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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: shades who wrote (63939)	6/16/2006 10:53:30 PM
From: shades	Read Replies (1) \| Respond to of 110194

Bush Admin Hopes Cos Volunteer To Modify Drilling Deals (so much for guaranteed contracts) By Maya Jackson Randall Of DOW JONES NEWSWIRES WASHINGTON (Dow Jones)--To address an error that allowed dozens of energy companies to drill for oil and natural gas in the U.S. Gulf of Mexico without paying fees to the federal government, a number of members of the U.S. Congress want to force companies to rework their drilling contracts. The Bush Administration is also hoping the contracts will be renegotiated, but is taking a light-handed approach: It's hoping companies will volunteer. Pointing out that oil firms are enjoying enormous profits while consumers are grappling with high energy prices, Energy Secretary Samuel Bodman Friday said he'd like to see energy firms offer to change their lease deals, adding that he sees need for the government to honor existing contracts. "If there is an agreement on the part of the company and if they wish to voluntarily modify the contract, that's fine," Bodman said, speaking to reporters on the sidelines of a conference of the National Academy of Sciences in Washington. Asked if he thinks companies should offer to renegotiate the deals with the government, he said: "I would hope so." Similarly, Johnnie Burton, the director of the Department of Interior's Minerals Management Service, said earlier this week that she hopes companies voluntarily renegotiate the drilling deals. MMS is the office that oversees offshore oil and gas production. "She (Burton) said she would hope the companies would contact us, but that we would continue to honor contracts," an MMS spokesman said Friday, adding that MMS supports changing the terms of drilling in federal waters "only if the companies come to us and ask for a renegotiation." Bodman also stressed how important it is to uphold the sanctity of contracts as a business principle. He said it is "unfortunate" that the leases did not include a price threshold, "but I do think it's important to honor contracts." Mandates Vs. Volunteerism A spokeswoman for oil industry group API didn't comment on whether any companies would offer to renegotiate deals, noting that companies address those issues on an individual basis. Still, she said the industry welcomes the Bush Administration's approach. "We appreciate that the administration and Congress are willing to seek an equitable solution that does not mandate a reopening of the contracts," said API spokesman Karen Matusic. "We rely upon the sanctity of contracts in this country." Similarly, BP Chief Executive John Browne on Thursday told an audience in Washington that the U.S., like other countries that allow companies to develop their natural resources, must adhere to business principles that give companies some security. "There has to be a long-term balance of mutual interests," he said. "Companies need some sense of security. I don't believe the United States is an exception to that." Browne wouldn't comment directly about whether the company would offer to renegotiate its drilling deals with the U.S. government. Correcting Past Mistakes The U.S. Congress in the 1990s agreed to allow companies to drill in deep water without paying royalties as a way to promote energy development in the more costly and technologically challenging deep water, offshore areas. However, a provision requiring royalties to be paid if energy prices were to soar to a certain threshold was accidentally dropped from more than one thousand leases issued by the government in 1998 and 1999, the Department of Interior officials have said. (BWHAHA) Under political pressure to address rising energy costs on American families, some members of Congress have argued that contracts that allow energy companies to drill without paying royalties to the federal government should be illegal. The House of Representatives last month agreed to add to a Department of Interior appropriations bill a provision that supporters say would close a loophole allowing 56 energy companies to produce oil from the Gulf of Mexico without paying fees to the government. The General Accountability Office found that allowing energy companies to enjoy royalty relief would mean at least $10 billion over 25 years in lost revenue. The Senate, meanwhile, has yet to take up its version of the Interior funding legislation. API has slammed the House provision. Instead of encouraging companies to renegotiate the existing leases, the provision in the House appropriations bill "merely serves to penalize scores of oil and natural gas companies producing energy for America" because it bans companies that hold 1998 and 1999 leases from bidding on Outer Continental Shelf leases in 2007, API said in a letter to Rep. Maurice Hinchey, D-N.Y., and Edward Markey, D-Mass. - the two major backers of the royalty provision in the Interior Department bill. "Virtually every company, large and small, engaged in the Gulf of Mexico OCS would be barred from participating in lease sales in 2007," said API. "These 56 companies are the core of this country's deepwater experience and expertise and have continually and reliably brought U.S. oil and gas to American consumers." Additionally, the industry group argued that the royalty relief program has been a huge success, allowing deepwater gas production to jump by 407% and oil production by 386% since 1996. Still, Markey and Hinchey in a letter of their own argued that their amendment merely restricts companies from bidding on new leases until they renegotiate the 1998 and 1999 contracts. "Americans are being pick-pocketed by Big Oil companies at the gas pump every day," Markey said in a statement. "We have to put an end to giveaways for oil companies that enable them to drill for free on the public's lands." -By Maya Jackson Randall, Dow Jones Newswires; 202-862-9263; maya.jackson-randall@dowjones.com (END) Dow Jones Newswires June 16, 2006 13:44 ET (17:44 GMT)