With an environmentally disastrous offshore drilling bill likely to come before the House. Congressman Maurice Hinchey (D-NY) announced his plans to press forward with Congressman Ed Markey (D-MA) to include a provision that would close a loophole that has allowed oil and gas companies to avoid paying as much as $60 billion to the federal government in royalty payments for operating on public lands. Hinchey’s announcement less than 24 hours after the Interior Department's Inspector General released a scathing audit report criticizing the agency’s lax royalty collection policies and procedures.
“Unless Congress passes this measure, energy companies will continue to profit from oil and gas taken from public property without paying the American taxpayers for the right to do so,” Hinchey said. “The evidence is overwhelming that the Interior Department is doing a terrible job of collecting royalties on behalf of the American people and an incredible job of helping the oil and gas industry get even richer at the taxpayers’ expense. Part of the problem we face is complete incompetence at the Interior Department and the other part is just a lack of willingness of this administration and the Republican-controlled Congress to go after the oil and gas industry to help fix a gaping loophole that is costing the American people tens of billions of dollars.”
To close this loophole, Hinchey, who is a member of the House Interior Appropriations Subcommittee, and Markey will offer a motion that would be similar to an amendment the congressmen and several of their colleagues successfully offered in the House in May to the Interior Appropriations bill for Fiscal Year 2007. That amendment and the planned motion to recommit a legislative maneuver in the House that can effectively amend a bill is aimed at getting energy companies with royalty-free contracts originating in 1998 and 1999 to rework their contracts so that they contain provisions for royalty payments to the federal government. While the Hinchey-Markey measure doesn’t require energy companies to rework their contracts, it does bar them from receiving future contracts unless they work with the Interior Department to redo the existing contracts that contained the royalty-free error, thus providing energy companies with a large incentive to renegotiate the existing contracts.
Hinchey said that if his motion to recommit with Markey passes and the royalty collection provision is added to the offshore drilling bill that the Senate would have to quickly agree to the changes in order for the provision to take effect. If the Senate fails to do so, then the underlying legislation would effectively be dead. If that were to occur, Hinchey vowed to take up the measure in 2007 under a new Democratic leadership that is committed to having the oil and gas industry pay taxpayers what they are owed for resources taken from public lands. If the Hinchey-Markey measure fails to gain enough support to be added to the offshore drilling bill then Hinchey said he would also bring up the royalty measure in 2007 either through the appropriations process or through an authorizing bill.
“Regardless of whether this motion on the House floor passes, the days of energy companies not paying the American people for oil and gas taken from public lands are about to come to an end,” Hinchey said. “American taxpayers will finally get their due.”
The Government Accountability Office (GAO) reports that the Interior Department itself estimates that current royalty relief provided to oil and gas companies will end up costing the federal government as much as $60 billion in lost payments.
The Deepwater Royalty Relief Act of 1995 gave the Interior Department discretion to provide royalty forgiveness to the energy industry in order to spur deepwater exploration when prices of oil and gas were low. That measure allowed the Interior Department to decide whether or not to put price thresholds into the leases that would trigger royalty payments to the federal government once oil and gas prices reached a certain level. However, due to a clerical error, the Interior Department left out price thresholds on contracts signed in 1998 and 1999, allowing oil and gas companies to extract resources from public property without paying royalties, regardless of the price of oil or gas. A handful of those roughly 1,000 royalty-free leases are starting to produce oil and gas now. These leases are expected to produce more than $60 billion worth of energy for the oil and gas companies, but the American taxpayers will receive no royalties under current law. To make matters worse, Republicans extended the Deepwater Royalty Relief Act as part of the energy reform bill passed last summer.
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