Oil Firms May Owe $856 Million to U.S., Report Says

Oil companies owe the federal government as much as $856 million in royalties and interest because they undervalued the price of crude oil produced in California between 1978 and 1993, according to a report released Thursday based on internal government documents.

California, which uses its oil royalties for education, would reap $165 million as the state’s share of the uncollected funds--enough to educate 35,000 students for a year, by one estimate.

“California’s delinquent oil companies are stealing money from California’s schoolchildren,” said Rep. Carolyn Maloney (D-N.Y.), who has pushed to improve the collection of debts owed the federal government.

The report was done by the Project on Government Oversight, a self-described watchdog group.

The $856-million figure, an estimate of potential undercharges developed by a government task force investigating the royalty question, is the biggest estimate to date in a long-running argument over whether the oil industry imposed unfairly low prices for California crude.

The dispute has a long court history. In 1991, in their own case alleging the similar underpayment of royalties, the state of California and city of Long Beach won a settlement of $320 million from six oil companies after a 16-year court battle.

A year ago, in an earlier phase of the federal task force investigation, the Interior Department indicated potential federal losses of $30 million for the years 1990 through 1993.

But some officials participating in the inquiry insisted that the federal government obtain documents used by the state of California during its royalty investigation, sources said Thursday. This additional information, dating back as far as 1975, provided enough detail about industry pricing practices to send the estimate of underpayments of royalties ballooning to more than $800 million.

The essential complaint of the government inquiry is similar to the case brought by California and Long Beach and settled in 1991: that oil companies met secretly and conspired to pay artificially low prices. This reduced what they would pay for oil at the wellhead--and thus what they would pay in royalties to the federal and state governments.

Maloney said the Interior Department memorandum indicates that the money is owed by 10 companies: Texaco, Shell, Arco, Mobil, Chevron, Exxon, Unocal, Phillips, Santa Fe and Oryx.

The American Petroleum Institute, which represents the oil industry, said its officials had not yet seen the report issued by Maloney’s office and would not have any immediate comment. Spokespersons for Los Angeles-based Arco and Unocal said Thursday that they were unaware of the report and could not comment.

The federal task force, including officials from the Interior, Energy and Commerce departments, is supposed to issue its report in April, said Mary Helen Thompson, a spokeswoman for the Interior Department. The report released Thursday by the watchdog group was based on documents it obtained from the task force.

Rep. Steve Horn (R-Long Beach), whose district is a major source of oil royalties from offshore production, is glad that Maloney and the watchdog organization “brought this issue to his attention,” said Russell George, staff director of Horn’s subcommittee on government management and information. The subcommittee will “take a closer look at the issue,” George said.

Horn has sponsored a bill to allow the federal government to collect past-due money from delinquent payers. The bill would authorize the government to subtract the overdue debts from any government funds being paid to the delinquent parties. This would mean, for example, that if a decision is made to collect the money from the oil companies, it would be debited against any government contracts they have.

The state’s proposed share of the money would pay for a year’s education for all the children in a mid-size city or the salaries of 4,100 teachers, said Danielle Brian, executive director of the Project on Government Oversight. The organization describes itself as a nonpartisan watchdog involved in exposing government mismanagement and waste.

“Why is the Department of the Interior more comfortable running a corporate welfare program for the oil industry than doing its job and collecting what is due to the American people?” the organization asked in its report, which included draft memorandums from the Interior Department.

One document said there are “many possible permutations” for calculating the oil royalty underpayments in California. The 10 companies involved account for 90% of the royalty oil produced in California, the document noted.

Using market prices for Alaska North Slope oil delivered to Los Angeles as a benchmark would yield a figure of $856 million for unpaid royalties and accrued interest for the period between 1978 and 1993, the Interior Department document said.