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Project on Government Oversight




Justice Department Oil Settlements Approach $200 Million As Senate Prepares to Perpetuate Oil Royalty Underpayments

September 7, 1999 


The Justice Department has reportedly settled three new oil royalty-evasion lawsuits with Chevron, Conoco and Occidental Petroleum just as Senator Kay Bailey Hutchison will ask her colleagues to allow major oil companies to continue cheating the federal government. Justice Department royalty underpayment collections are approaching more than $200 million - demonstrating the urgent need for new Interior Department royalty-collection reforms that Hutchison and other oil-state Senators have blocked.

According to the Department of Interior, oil companies bilk taxpayers and Indians of $66 million annually in fees known as "royalties" for drilling oil from public lands. Oil-accommodating Senators have enabled the ripoff schemes by holding hostage Interior regulations to prevent further cheating since June 1998, an action which has cost the taxpayers $83 million to date.

When the Senate reconvenes on September 8th, Senator Kay Bailey Hutchison (R-TX) will ask her colleagues to approve an amendment to the Interior spending bill that would extend the moratorium by an additional year, cheating the government of $66 million more. The new regulations would require oil companies to pay royalties on the basis of prices set in the free market rather than on artificial prices set by the oil companies themselves -- the so-called "posted prices." New research shows that the top companies responsible for 99% of all federal oil royalty-evasion made $8.4 billion in profits in the first six months of 1999 (see enclosed chart).

The Justice Department settlements stem from a $1 billion False Claims Act lawsuit filed by whistleblowers in U.S. District Court in Lufkin, Texas in 1996. The largest lawsuit of its kind ever filed, the Lufkin case accuses major oil producers of underestimating the value of oil in order to avoid paying the federal government royalties owed for drilling on public lands. Last year the Justice Department joined suits against most of the oil companies.

Settlements in recent days include: Chevron for $98 million; Conoco for "close to $30 million;" and Occidental Petroleum for $7.3 million. In addition, a settlement still being negotiated with BP Amoco is reported to be approaching $35 million. A settlement of $45 million with Mobil was finalized in the Fall of 1998.

Oil royalties support the education of school children, the Land and Water Conservation Fund, state government budgets, and Indian nations. The Minerals Management Service calculates that oil royalties have funded more than 37,000 park and recreation projects including such crown jewels as Gettysburg National Memorial Park, Niagara Falls, the Appalachian Trail and the Everglades.

State governments including Alaska, California and Texas have collected close to $5 billion in royalty- and tax-evasion lawsuit settlements. Yet, the federal government has lagged behind. POGO estimates that oil companies have defrauded the federal government of more than $2 billion.

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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