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 well."

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."