09-16-09 by dugan
It’s hard to even keep track of the sex scandals–was that a governor or a senator? Which state? But one of the best of last year was in the even more boring Interior Department–the sex, cocaine and corruption-fest at the federal oil Royalty-In-Kind program. An investigation found that employees ran wild with the oil guys they’re supposed to oversee. (Guess they did see them all over.) It won’t happen again, though, because the new Interior Department is getting rid of the whole program.
Before we get to the cleanup by Interior Secretary Ken Salazar, here’s my favorite punchline from the Inspector General’s report that brought the fun to a halt: "Sexual relationships with prohibited sources cannot, by definition, be arms-length."
CQ.com (subscription barrier, but here’s the Bloomberg report) has the story:
In testimony before the House Natural Resources Committee, Salazar said
he intends to phase out the program as a first step in a series of
broader reforms of oil and gas royalty collection. …“The royalty-in-kind program has been a blemish on this department,
especially after the revelations of sex and drugs,” Salazar told the
Natural Resources panel. “But as I terminate the royalty-in-kind
program, it’s only one thing we have to do as we address the whole
issue of royalties on public lands.”
"Royalty-in-kind" means oil companies paying royalties owed to the federal treasury with oil, not cash. Apparently the scandal that brought the program down including bid-rigging that reduced what some oil companies had to pay. Chevron was implicated (and refused to cooperate with investigators) as was Shell. So, if Salazar can accomplish what he plans (the oil companies are fighting it), taxpayers will just get simple cash in exchange for letting the companies extract oil from public lands.
Salazar’s plan is in line with legislation introduced by Rep. Nick Rahall of West Virginia, who called the hearing where Salazar spoke.
“Bravo, bravo, bravo. I salute you for ending that program,” Rahall
responded to Salazar. “I have been calling for the end of that program
for years. It will end the opportunity for mischief and temptation and
provide a more a decent return for the American taxpayer.”Rahall’s bill outlines further changes to the oil and gas royalty
program, including raising onshore drilling lease rental rates, which
have not been increased since the 1980s, and repealing deep-water
royalty relief provisions that limited payments on production from deep
wells.
That so-called deep-water royalty relief has robbed the public treasury of about $10 billion, and, according to a 2006 GAO report, will cost tens of billions more unless the hole is plugged (again with the oil companies raging against any fix)
Democratic Natural Resources Committee aides worked with Interior
Department staff to write bill language based on previous attempts by
Democrats to raise rents on oil companies and to redress errors in
earlier drilling leases estimated to cost the federal government more
than $10 billion in lost royalty payments. Compared with other
countries, the U.S. receives one of the lowest rates of revenue for oil
and gas, according to a study released today by the Government
Accountability Office.….
The oil industry was quick to slam the move, and the broader legislation.
“The royalty-in-kind program, which collected $6.6 billion in oil
and gas deliveries in fiscal 2008, is one of the government’s largest
sources of non-tax revenue,” said Jack Gerard, president of the
American Petroleum Institute. “The program is an effective means of ensuring that the
American people receive fair compensation for development of federal
resources. Terminating this straight-forward method of handling royalty
payments runs the risk of raising administrative costs and adding
additional layers of paperwork required to determine the value of oil
and gas production.”
That doesn’t make sense on a lot of levels. If the government didn’t have to accept oil as a royalty payment during price spikes like we had last year, it could buy oil for the federal strategic reserve when the price drops, and actually save money. And since when is it harder, or less fair to the taxpayers, to pay royalties in cash? There’s nothing straightforward about turning the government into an oil trader for the purpose of collecting a tax.