Oil Companies Reaping Windfall Profits Should not be Rewarded with $7 Billion in Royalty Relief
OIL COMPANIES REAPING WINDFALL PROFITS SHOULD NOT BE REWARDED WITH $7 BILLION IN ROYALTY RELIEF
Early Valentine's Day Gift to Oil Companies Wrapped in 2005 Energy Bill Reduces Obligations to U.S. Taxpayers by Billions
Schumer Introduces Measure to Eliminate Royalty Relief Enacted Last Year
Today U.S. Senator Chuck Schumer announced that he will introduce a bill to eliminate royalty relief measures for big oil and gas companies signed into law last year in the Energy Bill of 2005. At a time when oil and gas companies are reaping windfall profits, there is no need to further reward them with royalty relief. Recent reports indicate that as a result of loosened royalty requirements, including a wide variety of provisions in last year's energy bill, oil and gas companies will receive a giant federal hand-out at a cost of nearly $7 billion, by some estimates, to U.S. taxpayers. Schumer will introduce a measure that will strike those provisions that permit oil and gas companies to avoid paying royalties, the payments required to drill on federal land.
Schumer stated, "Allowing big oil and gas companies to pad their record profits royalties owed to the American taxpayer would be like giving a box of chocolates to a candy maker on Valentine's Day."
"Oil and gas companies, reaping record windfall profits over the last few years, need no added incentive to explore for oil and gas. With prices over $60 a barrel for oil and over $7 for natural gas, the record prices should be incentive enough," Schumer said.
According to the most recent prices, oil is selling for $61.55/barrel and gas is at $7.16/mmbtu.
Less than a year ago, in an April 20, 2005 address to U.S. Hispanic Chamber of Commerce, President Bush said, "With oil at more than $50 a barrel, by the way, energy companies do not need taxpayers'-funded incentives to explore for oil and gas."
Last month, Schumer wrote a letter urging the Department of Interior Inspector General to fully investigate whether or not oil and gas companies were short-changing taxpayers on their royalty payments. He further asked the I.G. Earl Devaney to estimate how much taxpayers will be short due to royalty relief measures contained in the Energy Bill of 2005. Schumer's initial letter to the Interior Department is below.
January 23, 2006
The Honorable Earl E. Devaney
Inspector General
United States Department of Interior
1849 C Street, NW
Washington, DC 20240
Dear Inspector General Devaney:
I am writing to express my deeply held concern related to a report published in the New York Times that companies producing natural gas may have avoided paying the Department of Interior (DOI) the full amount of royalties owed under the law. As you know, companies that produce natural gas derive a significant amount of their supplies from public lands owned by the American people. I am extremely disturbed by the possibility that as American families are paying significantly higher prices to heat their homes, they may also be getting short-changed through underpaid royalties by the same companies that have reaped extraordinary profits from increased energy prices. In order to rectify this situation I urge you to submit a report to Congress within 30 days examining the scope of underpayment, steps to be taken by DOI to better enforce royalty regulations, and the impact of royalty provisions in the Energy Policy Act of 2005 and other recent changes to royalty rules on future DOI revenues.
These reports indicate a number of areas in which misreporting by energy companies, arcane DOI rules, and lax DOI enforcement efforts may have cost American taxpayers millions of dollars in uncollected royalties. It is perhaps most disturbing that these reports indicate energy companies have been able to underpay their royalties simply by reporting a lower natural gas share price to DOI than they report to their own shareholders. For example, using data reported by energy companies DOI stated that the average sale price of natural gas in FY05 was $5.62 per thousand cubic feet, despite the fact that Exxon, Chevron, and Kerr-McGee reported prices of about $6.88, $6.49, and $6.59 respectively over a similar timeframe. This alleged price under-reporting is fundamentally disingenuous and would have a direct impact on royalties collected by DOI, unjustly depriving the American taxpayer of payment for public resources.
The report also indicated that DOI has reduced its aggressiveness in auditing royalty information and by enforcing compliance with existing royalty rules, including one instance in which DOI has still not moved to recover royalties owed to it for three years under certain rules governing price triggers for royalty payments on natural gas. Enforcing compliance with royalty regulations and aggressively working to collect money owed by energy companies to the federal government is one of DOI's core missions, and any possible failure to pursue that responsibility is an unacceptable breach of public trust.
The report states that as a result of these practices that despite the soaring price of natural gas, the amount of royalties collected in 2005, $5.15 billion, was actually slightly lower than the amount collected in 2001. According to the report the failure of royalty receipts to keep pace with the increase in market prices resulted in a more than $700 million shortfall in federal revenues. At a time when energy company profits are at unprecedented highs, consumer budgets are bearing the heavy burden of high energy costs, and the federal government is facing a growing deficit it is unacceptable to allow energy companies to underpay the American people for their natural resources by failing to pay their full royalty obligation. In order to ensure that these practices do not continue I urge you, within the next 30 days, to provide a report to Congress including:
1) The differential in royalty payments actually received from 2000 to the present and the amount of royalties that would have been received had energy companies reported the same natural gas sales price to DOI that they reported to their shareholders;
2) A process for providing Congressional oversight committees with information regarding specific royalty transactions on a quarterly basis;
3) A record of the number of audits as well as the number of staff and amount of funds dedicated to audits and compliance on an annual basis from FY00 to the present;
4) An impact of the royalty reforms contained in the Energy Policy Act of 2005 as well as any administrative reforms to royalty rules that occurred from 2000 to the present on future royalty revenues.
I believe that in order to ensure that American taxpayers receive the benefits they are owed from natural gas production on public lands, and to provide for fair and transparent energy markets, it is vital that these issues be resolved as quickly as possible. I thank you for your attention to this important issue and look forward to your reply.
Sincerely,
Charles E. Schumer
http://schumer.senate.gov/SchumerWebsite/pressroom/press_releases/2006/PR62.Oil%20Royalty.021406.html