Lawmaker to Geithner: Block China oil deal until royalties are paid

Rep. Edward Markey (D-Mass.) wants Treasury Secretary Timothy Geithner to place conditions on the Chinese oil company CNOOC Ltd.’s acquisition of a Canadian firm that drills in American waters, becoming the second senior Democrat to seek U.S. intervention in the deal.

Markey, in a letter to Geithner Monday, said the state-owned CNOOC’s proposed $15 billion purchase of Nexen Inc. should be conditioned on the parties agreeing to pay royalties on Gulf of Mexico oil leases that currently allow royalty-free production.

“I believe this merger could lead to a massive transfer of wealth from the American people to the Chinese government, and I strongly urge you to block this proposed transaction until, at a minimum, parties to the merger agree to pay royalties to the U.S. taxpayer on all oil produced off American shores or relinquish any ownership interests in these leases,” Markey stated in the letter sent Monday to Geithner.

Treasury leads the Committee on Foreign Investment in the United States, an interagency panel that vets foreign purchases of U.S. assets that could have national security ramifications.

Markey’s letter comes a few days after Sen. Charles Schumer (D-N.Y.) on Friday urged Geithner to hold up the deal unless China provides better market access for U.S. businesses.

Nexen is a multinational energy company with 10 percent of its assets in the Gulf of Mexico.

CNOOC's planned purchase gives Markey — an ally of House Minority Leader Nancy Pelosi (D-Calif.) — another opening to bash lucrative royalty waivers available to Gulf of Mexico oil-and-gas producers who hold certain leases issued in the 1990s.

“Giving valuable American resources away to wealthy multi-national corporations is wasteful, but giving valuable American resources away to a foreign government is far worse: it has the potential to directly undermine American economic and national security,” writes Markey, the top Democrat on the House Natural Resources Committee.

The letter marks the latest skirmish in the battle over the fruits — or spoils — of the 1995 Deepwater Royalty Relief Act.

The law offered royalty-free Gulf production as an incentive for companies, at a time of low energy prices, to undertake costly projects in the Gulf’s deepwater frontier. Backers say it helped spur development in the now-booming region.



But due to an infamous Interior Department goof, leases issued in 1998 and 1999 lack “price thresholds” that end the royalty waivers when oil and natural-gas prices exceed certain limits.

 And an appellate court decision in early 2009 found the Interior Department cannot apply the price-based limits on royalty waivers for any leases issued between 1996 and 2000.

The Government Accountability Office estimated in 2008 that the absence of “price thresholds” could mean tens of billions of dollars in foregone federal royalty revenues from Gulf production in coming decades.

Nexen has a pair of leases that allow the uncapped royalty waivers, according to Markey’s letter. Nexen, through May of 2012, had produced 32 million barrels of oil and 34 million cubic feet of natural gas in the Gulf from these leases without paying royalties, the letter states.