Oil leases missing clause; U.S. government losing hundreds of millions

| 3/3/2006

A clause that was supposed to be included in leases given to oil companies for drilling in the Gulf of Mexico has mysteriously gone missing, and it could ultimately cost the U.S. billions of dollars in royalties.

The Associated Press reported that the error was disclosed by the U.S. Department of the Interior and involves leases given out to oil companies in 1998 and 1999.

The leases exempted the oil companies from paying royalties to the government, but they were supposed to contain a clause that reinstated the royalties if the market price of oil reached a certain level.

However, The AP reported that the clause was somehow dropped from an addendum that was attached to more than 1,100 leases issued in 1998 and 1999.

Walter Cruickshank, deputy director of the Interior Department’s Minerals Management Service, told a House Government Reform Subcommittee on Wednesday, March 1, that officials have not yet determined what happened, but that they were certain it was a human act rather than a computer glitch.

Cruickshank said the government has already lost several hundred million dollars in royalty payments because high oil prices have been above the threshold for quite some time.

The AP reported that the threshold price changes yearly, but the most recent setting was at about $34 per barrel for oil. With the price of oil hovering steadily above $60 a barrel and not expected to go below $50 anytime soon, the missing documents could cost the U.S. government untold billions of dollars.