Rep. Edward Markey (D-MA), the top Democrat on the House Natural Resources Committee, on Monday urged Treasury Secretary Tim Geithner to block China's state-owned oil company CNOOC Ltd. from purchasing a Canadian firm that drills in American waters, The Hill reports.
CNOOC should not be allowed to purchase Nexen Inc. for $15 billion unless all parties agree to pay royalties on Gulf of Mexico oil leases that currently allow royalty-free production, Rep. Markey wrote in a letter to Geithner.
Edward Markey (D-MA).
“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,” writes Rep. Markey.
If you’re wondering why, of all people, Geithner received this letter, here’s the reason: “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.”
Rep. Markey isn’t the only lawmaker opposed to the Chinese acquisition.
Sen. Chuck Schumer (D-NY) on Friday told Geithner that the deal should be blocked unless China gives “better market access for U.S. businesses.”
But is there something else going on here? Why are these two Democrats so opposed to the deal? The Hill’s Ben German offers some insight:
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.
But what's the story behind the royalty waivers? Again, The Hill explains:
The [1995 Deepwater Royalty Relief Act] 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.
Of course, in the absence of “price thresholds,” this means that the feds loses out on "tens of billions of dollars" in federal royalty revenues.
“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,” Rep. Markey said in his letter.