Oil
industry to fight Congress over royalty payments
By
Sheila McNulty
FT.com
HOUSTON
Petroleumworld.com
03 14 06
As the US oil industry prepares to defend itself on Tuesday against
political attacks on high fuel prices, one senior executive has
dubbed some members of Congress “hypocritical” for
seeking to reduce, or possibly end, a system allowing oil and
gas producers to pay lower royalty payments.
Members of Congress who object to a 1995 law providing
for relief on royalties to encourage domestic production amid
low energy prices say that, with oil now near $60 a barrel, such
incentives are no longer needed.
George Kirkland, Chevron’s head of exploration
and production, said that the objections sounded like arguments
used by some foreign governments to renege on deals, which the
US often criticises. “We are [the US] the one saying we
believe in contracts, the rule of law,’’ Mr Kirkland
said. “A contract, or an agreement, should be good.”
The move for changes in the law stems from public
concern over high energy prices and suggestions that oil majors
be punished for cashing in on those prices.
Last year, Congress passed several punitive measures
and the Senate judiciary committee is holding hearings today in
Washington on the energy industry and “prices at the pump”.
The separate argument over royalties is being
compared by international oil companies to the problems they often
face in less developed countries, such as Venezuela, which has
recently changed the terms of its contracts.
However, said Mr Kirkland, a review over who had
imposed the most such changes on industry in the past five years
pointed to the UK, which has pushed through two tax increases.
“Do they have a right to do that? Yes,”
he said. “Is it misrepresenting? Yes.”
Some members of Congress have expressed outrage
at Interior Department estimates that up to $66bn in oil and natural
gas projected to be taken from the Gulf of Mexico through 2011
will be exempt from royalty payments. This is expected to cost
the government $7bn to $9.5bn, based on current production and
price projections.
“No one in their right mind thinks oil companies
turning record-high profits and squeezing Americans at the pump
should now get to keep $7bn,’’ said Democratic Senator
John F.?Kerry. He and many other Democrats supported the relief
in 1995, but oil then averaged $18.43 a barrel.
Chevron says it is willing to work through changes
governments impose, as with Venezuela, but only if it can “maintain
value”.
Dave O’Reilly, Chevron's chief executive,
will tell today’s Senate hearing on prices that the industry
is far less consolidated than many others, such as automobiles
or department stores. For example, one would have to pool the
top 10 refining companies to get to 80 per cent of the market.
Chevron is not alone in speaking out against the
royalty changes. Rex Tillerson, ExxonMobil’s chief executive,
last week said any such attempts to raise costs for energy companies
operating in the Gulf of Mexico would cut into exploration just
when additional sources of oil and gas are required to lower energy
prices.
``To say that because oil prices are now high
that the government is going to change the tax code is not particularly
fair to investors who took those risks,’’ Mr Tillerson
said after Exxon’s analyst meeting in New York. ``It’s
not good policy for the government to be seen as that unpredictable.’’
FT
03 13 06
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© 2006 FT. All rights reserved.
