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UpstreamOnline: Senate for royalty relief cut

THE US Senate has voted to end deep-water royalty relief for oil and gas companies working in the Gulf of Mexico when commodities price hit certain high levels, writes Blake Wright.

The royalty language was added as part of the large $460 billion-plus defense spending bill, which passed on a 98-0 vote late last week.

Under the provision, the Interior Department would be required to put language in federal drilling leases that voids royalty relief in high energy price environments.

The move by the Senate was in response to leases from 1998 and 1999 that were mistakenly awarded without the oil and gas price thresholds that would have suspended royalty relief.

Pundits estimate the snafu has allowed producers to avoid paying the about $2 billion in royalties to date. The provision does not address what to do about the companies that hold 1998 and 1999 leases without the threshold language.

Some legislators have called for those contract terms to be renegotiated.

A handful of operators, such as Shell and Chevron, have already met with Interior officials to discuss possible changes in those lease terms.

The House of Representative has already passed its defense spending bill with no such royalty relief provision. The two bills now head to conference to be negotiated into one to be passed along to President George Bush for signing. and its sister non-profit websites,,,,,, and are owned by John Donovan. There is also a Wikipedia feature.

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