Oil and gas in Washington
Congress slowed MMS royalty messWhen Congress passed the 1998 emergency supplemental appropriations bill to provide funding for many emergency programs and activities like the calamitous El Niño disasters, it also temporarily stopped the Minerals Management Service (MMS) from unilaterally finalizing the controversial oil royalty valuation rule. That move by MMS would have adversely affected the domestic oil companies. Sen. Kay Bailey Hutchison (R-Texas) suggested that action in the conference committee negotiations. Why did Mrs. Hutchison do that? She explained that under the OCS Lands Act and the Minerals Leasing Act, the MMS is required to value the oil where it is removed from the ground. MMS wants, instead, to value the oil after the industry has added significantly to its value (through marketing and transportation costs). Such a change would have the effect of increasing the tax collected on any set amount of oil at a time when oil prices are at an all-time low. The economy will be adversely hurt by such an increase in costs. MMS also wants to make this change in law through regulation. Sen. Hutchison made it clear, "changing the law is the job of congress, not the MMS." In the supplemental appropriations conference committee’s final report, the managers called attention to the fact that the four OCS oil and gas lease sales since enactment of the Deep Water Relief Act brought $1.2 billion more into the federal treasury than the bureaucrats’ pre-sale estimates. The report concluded, "Furthermore, the managers expect that existing financial terms will be maintained for lease sales in the remaining incentive period, including minimum bids and royalty rates." Congressional Budget Office (CBO) helped. Just before the final House vote on passage of the bill, Rep. Carolyn Maloney (D-New York) and a couple of her cohorts asserted the same old charges they have been making for years, that the companies were underpaying federal oil royalties by hundreds of millions of dollars a year. Rep. Maloney yakked away, "It is an amendment that allows big oil companies to pay lower royalties for oil extracted from federally-owned, taxpayer-owned land at the expense of our Nation’s school children. Oil royalties help pay for our children’s education. Each year, big oil is taking $100 million out of our classrooms, etc. etc." Baloney, Mrs. Maloney. The CBO is the official scoring agency in the Library of Congress that is charged with the responsibility of determining the effect a government activity will have on the federal budget. It concluded that approval of this provision in the supplemental appropriation spending bill to stop an MMS rule changing oil royalty valuations will have zero effect on this year’s federal budget. That was good news coming hard on the heels of the ramblings of members of Congress, MMS bureaucrats and their liberal, special interest lackeys that have spread erroneous claims about how much the bill would cost the federal government. Royalty Enhancement Act (H.R. 3334). This legislation has begun moving through the legislative process, but there’s a relatively short time left to traverse a rather long road before this 105th Congress shuts down to elect the 106th one for next year. Rep. Barbara Cubin’s (R-Wyoming) House Subcommittee on Energy and Mineral Resources began hearings in late May. IPAA spokesman, Deimer True, said the Royalty Enhancement Act can be a good foundation on which to build a permanent remedy to the long-standing problems of America’s royalty collection system — uncertainty and high regulatory compliance costs. "By greatly reducing administrative costs and replacing government accountants and lawyers with private marketing companies that can maximize federal revenues, the U.S. Treasury stands to make money under this more simplistic and certain system," True said. Regarding economic impact, Rep. Cubin suggested a timetable for the interested parties to work out some still unfinished business. She also asked industry to provide cost / benefit data on provisions of the royalty-in-kind legislation that has been criticized by the MMS as a $183 million to $366 million cost to the government. She said industry must demonstrate that a royalty-in-kind program will benefit the government. If not, MMS will have an oil valuation rule waiting on October 1. At the same time, she warned MMS not to try publishing a final rule without further consultation with Congress, or the current restriction on issuing the final rule would be extended through FY 1999. A report done for the industry by the Barents Group concluded that MMS’s economic analysis of H.R. 3334 was deeply "flawed." According to the report, MMS consistently overstated the costs of the legislation and understated or ignored certain revenue gains. MMS estimates that a royalty-in-kind program will result in a revenue loss, while the Barents Group report indicates an $8 million revenue increase for the government. The battle goes on, and "the days dwindle down to a precious few." IRS Section 29 back on the watch list. Recently, House budget Committee Chairman John Kasich (R-Ohio) caused a short furor by announcing his list of revenue raisers for the FY 1999 budget. It included elimination of the tax credit for production of non-conventional fuels. Ignoring this tax credit so important to the oil and gas business, Kasich said eliminating this IRS Section 29 would raise about $6 billion over five years and $800 million in FY 1999. Negative reaction from the industry was quick and strong. Investment decisions are being made now based on current law which keeps the credit in place until Dec. 31, 2002. Early elimination of the credit would be inherently unfair and destructive for the industry. The House Budget Committee finally did approve a FY 1999 spending plan that did not include elimination of the Section 29 credit. That bill is still going to have an extremely tough row to hoe before it gets through the
obstacle course ahead.  Charles D. Matthews is president of Charles Matthews & Co., consultants and advocates on government relations, Arlington, Virginia.
Copyright © 1999 World
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