A costly error

Wednesday, June 11, 2008 | 2:05 a.m.

Congressional auditors have predicted that the federal government stands to lose as much as $53 billion in energy royalties over the next 25 years because of government leases that allow oil and gas companies to drill offshore without paying royalties on what they extract.

Other industries that gather natural resources from public areas, such as mining operations, have to pay a percentage of their take to the federal government.

But Congress enacted a program in 1995 that exempted companies from royalty payments if they were drilling in the Gulf of Mexico — an area to which Congress wanted to steer exploration for oil and natural gas.

The law provided an escape clause that was supposed to bring a halt to the exemption if oil reached $34 a barrel. But an Interior Department mistake omitted that clause from about 1,100 leases issued from 1998 to 2000.

Congress learned of the error in 2006 and called for renegotiation of the leases. One company filed a lawsuit last year to prevent the Interior Department from changing the leases and instituting royalty payments. A federal court ruled in the company’s favor last year, meaning that Gulf drilling and energy extraction could continue without the companies’ having to pay royalties.

In a report released last week the Government Accountability Office, the investigative arm of Congress, said that as a result of that court ruling, the U.S. Treasury could lose $21 billion to $53 billion depending on the price of oil.

The Interior Department favors appealing the court’s decision, USA Today reported Monday, but the Justice Department has final say over whether to appeal.

We don’t see how the Justice Department could avoid appealing this decision. The 1995 law was not intended to offer oil companies a $53 billion windfall. There is no excuse for this outrageous clerical error to continue.