11. Giant Oil Companies Owe U.S. More Than $1.5 Billion
Source: PROJECT ON GOVERNMENT OVERSIGHT REPORTS, April 1995, Title:
"Department of Interior Looks the Other Way: The Government's Slick
Deal for the Oil Industry"; Author: Project on Government Oversight
(POGO), Danielle Brian
SYNOPSIS: Seven of the largest oil companies in the United States
-- Texaco, Shell, Mobil, ARCO, Chevron, Exxon, and Unocal -- owe the
federal government more than $1.5 billion in uncollected royalties,
interest, and penalties, according to a well-documented report by the
Project on Government Oversight (POGO). POGO is a non-partisan, non-profit
organization that investigates conflicts of interest and abuse in government.
POGO also obtained a draft of a Department of Interior (DOI) Inspector
General report which concludes that over a four year period, royalties
alone "may have been underpaid by as much as $29.5 million from
1990 through 1993 and may continue to be underpaid as long as pipelines
continue to operate as private carriers."
The big oil companies, with the exception of Exxon, operate the largest
pipelines with the state of California. These pipelines cross federal
land in one or more places which by federal law requires them to be
operated as common carriers (common carriers allow small oil company
crude to be transported for free). Instead, they are operated as private
carriers. This monopoly forces smaller oil companies to pay higher rates
in order to move their crude oil from the wells to the refinery. Also,
the largest oil companies have been artificially suppressing the price
of their crude in order to avoid high royalties as mandated under the
Mineral Leasing Act.
Surprisingly, the DOI, the agency responsible for collecting these
royalties, is a willing partner of the oil companies in this extraordinary
corporate welfare program. In addition to the forthcoming Inspector
General report, DOI has ignored: U.S. Department of Commerce comments
about the problem; a DOI Office of Policy Analysis that calls for the
Department to determine the amount of royalties due (including interest
and criminal penalties, if any), and to initiate collection procedures;
and the DOI Minerals Management Service conclusion that "we should
pursue potential Federal royalty underpayments."
Beyond the obvious impact of losing more than $1.5 billion that is
owed to the federal treasury, this sweetheart deal with the oil industry
has even more direct harm. By federal law, one half of all money collected
by the federal government from oil royalties is to be returned directly
to the state from which the oil has been pumped. In California, the
law requires that such funds be credited to the State School Fund. This
means that the California school system, which is in serious financial
trouble, has been bilked out of nearly $750 million.
To date, the Department of the Interior has failed to collect these
funds and the nation's press has taken scant notice of this classic
example of corporate welfare.
SSU Censored Researcher: Fritz Rollins
COMMENTS: Author Danielle Brian acknowledged that while there
was some limited media coverage of the issue, there was no significant
follow-up. "ABC Evening News ran a piece on this story and a short
follow-up that focused on an individual bureaucrat," Brian said.
"No other networks touched it. The Washington Post and the L.A.
Times both ran stories in their Business Sections. The Cox wire service
ran an article that resulted in a number of small town newspapers picking
up the story. However, none of these outlets were willing to do any
follow-up, despite the fact that we received sensational new documents
after the original stories ran. In fact, the L.A. Times ran two "Letters
to the Editor" attacking POGO and the story. While they did identify
one of the authors as representing the oil industry, they did not identify
the other as recently having represented an oil industry association.
Needless to say, the L.A. Times refused to run our response, despite
our ability to prove the letters were inaccurate and misleading."
Brian believes the general public would benefit from wider exposure
of this subject because "it is only through public exposure, as
is usually true, that the government's acquiescence to the oil industry
will stop. Until the mass media cover this story aggressively, we will
not be able to stop this form of corporate welfare. Furthermore, more
media attention would not only energize the Administration, but it would
also motivate Congress which up to this point has dropped the ball as
Clearly, Brian continues, the oil industry benefits from the lack of
media coverage. "Of course they are not interested in having to
pay back $1.5 billion to the federal government. In addition, the Department
of Interior bureaucrats, whose interest is to protect the status quo,
also benefit from the lack of coverage of the subject. Not only is it
easier to continue doing business as usual, but no one wants to admit
they have allowed such a massive fraud to take place against the government."
After the POGO report was released, the organization received leaked
internal e-mail messages that revealed the Department of Interior's
efforts to cut a deal with industry, Brian added. "The Department
was asking for industry's support of DOI's reorganization plan. In exchange
DOI was offering to shorten the Statute of Limitations so that the oil
industry could no longer be prosecuted for withholding royalty payments.
Even though we actively worked with those journalists who had already
covered the story, as well as a number of other major media outlets
including the Wall Street Journal and Time Magazine, no one, other than
the trade press, ran any further stories."