious backdoor method of raising the congressionally set royalty rate.”
Domenici said. I believe we have a legislative means for ensuring fairness in the important royalty process.
MMS is administering a flawed system that syphons too much from a capital-sensitive industry that desperately needs all the capital it can get to stay in business, Domenici said. I can understand
how states would support a system, flawed or not, as long as they get more money. But it's past time for Congress, MMS and producers to fix the problem and put in place a system that is fair to everyone. Right now its skewed against producers.Oil and gas producers on federal property pay royalties to the federal government based on
fair market value. Historically, the value has been fixed at the well head in the field. On the other hand, MMS maintains that producers have a duty to market their oil and gas, seeking the highest price possible, and then set the value of the energy at the point of sale. This would result in higher royalty payments to MMS, which collects royalty payments on resources from federal lands.Oil Patch producers expend a considerable amount in transporting their product to the market place. MMS then wants to turn around and collect fees without defraying transport costs. From my standpoint, it looks like mooching, plain and simple, Domenici said. One of the long standing disputes between the Congress and MMS has been the development of workable oil royalty valuation regulations that articulate exactly fair market value. The MMS has been unable to develop workable royalty valuation rules and Congress has imposed a moratorium on these regulations. The core issue has been duty to market.
Last week, Domenici lead the fight to again extend a moratorium on the implementation of the MMS regulations as part of this year's emergency supplemental appropriations package. The moratorium continues to stop MMS from issuing a final rule on royalty valuations without first entering into negotiations with oil producers and reporting back to Congress. It in no way hinders MMS from continuing to collect royalties for oil extracted from federal lands. The language extends the moratorium, which expires in June, until Oct. 1, 1999.
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