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Gold/Mining/Energy : Big Dog's Boom Boom Room -- Ignore unavailable to you. Want to Upgrade?

To: elmatador who wrote (78264)	1/18/2007 2:50:32 PM
From: ChanceIs	Read Replies (2) \| Respond to of 206151

Thoughts on the Senate Energy and Natural Resources Committee hearing on GOM "Leases." As promised, I managed to catch about the last half of the meeting dedicated to discovering just what happened with the leases. The House is set to vote today on a "remedy." This is a bit of a random dump with a dash of insights into the pols. At issue: Leases written in '98-'00 didn't contain the normal language requiring royalty payments. Quite often the payment kicks in after a ceiling is crossed. From what I can tell, the intent or policy of the government hadn't changed - namely that it expected to receive royalty payments. However the mechanism had changed. In the past, the royalty language was incorporated by addenda on the back of the lease. Apparently in '95, there was new language in some version of an energy bill which addressed royalties. This language should have been incorporated by reference in the lease. There is a question as to whether it was automatically incorporated and didn't need specific reference. It was clear that the lease drafter was ordered to remove the old royalty language. He even took and passed a polygraph. He named three people who might have directed him to do so. One is dead, the other is very sick, and the third one doesn't seem to want to discuss the matter. Heads will roll over that. Let me parphrase th comments/questions from a few senators to the MMS representatives: Lisa Murkowski (Alaska): Just what is the liability to the government??? $60 billion??? Did you say $60 billion??? Let me tell you how we run things in Alaska. Oil is a big deal to us, and we take it very seriously. The oil companies take it very seriously, and send in their best and brightest to write contracts, as does the state. There is never any ambiguity in an oil contract with the state of Alaska. You sent in the "C" team to negotiate contracts worth $60 billion!!!!!! Why were you born??? Do you expect to have a job tomorrow??? (I embellished the last few comments, but that is certainly what she was thinking.) Byron Dorgan (ND): Why won't these oil companies live up to their responsibilities?? It doesn't matter whether it was a mistake or deliberate removal on the part of the government. They should stop fleecing the taxpayer. Sen Thomas: Exact quote: "I hope it would not be the case that government is seen as no partner in a business relationship." Thomas was being quite balanced. He pointed out that very few corporations had the technical expertise and financial wherewithal to produce the deep GOM. He is not interested in seeing the goose which lays the golden eggs being eaten for dinner. Sen Sessions: Sessions was very concerned about litigation and the loss which the government might take. As far as I can tell, this matter is pushing the boundaries of contract law. What governs - what the government put in the contract, or what the government intended to put in the contract? There were some 1,000 leases written in this fashion - if the government didn't intend things as they were ritten, wouldn't one of the companies in the 1,000 leases have raised the issue? The House has threatened to prohibit companies which didn't renegotiate from future participation. The Senate is very concerned that the government could be sued and injoined from making new leases by any party which stuck to its guns under the old leases but was barred from the new leases. That was a first for me. Maria Cantwell (WA): "I hope that we won't be buffeted by the concept of the sanctity of contracts at the expense of the taxpayer." She went on to rant about how Enron had screwed Washington State, and that these evil oil companies would not be allowed to hide behind the contracts which the federal government willfully signed. Mary Landrieu (LA): Landrieu pointed out that federal revenues from GOM production were way up since '95 and that this was the intent of the '95 Energy Act. Would they have been up more with better lease language??? Maybe, but they are still up. IOW - we are all making money - especially my state - so for God's sake stop all of this fussing and whinning before all of the rigs leave the GOM. Bingaman (NM): Bingaman asked a question that I have been pondering ever since the issue surfaced - did the oil companies receive any extra benefit (or incur an extra cost) as a result of entering a lease w/o the royalty payment? The answer was an emphatic "No." I always figured that the government got a good deal for whatever it could have gotten back when crude was $10. However, the terms were basically the same as if the royalty payment language was in place. The Bottom Line: 1) Several careers in MMS have been ruined. There will be investigations and hangings. This is a big deal and a big embarrassment for the government. 2) The Senate (at least the Energy Committee) is more than a little reluctant to stomp on the oil companies - viewing them more as partners, and accepting some of the blame for the "errors." 3) The Senate is recognizing that the oil companies have more than a little legal leverage, and that the government could easily lose in court, and if not an outright loss, could face years (decades?) of litigation before resolution. My Take: The House will vote on this matter today - I don't know what will happen there. The Senate Energy Committee will study the matter some more. It will not recommend any legislative action. It will recommend that things be worked out in a friendly fashion over a few beers in a back room somewhere. I doubt that the entire Senate will approve any legislation. The government screwed up. The oil companies will start making payments going forward. This issue exists mainly as a forum for the liberals in the House to get high quality soundbites. Still there is a lot of cash at stake, but the government will get a big chunk going forward, so it wasn't a completely vain matter by the political hacks. And again - careers in MMS will be destroyed, and that place will be on a very short lease. Edit: One more thought. These leases were signed back in '98 under President Clinton. Listening to the rhetoric in the press, one would gain the impression that this matter resulted from the current and corrupt administration which is so unabashedly on the take from the oil companies. The Republican Senators were quick and unambiguous in pointing out that the whole problem was the fault of former Clinton Interior Secretary, Bruce Babbit (sp?). There will be investigations of graft in the department going back to '98.