House Republicans defend Bush in oil royalty error

WASHINGTON (Reuters) - House Republicans on Friday sought to deflect blame off the Bush administration for not acting earlier to fix faulty oil drilling contracts that could cost the government billions in lost royalty fees, saying former President Bill Clinton’s administration was at fault for issuing the leases.

The dispute centers around drilling contracts the Interior Department gave oil companies in 1998 and 1999 to search for crude in the Gulf of Mexico. The contracts accidentally omitted language that would have ended a waiver of royalties for the companies if the price of oil exceeded about $38 a barrel, as it has in the current market.

The royalty relief was provided at a time when oil prices were very low, and incentives were needed to make it more profitable for companies to drill in the expensive deeper Gulf waters. Companies normally pay royalties based on 12.5 to 16.7 percent of the value of the oil they find on federal leases.

The department’s inspector general, Earl Devaney, said the oil price threshold was left out due to a bureaucratic mistake. Nonetheless, the error already has cost the government $1 billion in lost royalties and the total loss could reach $10 billion over the life of the leases.

At a House Natural Resources Committee hearing on Friday looking into the issue, Republicans put the blame on the former Clinton administration for writing the faulty drilling contracts in 1998 and 1999.

“This is not a Bush-cronyism deal” with oil companies, said Republican Rep. Steve Pearce.

Democrats on the panel acknowledged the contracts were signed during Clinton’s last term. But they faulted Bush administration officials at the Interior Department for not correcting the contracts when the error was brought to their attention several years later.

“What we want to know is what this administration is going to do to fix this mistake,” said Democratic Rep. Ed Markey.

The Interior Department has reached new lease terms with half a dozen oil companies to begin paying royalties on their oil discoveries going forward, but not any past royalties.

About 40 oil companies have yet to sign new contracts.

Markey criticized the department for not supporting legislation that would require oil companies with the disputed leases to negotiate new terms and pay back royalties.

Devaney, the Interior Department’s inspector general, said there was plenty of blame to go around.

“I would say mistakes were made in both administrations,” he said.

“Although we found massive finger-pointing and blame enough to go around, we did not find a ‘smoking gun’ or any evidence that the omission of price thresholds was deliberate,” Devaney said.