Today, thanks to the Fracking Boom, the U.S. is the Largest Oil Producer in the World. But back in the late 1990s, when the Country was Heavily Reliant on Oil Imports, the Federal Government wanted to Boost American Energy Independence by encouraging more Exploration in the Gulf. And since Oil Prices were Low, Washington tried to make it Worthwhile for Oil Companies by Offering a Brief Reprieve on the Royalties.
But the U.S. Government has Lost $18 Billion of Oil and Gas Revenue to Fossil-Fuel Companies because of a Loophole in that Decades-Old Law, a Federal Watchdog Agency said Thursday, offering the First Detailed Accounting of the Consequences of a Misstep by Lawmakers that is expected to continue Costing Taxpayers for Decades to Come.
The Loophole Dates from an Effort in 1995 to encourage Drilling in the Gulf of Mexico by Offering Oil Companies a Temporary Break from Paying 12% Royalties on the Oil Produced. However, the Rule was Poorly Written, the very Politicians who Originally Championed it have Acknowledged, and the Temporary Reprieve was Accidentally made Permanent on some Wells.
As a result, some of the Biggest Oil Companies in the World including: BP, Chevron, Exxon Mobil, Shell, and others, have Avoided Paying those Billions in Royalties on Oil and Gas Drilled since 1996, according to a New Report from the Government Accountability Office (GAO).
The Companies, which hold Government Leases to Drill in the Gulf, continue to Extract Oil and Gas from those Wells while Not being Required to Pay Royalties, a Right the Industry has gone to Court to Defend.
The National Ocean Industries Association (NOIA), which Represents the Offshore Industry, Defended the Arrangement. “There was no mistake in the law,” said Nicolette Nye, Vice President at the Association. If not for the Law, she said, “we likely would not be producing U.S. oil offshore in record amounts today.”
But in an Interview, the Program’s Original Architect said he was Surprised by the Outcome. “That wasn’t our intent,” said J. Bennett Johnston, a Former Democratic Senator from Louisiana who had Pushed for the Original Reprieve on Royalties. “There should have been a provision that said it didn’t apply above a certain threshold” for Oil Prices, he said.
The Loophole continues to Cut into Federal Coffers. Royalties from Offshore Oil and Gas are a Significant Source of Revenue, bringing in almost $90 Billion from 2006 through 2018, according to the Agency.
Frank Rusco, a Director of the GAO’s Natural Resources and Environment Team and the Report’s Author, said the Findings are an extreme Example of the Department of Interior Failing to Ensure that American Taxpayers received a Fair Market Value for the Oil and Gas Extracted from Public Property.
“These leases sold 20 years ago might keep producing for decades. The amount of forgone royalties is going to continue to increase,” Rusco said in an interview. “It’s a strong case for Interior to review how it collects revenues on oil and gas.”
The Interior Department said it “takes seriously” its Responsibility to ensure that the American Public Receives a Fair Value for Public Resources. Still, some Parts of the Report “do not paint a representative picture” of the Agency’s Efforts, Casey Hammond, Acting Assistant Secretary for Land and Minerals, said in the Agency’s Response, which was also Released Thursday.
Department Data shows that Chevron holds the most Royalty-Free Leases in the Gulf, followed by Anadarko, now Part of Occidental Petroleum, Norway’s Equinor, and Shell. BP, CNOOC a China’s State-Run Offshore Oil and Gas Company, and Exxon Mobil, also own Royalty-Free Leases, the Data shows.
NYC Wins When Everyone Can Vote! Michael H. Drucker
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