December 18, 2006
Tyson Slocum is the director of Public Citizen’s Energy Program .
Big Oil’s lobbying representative in Washington, D.C.—the American Petroleum Institute, whose annual budget exceeds $112 million—recently said that they “will spend what’s necessary” to reform the industry’s battered public image. So they’ve hired the same PR firm that developed the “Got Milk?” campaign.
One of the reasons the oil industry can afford its new public relations spending spree is the fleecing it’s pulled on the American taxpayer with the active help of the Bush administration. A recent Inspector General audit of the U.S. Department of the Interior’s Minerals Management Service concludes that oil companies are pumping oil from federal land without paying adequate royalties to taxpayers for the privilege. The report cites widespread cronyism, ethical breaches, decimated auditing staff and overreliance on information provided by Big Oil as culprits in the oil industry giveaway. Meanwhile the Justice Department unexpectedly announced the welcome news that it has initiated criminal investigations into the Interior Department's oversight of oil companies.
The United States is the world’s third largest oil producer—extracting more oil every day than Iran, Kuwait and Qatar combined—and one-third of that American-made oil is tapped on federal land. With oil prices above $60 per barrel, we’re talking about billions of dollars worth of oil that companies like ExxonMobil are removing from public property without paying the government fair compensation. No wonder the big five oil companies—Exxon, ChevronTexaco, ConocoPhillips, BP and Shell—have posted $93 billion in profits in just the first nine months of this year.
The investigation found that the Bush administration relies heavily upon data supplied by the oil industry—which the government then fails to independently verify—in order to calculate the value of royalties owed. Since George W. Bush has been president, the number of auditors on staff has been cut nearly 16 percent, leaving fewer watchdogs to examine claims made by oil companies. As a result, the agency relies less on auditors and more on a widely ridiculed computer program to conduct the examination.
This explains why a chunk of the paltry revenues generated by the royalty-counting agency isn’t coming from audits, but from lawsuits filed by disgruntled government inspectors under the Federal Civil False Claims Act. This statute allows private citizens—in this case, government employees handcuffed by their politically appointed bosses from doing their jobs—to recover royalty underpayments from the oil companies through the courts. In 2006, one out of every five dollars collected through audits or compliance review were the result of employee-initiated litigation and not through official government initiative. Department of Interior employees have to go around their politically appointed bosses in order to force oil companies to pay their fair share of royalties to taxpayers.
So how did the Bush administration deal with these criticisms? It appointed David T. Deal head of a new advisory panel to review complaints about the royalty program. And Mr. Deal’s qualifications? From 1975 to 2003, he served as General Counsel to the American Petroleum Institute. We’d call that putting the fox in charge of the henhouse.
This type of cronyism unfortunately has been a habit under Bush’s watch. J. Steven Griles was Deputy Secretary at the Interior Department from July 2001 until he resigned in December 2004 under the swirl of allegations that he inappropriately did favors for disgraced lobbyist Jack Abramoff. So what better job for an Abramoff associate than to become a lobbyist. Upon leaving the government, Griles became a partner in the Republican firm Lundquist, Nethercutt & Griles, where he counts the American Petroleum Institute among his clients.
Interior’s Inspector General, Earl E. Devaney, told the House of Representatives in September:
The new congressional leadership taking over in January has an opportunity to fix the culture of corruption that has left oil companies free to drill on the public’s land without giving the American public fair compensation.
But the old guard couldn’t resist a last giveaway to Big Oil. On December 8, the eve of the end of the so-called lame duck session littered with 47 fired and retired lawmakers, the House of Representatives voted 207 to 205 to reject an amendment that would have corrected a separate, looming oil royalty fiasco. A decade ago, the Department of Interior offered big royalty breaks on some new oil and natural gas leases. But the government forgot to put a “ceiling” on the contracts that would have limited or revoked the royalty break if oil climbed to a sufficiently high price. At the time that the contracts were negotiated, a barrel of oil was in the $15 range. Now that it’s over $60 and the companies are ready to pump out the oil, they stand to gain record profits while the American taxpayer stands to lose $10 billion over the life of these leases.
The failed amendment would have required oil companies receiving this billion-dollar break to renegotiate their sweetheart deals in order to win new leases. Recently fired or retired lawmakers cast the deciding votes that defeated the recovery proposal, which was contained in an amendment to H.R. 6111. A net of 17 lame-duck lawmakers voted to continue allowing oil companies to enjoy their multibillion-dollar royalty break.
Nancy Pelosi has already said that holding oil companies accountable will be a centerpiece of her first 100 days as Speaker. At a time when our federal budget, our environment and our pocketbooks need it most, let’s hope the new management will finally end Big Oil’s free ride.