Letter to Ronald Tenpas, Acting Assistant Attorney General, Department of Justice

Letter

Hinchey, Markey & House Colleagues Make Direct Appeal To U.S. Dept. of Justice To Appeal Kerr-McGee Ruling

Lawmakers Want To Ensure Federal Government Continues Collecting Royalty Payments On Oil & Gas Taken From Public Lands

Congressman Maurice Hinchey (D-NY), Congressman Ed Markey (D-MA), and eight other House Democrats, including several prominent environmental committee chairs, today called on the U.S. Department of Justice (DOJ) to immediately appeal a court ruling made public last week that bars the federal government from collecting royalties -- user fees -- from Kerr-McGee Oil and Gas Corp. for oil and gas the company drilled on publicly-owned coastal waters.

The House members said the judge in the case clearly ruled in error and that it is imperative the federal government appeal the case to prevent a terrible precedent that could end up costing American taxpayers $60 billion in lost revenue from energy companies drilling in parts of the Gulf of Mexico owned by the U.S. Hinchey is the author of legislation with Markey to close a loophole that has allowed energy companies to profit off royalty-free oil and gas taken from publicly-owned coastal waters initiated in 1998 and 1999 with the federal government.

"This is a case of the utmost importance that ultimately could cost the federal treasury and the American taxpayers up to $60 billion in royalties rightfully owed by oil and gas companies for the privilege of drilling on public land," the House members wrote in a letter sent today to Ronald Tenpas, Acting Assistant Attorney General in the Environment and Natural Resource Division. "In addition, if this decision is not expeditiously overturned, it likely will embolden other potential plaintiffs to bring similar suits against the federal government in this and other courts, imposing a further drain on public resources. The Department of Justice must therefore dedicate the highest-level personnel and the requisite resources to the appeal."

The Deepwater Royalty Relief Act of 1995, which Hinchey opposed, gave the Interior Department the ability to exempt the energy industry from paying royalties under the pretense that such a policy was needed to spur deepwater exploration when prices of oil and gas were low. That measure allowed the Interior Department to decide whether to put price thresholds into the leases that would trigger royalty payments to the federal government once oil and gas prices climbed to a certain level. Once the price of oil and gas climbed to a certain level, the federal government did begin to collect royalties from energy companies with similar leases. The collection of royalties prompted Kerr-McGee to sue the federal government.

The judge in the Kerr-McGee Oil and Gas Corp. ruled that the federal government had no authority to impose price thresholds to begin collecting royalties once the price of gas or oil reached a certain level. That means Kerr-McGee, which Anadarko Petroleum Corp. purchased last year, can drill oil and gas from public waters without paying any fee to the federal government regardless of the price of oil and gas. There are at least nine other energy companies poised to move forward with similar lawsuits against the federal government.

"The federal government should be in the business of fighting on behalf of the American people, not the oil industry, which is why we fully expect the Department of Justice to appeal the Kerr-McGee ruling and aggressively fight in court for the payment of royalties on oil and gas taken from public lands," Hinchey said.

Earlier this year, Hinchey used his position on the House Appropriations Committee to successfully attach an amendment to the Interior Appropriations bill for Fiscal Year 2008 that bars energy companies from receiving new leases from the federal government unless they renegotiate leases from 1998 and 1999 that contain a loophole that enables energy companies to drill for oil and gas on publicly-owned coastal waters without paying the federal government royalties. If the ruling in the Kerr-McGee case stands, then the legal precedent would be set to block the federal government from collecting royalties on all leases issued under the Deepwater Royalty Relief Act of 1995, not just the leases from 1998 and 1999 with the loophole.

Joining Hinchey and Markey in sending the letter to Tenpas were: House Democratic Caucus Chairman Rahm Emanuel (D-IL), House Natural Resources Committee Chairman Nick Rahall (D-WV), House Appropriations Subcommittee on Interior Chairman Norman Dicks (D-WA), House Natural Resources Subcommittee on National Parks, Forests and Public Lands Chairman Raúl Grijalva (D-AZ), Congressman George Miller (D-CA), Congresswoman Carolyn Maloney (D-NY), Congressman James Moran (D-VA), and Congresswoman Rosa DeLauro (D-CT)

The full text of the letter from the House members to Tenpas follows:

November 6, 2007

Mr. Ronald J. Tenpas
Acting Assistant Attorney General
Environment and Natural Resource Division
U.S. Department of Justice
950 Pennsylvania Avenue, NW
Washington, DC 20530-0001

Acting Assistant Attorney General Tenpas:

We are writing to strongly urge the U.S. Department of Justice to immediately appeal the decision in Kerr-McGee Oil & Gas Corp. vs. C. Stephen Allred, Assistant Secretary for Land and Minerals Mgt., and the Dept. of the Interior, No. 2:06 cv 0439 (W. D. LA.), (Mem. Op., Oct. 30, 2007). Furthermore, we urge you to bring the full weight of the Department's resources to bear in defending the American taxpayers in this precedent-setting case.

This is a case of the utmost importance that ultimately could cost the federal treasury and the American taxpayers up to $60 billion in royalties rightfully owed by oil and gas companies for the privilege of drilling on public land. In addition, if this decision is not expeditiously overturned, it likely will embolden other potential plaintiffs to bring similar suits against the federal government in this and other courts, imposing a further drain on public resources. The Department of Justice must therefore dedicate the highest-level personnel and the requisite resources to the appeal.

A number of us oppose royalty relief under any circumstances for oil and gas drilling on public lands. However, regardless of one's opinion on the merits of this program, Congress, in enacting the Outer Continental Shelf Deepwater Royalty Relief Act, never intended to restrict the Department of the Interior's ability to issue deepwater leases that require the payment of royalties when the price of oil is high. Accordingly, we strongly disagree with the District Court's decision in this case.

This case is of paramount importance in ensuring that the American people are able to receive a fair return on these valuable resources. The Bush Administration and the Department of Justice must vigorously defend the public interest in this case.

Sincerely,

The 10 House Members listed above

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