Tuesday, October 31, 2006

Heckuva Job

Once again the Department of the Interior is in the news, and, once again, it's not the good news kind. From today's NY Times:

The Interior Department has dropped claims that the Chevron Corporation systematically underpaid the government for natural gas produced in the Gulf of Mexico, a decision that could allow energy companies to avoid paying hundreds of millions of dollars in royalties.

The agency had ordered Chevron to pay $6 million in additional royalties but could have sought tens of millions more had it prevailed. The decision also sets a precedent that could make it easier for oil and gas companies to lower the value of what they pump each year from federal property and thus their payments to the government.

Interior officials said on Friday that they had no choice but to drop their order to Chevron because a department appeals board had ruled against auditors in a separate case.

...the Bush administration has come under fire on Capitol Hill for its record on collecting payments. While the Interior Department has sweetened incentives for exploration and pushed to open wilderness areas for drilling, it has also cut back on full-scale audits of companies intended to make sure they are paying their full share.

Administration officials knew that dozens of companies had incorrectly claimed exemptions from royalties since 2003, but they waited until December 2005 to send letters demanding about $500 million in repayments.
[Emphasis added]

The case itself is as complicated and convoluted as most government issues are these days, although the article lays out the facts and clarifies the convolutions nicely, but it boils down to this. To avoid paying the the full amount of royalties, the oil and gas companies buy or create a third company. The original company 'sells' the product to the new company, charging for the costs of drilling. The higher cost for the product lowers the royalty charge. It's a fiction-ridden set-up, a scam, if you will, and because of the way the system is set up, this government allows the oil and gas companies to get away with it.

What makes the situation even worse is that this particular case will set a precedent for not only future federal dealings with the oil companies on the collections of royalties, it also serves as a de facto precedent for states in their attempt to collect royalties. The oil and gas companies make out all the way around. And the American people lose out on billions of dollars in royalties for publically held resources.

Like Ruth said earlier, we've been getting more trickery than treat these days.

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