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The New York Times: BP, Shell close on drilling changes

Administration says it’s not willing to force new deals

By EDMUND L. ANDREWS
New York Times

WASHINGTON — The Interior Department, struggling to prevent the government from losing billions of dollars in royalties for oil and gas produced in publicly owned waters, said Thursday it was close to agreement with Royal Dutch Shell and BP, two of the 56 companies that hold lucrative drilling leases in the Gulf of Mexico.

But even as Republican and Democratic lawmakers expressed outrage that the government could lose more than $10 billion over the next decade, the Bush administration said it flatly opposed House bills that would pressure oil companies into renegotiating flawed leases that the government signed in the late 1990s.

The 56 companies hold leases that allow them to extract billions of dollars in oil and gas from the Gulf without paying any royalties, regardless of how high energy prices or profits might climb.

Of those 56 companies, interior officials told lawmakers on Thursday, 20 have responded in some way to pleas from the administration to voluntarily give up the incentives. But only 10 companies, including Chevron and Exxon Mobil, have begun negotiating.

At a rancorous House hearing, Lynn Scarlett, deputy secretary of the interior, insisted the government had to respect the “sanctity of contracts” and should not do anything to force companies into a renegotiation.

In what has now become a major scandal, the Interior Department inadvertently signed 1,100 drilling leases in the late 1990s that offered lucrative incentives to deep-water drillers, regardless of how high energy prices might climb. Officials then covered up the mistake for nearly six years.

But Interior officials are under fire for more than just the botched leases and the cover-up that followed. On Wednesday, Earl Devaney, the Interior Department’s independent investigator for examining possible misconduct, scathingly accused senior officials of repeatedly tolerating cronyism, ethical violations and cover-ups of incompetence.

Scarlett told lawmakers that “the department disagrees” with Devaney’s critique and said he had made “broad and serious, yet vague allegations.”

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