Firms Gain from Lapses in Oil Investments Contracts

Oil majors who have made oil investments in the deep waters of the Gulf of Mexico during the19 90s were more fortunate than some of their counterparts. These oil firms – and some others – collectively earned a windfall of more than $2.5 billion by not having to pay oil and gas royalty fees.

In a stroke of luck, a slew of oil producers – Chevron, Anadarko, and Shell included -reportedly eluded royalty fees as these items were inadvertently excluded from the terms and conditions of the contract covering their leases. But it seems that the luckiest of the lot was Chevron, which saved close to $1.5 billion back in the 90s.

The lawmaker from Massachusetts who reported this case said that the information was obtained from the U.S. Interior Department’s resources.  He mentioned that about a hundred oil firms gained from this slip-up.

Those who are implementing cuts in budget allocations for transportation, education, and other areas of priority should also think about putting an end to suspension of royalty-free leases enjoyed by some oil drillers.

In an attempt to encourage oil exploration at a time when gas and oil prices were at low levels, the U.S. passed a 1995 law suspending payment of royalty fees by eligible oil and gas producers.  However, this was premised on the condition that payment of said fees would resume once oil prices start to pick up. A similar clause was supposed to be embodied in GOM leases executed from 1996 up until 2000.

Unfortunately, provisions regarding crude oil price triggers that would have been used as reference points in establishing resumption of royalty fee payments were erroneously excluded in the lease contracts of 1998 and 1999.

Meanwhile, prior to 2010, Anadarko was able to prove in court that it is not liable to pay said royalty fees to the U.S. government, based on the oil asset lease contracts it signed during the latter part of the 90s.  No less than the United States Supreme Court sustained Anadarko’s case in point.