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July 16, 2010

Feds seek royalties on output from leaking well

Michael R. Bromwich, director of the Bureau of Ocean Energy Management, Regulation and Enforcement (BOEM) has informed BP that it must report all oil and gas-related activities at the damaged Macondo well and pay royalties on all oil and gas captured from the leaking well. The company also will be liable for royalties on lost or wasted oil and gas if it is determined that negligence or regulatory violations caused or contributed to the Deepwater Horizon explosion and subsequent leak.

In a July 15 letter to Guy Otwell, of BP America Inc.'s Tax Department, Mr. Bromwich said that the company's failure to fulfill these obligations could be considered a knowing and willful violation of the Federal Oil and Gas Royalty Management Act. The letter also noted that the Interior Department reserves "any and all rights and remedies available to the United States arising from the Deepwater Horizon oil spill."

"BP is required to report immediately to BOEM all oil and gas-related activities associated with the Macondo well using Form MMS-4054", Bromwich stated in his letter. Furthermore, under the Outer Continental Shelf Lands Act and the lease between the United States and BP, the company is required to pay royalties immediately for all oil and gas captured from the Macondo well.

Bromwich also notified BP about its potential liability for royalties on lost or wasted oil and gas from the well, pointing to the Federal Oil and Gas Royalty Management Act and BP's lease, which provide that "[a]ny lessee is liable for royalty payments on oil or gas lost or wasted from a lease site when such loss or waste is due to negligence on the part of the operator of the lease, or due to the failure to comply with any rule or regulation, order or citation issued under this Act or any mineral leasing law."

On June 22, BP announced that it will donate the net revenue it receives from the sale of oil recovered from the MC252 spill to the National Fish and Wildlife Foundation (NFWF).


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