Rep. Markey Against CNOOC’s Royalty-Free Drilling in US

The Committee on Foreign Investment in the United States’ (CFIUS), on February 12, approved the China National Offshore Oil Corporation (CNOOC) takeover of Nexen Inc., which could potentially include Nexen’s royalty-free drilling operations in the Gulf of Mexico as part of the deal.

In response to the potential transfer of royalty-free drilling of American resources to a Chinese national corporation, Rep. Edward J. Markey (D-Mass.) announced that he will introduce legislation giving the Interior Secretary new authority to block a loophole preventing the approval of similar lease transfers in the future.

“Chinese government-owned oil corporations should not be allowed to drill for American oil in the Gulf of Mexico without paying a dime in royalties to U.S. taxpayers,” said Rep. Markey. “The Interior Department should have the authority to review all possible transfers of oil and gas leases on public lands so that we can prevent massive wealth transfers from U.S. taxpayers to foreign governments. I will soon introduce legislation that will close this loophole.”

According to a letter from the Interior Department sent to Rep. Markey, the Department’s ability to approve or review the transfer of drilling leases on public lands is not applicable in situations where a parent company is being acquired, but the U.S. subsidiary does not change, as could occur with the Nexen and CNOOC deal.

Last July, Rep. Markey sent a LETTER to Secretary Tim Geithner, Chairman of the CFIUS panel, highlighting the fact that Nexen’s U.S. subsidiary held leases allowing it to drill for U.S. oil and gas without paying a dime to American taxpayers in royalties and that this giveaway could transfer directly to the Chinese government-owned company if the acquisition went forward. In September, Rep. Markey sent a LETTER to Interior Secretary Salazar, highlighting the fact that Nexen had already produced roughly 39 million barrels of oil and 84 billion cubic feet of natural gas royalty-free and urging him to use authority under the Outer Continental Shelf Lands Act (OCSLA) to prevent the transfer of Nexen’s faulty Gulf leases to CNOOC.

The Interior Department’s response to Rep. Markey suggests that the Department believes it lacks authority under OCSLA to approve the transfer of leases in a situation in which the ownership of the parent company changes but the U.S. subsidiary itself does not. This means that current law provides a loophole by which the benefits of oil and gas leases on public lands can be transferred without sufficient review by the Interior Department.

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Press Release, February 15, 2013