BP may pay for wasted oil

oil_spill_nasa.top.jpgA satellite image of the ever-expanding oil spill in the Gulf of Mexico. By Steve Hargreaves, senior writer


NEW YORK (CNNMoney.com) -- Adding to BP's problems in the Gulf, the company may have to pay the U.S. government royalties on all the uncollected oil currently spewing into the water.

BP (BP) is currently paying royalties on the oil it's collecting and selling from its leaking well, with the proceeds from the sale being donated to a wildlife fund.

BP can only capture and sell about 16,000 barrels of oil a day, according to the latest company numbers. Yet government estimates say that each day up to 60,000 barrels could be leaking into the Gulf.

A BP spokesman did not know if the company would have to pay royalties on the uncollected oil. A spokeswoman for the Interior Department, which is in charge of the royalties, said the agency is "investigating" the issue, and "will make sure BP pays every cent of any royalties they owe."

The money at stake isn't huge.

Based on the oil BP said it's collected so far, current oil prices, and the 18.75% royalty rate on the well, BP has paid about $8 million to the government. Even if the company was charged for the full 60,000 barrels per day, it would only owe another $50 million -- a pittance compared to the $20 billion compensation fund it's already agreed to.

Whether or not the company pays royalties for wasted oil may be more a matter of principle.

Independent industry experts are also unsure if BP will have to pay royalties on the escaping crude.

"Under normal [government] leases, they'd have to pay on all the oil that comes out of a well, even in a blowout," said Dick Watt, a Houston-based oil and gas attorney.

But Watt said BP may be eligible for an exemption -- in the late 1990s, the government waived royalty payments for deepwater wells in an effort to encourage new production. He didn't know if the blown well was covered under the exemption but with BP already paying royalties on the oil it's collecting, Watt said it's doubtful they'll be exempted.

Others thought the company could get out of the payments if it isn't making money on it.

"Since a royalty is technically defined as a revenue tax, I hardly see how BP could be forced to pay a tax on something for which it is receiving no revenue," said Ken Medlock, a fellow in energy studies at Rice University's Baker Institute for Public Policy.

Looks like one more fight for the lawyers. To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Index Last Change % Change
Dow 17,439.18 51.97 0.30%
Nasdaq 4,696.79 15.29 0.33%
S&P 500 2,031.34 1.79 0.09%
Treasuries 1.80 -0.02 -1.21%
Data as of 12:01pm ET
Company Price Change % Change
Apple Inc 116.67 7.53 6.90%
Yahoo! Inc 48.58 0.59 1.23%
Bank of America Corp... 15.44 -0.19 -1.22%
Microsoft Corp 42.05 -0.61 -1.43%
AT&T Inc 33.20 0.39 1.18%
Data as of 11:46am ET

Sections

Tim Cook has a lot of money to burn. He could use Apple's cash to buy Disney. Or Amazon and Netflix combined. More

Estimates from experts vary between $500 million and $1 billion, but analyst Evan Gold echoed the sentiment of his peers: it "wasn't a big deal." More

The best TV deals for the Super Bowl are happening now. If you wait, you might miss out until the fall. More

On demand delivery startup WunWun is expecting its order volume to double by the time they close up shop on Monday. All thanks to a blizzard. More

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2015 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2015. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2015 and/or its affiliates.