Chevron reaped $1.49 billion after U.S. botched leases

Chevron Corp. (CVX) reaped the most among the five largest oil companies drilling on U.S. deep water leases that mistakenly omitted drilling-fee provisions, according to a report produced by a Democratic lawmaker.

Chevron avoided $1.49 billion in royalties, out of $2.62 billion that the companies would have paid for the right to produce oil and gas in federal waters, according to the report today from Representative Edward Markey of Massachusetts using Interior Department information. More than 100 producers including BP Plc (BP/), Exxon Mobil Corp. (XOM), Royal Dutch Shell Plc (RDSA) and ConocoPhillips (COP) also benefited from the botched leases.

“Congress is now debating ways to avoid deep, across-the- board cuts to defense and domestic priorities such as education, transportation, law enforcement and environmental protection,” according to the report. “Ending royalty-free drilling (and other giveaways to oil and gas companies) should represent low- hanging fruit in the search for budget savings.”

The Gulf of Mexico leases at issue were signed from 1996 through 2000 under a 1995 law intended to encourage drilling by dropping fees when oil and gas prices were low and restoring them when prices rebounded. Because of a bureaucratic error, leases signed in 1998 and 1999 failed to include price thresholds that would trigger royalty payments when prices rose.

Royalties Blocked

Anadarko Petroleum Corp. (APC), an independent oil producer, in 2009 won a case that blocked the government from collecting royalties on the leases issued during the late 1990s. The U.S. Supreme Court later upheld the decision.

“We renegotiated these leases at the time that the concerns were first raised,” Davy Kong, a spokesman for ConocoPhillips, said in an e-mail. “That agreement terminated when the courts ruled that under the law authorizing royalty relief — the Deep Water Royalty Relief Act of 1995 — the department did not have the authority to impose price triggers. ConocoPhillips accepts the court’s decision and has no further plans to address the issue.”

The administration of President George W. Bush in 2006 asked the companies to voluntarily renegotiate the leases. Markey has sponsored legislation that would force them to renegotiate.

BP declined to comment, according to company spokesman Brett Clanton. Spokesmen for the three other companies didn’t respond to e-mails seeking comment.

It is estimated that the five companies may yet produce the equivalent of 1.6 billion barrels of oil and gas on the disputed leases, according to Markey’s report.