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Project on Government Oversight




Taxpayers Will Lose Millions of Dollars to Big Oil under Energy Bill

July 10, 2001 


Language in the House Resources Committee energy bill to be proposed this week will cause millions of taxpayer dollars to be lost to major oil and gas companies, according to the Project On Government Oversight. The provision concerns royalty-in-kind programs where drilling fees are paid in barrels of oil or units of gas rather than in cash.

"After decades of shortchanging the taxpayers, new rules were implemented in 2000 that prevent oil and gas companies from underpaying their fees for drilling on federal and Indian lands. Royalty-in-kind programs have been promoted by industry as a way to circumvent the new rules," according to the organization's Executive Director Danielle Brian.

According to a written statement from Ms. Brian: "The Department of Interior has completed two pilot programs to date in order the test whether royalty-in-kind programs will work. The two programs have failed, losing significant revenues in comparison to dollars received from programs that collect cash. According to the Department of Interior's Inspector General, the first pilot program to collect gas royalties-in-kind lost 6.5%. Earlier this year a second pilot program to collect oil royalties-in-kind lost $3 million....Section 232 'Program on Oil and Gas Royalties in Kind' of the House Resources Committee energy bill proposes giving the Secretary of Interior authority to further expand collections of royalties-in-kind...Section 232 would institutionalize the further loss of millions of taxpayer dollars to major oil and gas companies."

In 1998, the General Accounting Office analyzed the prospect of royalty-in-kind and determined that there were significant barriers to ensuring that the federal government receives its fair share: "According to information from studies and the programs themselves, royalty-in-kind programs seem to be feasible if certain conditions are present. However, these conditions do not exist for the federal government or for most federal leases," (Federal Oil Valuation: Efforts to Revise Regulations and an Analysis of Royalties in Kind GAO/RCED-98-242).

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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