May 2000 Vol. 221 No. 5  Washington

Charles D. Matthews,  Contributing Editor

Oil patch won a big one in federal court

Recently, U.S. gas and oil producers won an important victory in the running controversy between oil companies and the Minerals Management Service (MMS) concerning royalty valuation rules. In the midst of serious discussions about the finalization of oil royalty valuation rules, the U.S. District Court of the District of Columbia handed down a strong decision against the MMS natural gas royalty rule by declaring the core provision – the "duty to market" – unlawful.

Independent Petroleum Association of America (IPAA) President Barry Russell quickly released a statement saying in part, "This is a great victory for independent producers and for all consumers of natural gas. It blocks the government from imposing on producers and consumers an artificial tax on the transportation of gas between the wellhead and the burner tip." The importance of this federal court decision becomes more evident when it is considered together with the oil part of the equation below.

MMS published controversial, final oil royalty valuation rule. About two weeks before the above federal court victory, MMS Director Walt Rosenbusch had already announced publication of the long-awaited final rule for valuing crude oil production on federal lands. The rule is supposed to go into effect June 1, 2000, with a three-month grace period to allow companies time to make system changes necessary for its implementation. Ben Dillon, a spokesman for the independent oil companies, had already reacted, quickly identifying some remaining difficulties between the government and companies, and the possibility that the companies might litigate issues such as "duty to market" and affiliate sales.

When the federal court action was announced, Russell included a strong assertion in his statement that MMS should now withdraw its new final rule for oil royalty valuation. He said the ruling by the U.S. District Court of the District of Columbia is significant for independent oil producers because MMS based its recently released, controversial oil valuation rule on the duty-to-market concept as well.

IPAA counsel Poe Leggett, of the law firm of Fulbright & Jaworski, said MMS should re-think its controversial new system of valuing royalties on crude produced from federal oil and gas leases. "Both the gas transportation rule and the oil rule are based on an implied duty to market." Leggett said, "The court held that duty to market does not exist."

Clinton / Gore’s so-called energy policy keeps America in foreign bondage. The Washington Times of March 17 began its lead editorial with a strong statement concerning the oil and gas situation in America. It said, "U.S. consumers are facing some of the biggest gas (gasoline) price hikes in decades, increases that don’t stop at the pump but ripple through the economy in the form of higher charges for food and other consumer goods."

Everyone in the oil and gas business knows full well what could be done to relieve the strain. The U.S. has more than enough oil, natural gas and coal to meet the needs of its industries and growing population for decades to come. The problem is that Clinton / Gore’s so-called national energy policy has been ceded to left-wing, environmental activists who are dedicated to decreasing, rather than increasing, domestic energy production.

Currently, such activists from the environmental group Greenpeace are in Sea Island, Alaska, trying to close down a $700-million BP Amoco production facility and pipeline scheduled to begin next year. If Greenpeace is successful, America’s industries and motorists will be deprived of between 150 million and 175 million barrels of crude oil.

Strong, new congressional effort to open Arctic Coastal Plain. The U.S. has been fortunate to possess a genuine bonanza of oil lying under Alaska’s Arctic National Wildlife Refuge, but there is a federal ban in place on oil recovery. According to the Washington-based National Center for Public Policy Research, the Refuge is so oil-rich that it alone could replace 30 years of Saudi oil imports.

Still, the Clinton / Gore gang have, so far, been able to keep the Refuge locked up on the pretext of protecting caribou, polar bears and other wild animals that might live in that almost-unlivable area. Clinton / Gore should be more truthful than to try to use such gigantic hogwash they know to be untrue. When oil development began at Prudhoe Bay on the northern coast of Alaska, a herd of caribou located there numbered about 6,000. Today, the herd has grown by almost 20,000 animals.

There are more caribou in Alaska than humans. The Washington Times editorial opined, ". . . oil exploration and development has served as a kind of animal Viagra." And the Eskimos who live in the vicinity that would be developed have testified before Congress in favor of the proposal as a way to generate revenue for their tribes.

Senator Murkowski renews effort to bring reason about the Arctic Coast. In early March, Sens. Frank Murkowski and Ted Stevens, both R-Alaska, jointly introduced S. 2214 that, if passed, will free up a reasonable part of the Arctic Coastal Plain for oil and gas exploration / development. This bipartisan bill, signed by 33 co-sponsors, is similar to legislation passed by the House and Senate in 1995, but vetoed by Clinton to attract environmentalist votes in the 1996 election.

S. 2214 has been introduced as an integral part of a Republican program to address both short- and long-term energy concerns. The authors believe their bill will educate the members of both houses and the general public about America’s dangerous energy dependence on oil from unstable regions of the world. "It’s time for America to learn from the mistakes of the past and reduce our dependency on foreign oil before it devastates our expanding economy," Murkowski and Stevens said in introducing the bill. We should all get strongly behind this effort.

Charles D. Matthews is president of Charles Matthews & Co., consultants and advocates on government relations, Arlington, Virginia.