Sessions wants answers on gas, oil leases


WASHINGTON - U.S. Sen. Jeff Sessions, R-Ala., pressed government officials for answers Thursday as to how hundreds of gas and oil leases issued for the deep waters of the Gulf of Mexico failed to collect on at least $1 billion in royalty payments.

The government has missed out on at least $1 billion in royalty payments because of problems with 1,031 oil and gas leases issued in 1998 and 1999 by the Minerals and Management Service, part of the Department of the Interior, according to a report released by the Government Accountability Office.

If left unresolved, the Treasury stands to lose up to $10 billion over the next 25 years.

"We really have to have a higher degree of individual responsibility by these individual agency heads and better work by the legal staff," Sessions said Thursday night. "And I don't think they need a lot more money (to solve the problem), they need to get their act together."

The report was released Thursday during an oversight hearing on oil and gas management before the Senate Committee on Energy and Natural Resources. Sessions was recently appointed to the committee.

"Somebody has to have the responsibility of a lease to sign, any lease, particularly one that involves billions of dollars," Sessions said while questioning C. Stephen Allred, assistant secretary for Land and Minerals Management. "Who is it? Is it the assistant secretary, is it the secretary or who?"

Sessions later said he was frustrated by Allred's inability to identify in simple terms who was responsible. The Democratic-controlled House passed an energy bill Thursday - its final piece of "100 hours" legislation - that would take $15 billion in new fees, taxes and royalties on oil and gas companies and use the money to promote renewable fuels. The package is an attempt to recoup the lost royalty money. In an effort to promote oil and gas production, the government provided royalty relief under the Deep Water Royalty Relief Act in 1995, a time when gas and oil prices were low. The act mandated royalty relief for oil and gas leases issued in deep waters of the Gulf of Mexico from 1996 to 2000. These contracts were supposed to include price thresholds, which means once oil reaches a certain price the royalty payments kick in. More than 1,000 leases issued in 1998 and 1999 did not contain the "price threshold" language, essentially exempting companies from paying any royalties.

The price threshold mistake was discovered in 2000 by an MMS staff member, who never alerted a superior. A recent investigation by the Interior Department inspector general, suggested that the present MMS director Johnnie Burton had learned of the omission as early as 2004.

Sessions said he will ask MMS for the location and time limits of these leases and for data on the impact this might have on a Gulf States revenue-sharing program which includes Alabama.

Last year, Congress enacted the Gulf of Mexico Energy Security Act, which will give Gulf Coast states 37.5 percent of the royalties generated from new oil and gas leases.

Interior Department Inspector General Earl Devaney testified Thursday that the investigation did not uncover a "smoking gun" or any evidence that the omission was deliberate.

He did say, when pushed on the issue that it "appears at the end of the day, that it was a mistake, a bureaucratic mistake and a very costly one."

Six major oil companies, including Marathon, BP, Conoco and Shell, have renegotiated the leases and paid the royalties.

Allred said other companies that remain might voluntarily come forward to negotiate these contracts if the government offered tax breaks or other incentives, such as an extension of drilling leases.


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