Oversight Is Needed on Oil and Gas Royalties

A recent article in The New York Times revealed that four Interior Department auditors have filed a lawsuit against the agency after senior agency officials suppressed their efforts to collect more than $30 million in fraudulent royalty underpayments by oil and gas companies that are operating on public property in the Gulf of Mexico.

Upon finding this out, several of my colleagues and I called for immediate congressional hearings and investigations into these reported efforts by senior Interior Department officials to allow oil and gas companies to cheat American taxpayers out of royalty payments.  We sent letters to House Resources Committee Chairman Richard Pombo (R-CA) and House Appropriations Subcommittee on Interior Chairman Charles Taylor (R-NC), asking that oversight hearings be held on the matter before Congress adjourns for October.

It’s bad enough that oil and gas companies are cheating the American people out of tens of millions of dollars in royalty payments, but for all of this to be happening with the blessing of senior Interior Department officials is outrageous.  The Interior Department should be in the business of fighting for the best interests of the American people, not in the business of finding ways for oil and gas companies to cheat and lie in order to make even greater profits.  We need an investigation and hearings to determine who at the Interior Department prevented auditors from going after oil and gas companies that were cheating so that appropriate disciplinary and legal actions can be taken against those senior officials.
This recent revelation of impropriety at the Interior Department came one week after the agency’s Inspector General, Earl Devaney, testified before Congress that, “Simply stated, short of a crime, anything goes at the highest levels of the Department of the Interior.”

To address the latest example of inappropriate and corrupt behavior at the Interior Department, my colleagues and I want congressional investigations and hearings to examine: The New York Times’ most recent revelation about senior Interior Department officials allowing oil and gas companies to cheat on more than $30 million in royalty payments; the effect that corruption at the Interior Department, as described by Devaney, has had on the royalty collection program; and the effect that budget cuts have had on the agency’s ability to ensure that oil and gas companies are making correct payments to the federal government.

The Government Accountability Office (GAO) estimates that current royalty relief provided to oil and gas companies, as the result of an Interior Department clerical error, will end up costing American taxpayers as much as $10-$20 billion over 25 years in lost revenue.  A recently discovered oil field in the Gulf of Mexico, the Jack Field, is estimated to yield oil that would have provided the federal government with as much $1.5 billion in royalty payments had the clerical error not been made.  According to the GAO, that figure could grow to more than $80 billion if oil companies win a pending lawsuit that would expand the scope of royalty relief.

To help close the loophole, my colleagues and I who sent the letters today calling for investigations and hearings, offered an amendment to the Interior Appropriations bill for Fiscal Year 2007 when that measure was debated in the House in May.  The amendment, which passed 252-165, 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 amendment 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 clerical error, thus providing energy companies with a large incentive to rework the existing contracts.  The Senate also followed our lead and passed a similar amendment out of the Senate Appropriations Committee.  I expect the full Senate to pass the measure and we’ll be fighting to keep it in tact when we go to conference.

Thus far, we have not heard back from either Chairman Pombo or Chairman Taylor regarding our calls for an investigation and hearing on this matter.  The Interior Department should not actively let oil and gas companies get away with ripping off the American public in such a blatant way.  This is unacceptable and deserves immediate attention by the Congress.