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Project on Government Oversight




HERE WE GO AGAIN! Oil Industry Pushes New Amendment to Avoid Royalty Payments

September 18, 2000 


The oil industry is trying to undermine the hard-won oil royalty rule in an amendment they are pushing to be attached to the Energy Policy and Conservation Act (H.R. 2884) budget bill. The oil industry has been promoting the language which could be used by oil companies to circumvent recently implemented regulations that ended industry-wide cheating.

"Time and time again Senators have enabled oil companies to cheat the taxpayers of royalties through the anti-democratic practice of attaching amendments and riders to budget bills. This time is no different -- public interest groups, states and Indians were excluded from the deal made by the oil industry, oil-friendly Senators and Interior," stated Danielle Brian, Executive Director of POGO.

What the language does:

  • The language concerns an Interior Department program that accepts payment of royalties in the form of barrels of oil -- or in kind -- rather than in cash -- or in value -- from oil companies drilling on federal and Indian lands. The problem is that the program has not been evaluated to determine if states, Indians and the federal government are receiving adequate compensation. The oil industry has pushed for the program. The Interior Department and the General Accounting Office are conducting assessments of the Royalty-in-Kind (RIK) pilot program that will be completed in 2001.

  • The language would change the legal definition of "fair market value" for the purposes of calculating oil royalties - at the heart of disputes surrounding the issue - to language that is favored by industry and that weakens current definitions that protect taxpayers.

  • The language fails to ensure that adequate reporting will take place.

Background: The Interior Department's oil royalty rule went into effect starting in June, 2000 and collects $72 million more annually that had been shortchanged by oil companies drilling on Indian and federal lands. Since then both the American Petroleum Institute (API) and the Independent Petroleum Association of America (IPAA) have filed lawsuits to stop the rule, arguing - at least in the case of IPAA -- that their members are being "unlawfully assessed" of payments. However, industry whistleblowers have confirmed that the oil companies used prices well below market value in order to shortchange on payments. In addition, major oil companies have settled with the Justice Department for more than $300 million in lawsuits over royalty under payments. Failing in their bid to stop the government from collecting fair market value, the oil industry may be promoting the Royalty-in-Kind program as a way to circumvent the new regulations.

Founded in 1981, the Project On Government Oversight (POGO) is a nonpartisan independent watchdog that champions good government reforms. POGO's investigations into corruption, misconduct, and conflicts of interest achieve a more effective, accountable, open, and ethical federal government.

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