Honor the royalty agreement

November 2, 2006

While the public watches raptly as candidates spar via sinfully expensive campaign ads, the United States Interior Department was quietly taking action that will deprive federal coffers of hundreds of millions of dollars in missing natural gas and oil company royalties.

The Interior Department dropped claims that Chevron underpaid the government for natural gas produced in the Gulf of Mexico. The decision paves the way for energy companies to renege on paying millions in royalties.

When private energy companies are allowed to drill on federal land and in federal water, they are required to pay royalties on a share of their proceeds. In 2005 such royalties on natural gas totaled over $5 billion.

In August, the Interior Department issued a confidential letter to Chevron requesting payment for only a small percentage of what is due to the American taxpayers who will, of course, pick up the slack for the missing funds.  By failing to request full payment from Chevron, the Interior Department set a precedent for other oil and gas companies to avoid paying their full royalties to the government.

And while the federal government is backing away from pursuing the money it is owed by oil and gas companies, state governments and private landowners are not. Energy companies, challenged by states and individuals for the same failure to pay pre-agreed upon royalties, have paid $70 million in additional royalties.

Despite such indications that the agreements are legal and binding and enforceable, the Interior Department has backed away from pursuing the payments.

At the same time, the Interior Department has made it easier and improved the incentives for companies to explore and drill in wilderness areas but has cut back on auditing such companies to make sure they comply with their royalties agreements.

Our federal deficit is growing, debt service on the national debt is growing, Social Security, Medicaid/Medicare costs are ballooning. The Iraq War has cost an estimated $200 million per day and could cost over $2 trillion if we stay there for another three years.

We don't have so much money to spare that we can walk away from royalties owed by oil and gas companies.

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