Audit Says Oil Firms May Have Underpaid Royalties : Energy: Schools may have been shortchanged by about $15 million during the four-year period, Interior Department data shows.

Major oil companies operating in California may have underpaid royalty payments to the federal government--half of which flow to the state--by about $30 million from 1990 through 1993, according to an Interior Department internal report made public Wednesday.

In California, where all royalty shares are turned over to public education, school systems may have been underfunded by about $15 million during the four-year period.

“The Department of Interior, the agency responsible for collecting these royalties, is a willing partner in this corporate welfare program,” said the group that obtained the audit report. The report says the undercutting may still be going on.

The audit, a draft of which was written in December by the Office of the Acting Inspector General at the Interior Department, has not been completed, an aide in that office said. The draft was obtained by the Project on Government Oversight, which describes itself as a nonpartisan, nonprofit organization that investigates conflicts of interest and abuse in government.

The royalties are based on prices charged by oil-producing companies at the well site. During the years studied, according to the report, royalty payments on oil pumped from federal land totaled $420.2 million. But these royalties would have been higher if the California crude-oil market weren’t depressed compared to the U.S. and world oil prices, the group contends, citing government reports.

Low California crude prices are usually blamed on several factors, including a glut of Alaskan oil forced into the market by an export ban, the difficulty of refining the state’s heavy crude and market control by the major oil companies.

Critics have long contended that the major oil companies intentionally keep crude prices low in California because as integrated companies--with business units that do everything from producing oil to selling the refined gasoline--they can make up the loss with higher profit margins in their refineries.

Based on a June, 1994, Energy Department report on the current export ban on Alaskan North Slope oil, the Interior Department study estimated that California crude prices were undervalued by between 90 cents and $2.53 a barrel.

“Assuming that crude oil has been undervalued by (90 cents) per barrel, we estimated that federal royalties may have been underpaid by $29.5 million for 1990 through 1993 and may continue to be underpaid by $7.4 million annually in future years if this situation continues,” the report says.

An accompanying report by the Project on Government Oversight says: “The problem is that these crude oil prices are set artificially lower than their market value. . . . The General Accounting Office found California crude prices to be 20% lower than in the rest of the country.”

How this affects government royalties has been a matter of contention for more than two decades.

In 1975, the state of California and city of Long Beach brought suit against Exxon, Unocal, Chevron, Texaco, Mobil, Arco and Shell, charging a conspiracy to depress crude oil prices that deprived the state and city of their fair share of royalties.

In 1991, without admitting wrongdoing, all but Exxon settled the suits on undisclosed terms that included payment of a total of $320 million in cash and real estate to Long Beach and the state. Exxon took the case to trial and was cleared of the price-fixing charges in 1992.

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Last year, the Clinton Administration appointed a task force to attempt to determine whether there has been similar underpricing on federal land. The task force, on which the California Lands Commission is represented, is said to be perhaps a year away from completing its work.

“California royalties in the past have been underpaid,” Robert Hight, executive officer of the State Lands Commission, said Wednesday. “We reached a settlement, and we believe by and large those royalties are being paid today. But we don’t know about the federal royalties.”

As to the Interior Department report, Jay Ziegler, a department spokesman, said that it is “one of a number of reports the department has issued over the course of the last decade on crude pricing in California and whether it is being charged at a marked-down rate. Each one of the reports has pointed to a different conclusion, depending on the methodology.”

The royalties are assessed on land-based oil drilling administered by the Bureau of Land Management, an Interior Department agency. Holders of leases granted by the federal government pay royalties on the sales value of crude oil, at a rate established in the lease agreements.

California, which has produced an average of 381 million barrels of oil a year since 1980, is the fourth-largest oil-producing state, and in 1993 federal leases were said by the Interior Department to have accounted for 70 million barrels.

The current report follows a similar study completed in 1991 by the Interior Department, which found that from 1980 to 1989 six of the seven intrastate pipelines crossing federal property were exclusively controlled by major oil companies, an apparent violation of federal law.

Independent producers, who must depend on the majors to transport their product, were forced to keep their well-head prices “below fair-market prices or pay exorbitant fees to transport the oil,” the report says. This artificially low California market made for underpayment of federal royalties that may have amounted to $76.6 million, it estimates.

Most of the major oil companies cited, as well as the California Independent Petroleum Assn., which represents smaller independent producers, declined comment on the report on Wednesday, saying they had yet to study it.

* Gerstenzang reported from Washington, Parrish from Los Angeles.