We all know how powerful the giant oil companies are and how much political clout they wield. It now appears that the federal government has no plans to try to recover $1.3 billion in royalties that the government lost as a result of flawed oil and gas leases it signed in the late 1990s. Ms. Johnnie M. Burton, director of the Minerals Management Service of the Interior Department, made this shocking announcement at a forum held by Platt’s, an oil industry newsletter. The Director said she did not want to force more than 50 companies to renegotiate offshore drilling leases that will allow them to escape as much as $10 billion in royalty payments over the next decade.

Interestingly, more than half of the companies that hold these leases have not even responded to the government’s requests. According to Ms. Burton, the government told the companies that the Department “would really appreciate it” if they would change their contracts. Frankly, that weak approach by the federal government is impossible to comprehend. Even if the companies do agree to change their leases, Ms. Burton said that the government would not try to recapture the $1.3 billion in royalty payments that the companies have already been able to escape. At issue are hundreds of offshore drilling leases for the Gulf of Mexico that were signed in 1998 and 1999 and that allow companies to extract up to 87.5 million barrels of oil per lease without paying royalties to the government. In what investigators believe was an unintentional error, the leases omitted a clause that would normally require companies to pay the full 12.5% royalty if oil prices climbed above about $36 a barrel. I guarantee you that the oil companies involved knew exactly what they were doing.

A group of federal auditors have charged that the Interior Department blocked them from recovering underpayments by more than two dozen companies. In May, the House passed a proposal that would pressure companies to change their leases by prohibiting those that refuse to do so from acquiring additional federal leases in the future. But the measure has stalled because Republican leaders in both the House and Senate are opposed to it. Democratic lawmakers called for investigations into new allegations by three current federal auditors and one former federal auditor that the Interior Department had stopped them from trying to recover $30 million in deliberate underpayments by oil companies. The allegations, disclosed by The New York Times, were made in lawsuits that the auditors filed under the federal whistleblowers act.

The four government auditors, whose job it is to monitor leases for oil and gas on federal property, say the Interior Department stopped their efforts to recover millions of dollars from companies that were cheating the government. The auditors contend in the lawsuits that their bosses stopped them from pursuing more than $30 million in fraudulent underpayments of royalties for oil produced in publicly owned waters in the Gulf of Mexico. Bobby L. Maxwell, who was formerly in charge of Gulf of Mexico auditing, stated:

The agency has lost its sense of mission, which is to protect American taxpayers. These are assets that belong to the American public, and they are supposed to be used for things like education, public infrastructure and roadways.

The lawsuits came to light as lawmakers, Democrats and Republicans alike, were questioning the Bush Administration’s refusal to challenge the oil and gas industry. The Interior Department’s inspector general, Earl E. Devaney, made a shocking statement to a House subcommittee. He said that “short of crime, anything goes” at the top levels of the Interior Department. Regardless of how you might feel about these lawsuits, it’s certainly appears that the Interior Department during the Bush Administration has been much too friendly with the oil and gas companies. Under its business-friendly agenda, the Department has increased incentives for drilling in risky areas, has speeded approvals for drilling applications, and has campaigned to open more coastal areas for oil exploration.

Now it appears that the government is willing to allow the giant and politically powerful oil companies to avoid paying needed revenues at a time when the oil giants are making record profits. The Interior Department’s own statistics indicate that revenue from auditing and enforcement took a nose dive after President Bush took office. From 1989 through 2001, according to a report by the Congressional Budget Office, auditing and other enforcement efforts generated an average of $176 million a year. But from 2002 through 2005, according to numbers that the department provided lawmakers last May, those collections averaged only $46 million.

Source: New York Times

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