Mistake by Interior Department may cost taxpayers billions in lost royalty payments

Rod Adams — Sun, 08 Jun 2008 09:35:41 +0000

Bashing oil companies is a popular water cooler sport these days. At the risk of piling on, I just had to share my anger about some information that I learned on Thursday while listening to NPR’s Marketplace program.

The General Accountability Office released a report on June 5, 2008 that computed that the US Treasury may have to forgo oil royalty payments in excess of $53 Billion over the next 25 years because of an error made by the Interior Department. This forgone money is not uncollected taxes, it is the government’s (taxpayers’s) share of the revenue produced by selling oil that originated from reservoirs under publicly owned sea beds.

Here is what happened. Congress, recognizing that drilling in deep water is difficult and costly, passed a law in 1995 giving the Interior Department’s Minerals Management Service authority to provide “royalty relief” for off shore leases. For those who do not keep long term oil prices readily at hand, the price of a barrel of oil in 1995 was between $12 and $18. For the leases issued under this authority in 1996, 1997, and 2000, the MMS included a trigger price where royalty payments would begin if market prices reached certain levels.

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Mistake by Interior Department may cost taxpayers billions in lost royalty payments