Taxpayers will likely lose at least $19 billion to oil and gas companies operating in the Gulf of Mexico.

Today, the U.S. Supreme Court denied the federal government’s request to appeal a decision in favor of Anadarko Petroleum.  The decision allows oil and gas companies holding leases signed from 1996-2000 to operate royalty-free in the Gulf of Mexico, even in times of record profits .  The Interior Department’s request to appeal was the federal government’s last opportunity to collect royalties on the Gulf leases through litigation.  The Administration estimates the ruling will cost taxpayers at least $19 billion in lost royalty revenue.

Although the ruling dealt specifically with leases held by Anadarko (formerly Kerr-McGee), the decision has implications for dozens of companies operating in the Gulf, compounding its financial impact for taxpayers.  The leases, distributed in 1996, 1997 and 2000, under the Deep Water Royalty Relief Act of 1995 (DWWRA) allowed for the collection of royalties only when oil and gas prices reached a certain price threshold.   Leases issued in 1998-1999 omitted the price threshold language in the final contracts due to a clerical error and were already not paying royalties.

When DWWRA was enacted, oil prices were around $16/barrel and the legislation’s intention was to provide royalty relief for oil and gas companies only when prices were below $28/ barrel.  But with oil prices hovering around $50/barrel and having reached well over $100/barrel in the last year, this decision will likely amount to one of the biggest giveaways to big oil on the books. 

The Government Accountability Office estimates that lost revenue from all DWWRA leases could be as high as $53 billion over the next 25 years.   Several lawmakers and the Administration have proposed legislative action to recoup the royalty losses from the Gulf leases.  We look forward to seeing these reforms enacted into law and urge swift action to end to this egregious giveaway.