Agency Says Oil Underpayment Findings Need Further Study

The Interior Department is disregarding its own analysis showing that oil companies have underpaid royalties to the federal government by as much as $856 million on crude oil pumped in California, and has decided to study the issue further instead of sending bills to the companies, sources said Thursday.

In addition, the department is providing the full report on the issue to the oil companies for their review, rather than making the document public.

California’s share of the additional royalties, if they were to be collected, would be $165.6 million, and the funds would be earmarked for education.

After studying the issue for two years, an interagency team has prepared a report saying the government is being underpaid because oil companies used an artificially low price for the value of crude produced in California between 1978 and 1993.

The team’s summary of findings issued Thursday recommended that the government “concentrate its collection efforts” on 10 companies that produce 90% of the federal crude oil in California.

But the full report was not made available to the public, a decision that drew angry criticism from Rep. Carolyn B. Maloney (D-N.Y.), who has been investigating the issue.

“By not releasing the report, I fear you will give the American public the impression that the department has something to hide,” Maloney said in letter sent to Assistant Secretary Robert Armstrong, the official in charge of Interior’s Land and Minerals Management Division.

“Furthermore, by sending the report to the oil companies for approval, the department would be sending the wrong message that these companies have veto authority or the ability to weaken the report,” she said in the letter.

Maloney wants the Interior Department to “take immediate steps to collect the money owed.”

The full report “will be made available just as soon as possible,” said Tom DeRocco, a public affairs officer for the Minerals Management Service. “It is a question of allowing the department to take a little more time to review the report.”

Although the interagency team has been studying the issue for two years, there are no immediate plans to require the oil firms to make up their underpayments.

Action will be based on a “careful review of the report,” he said.

The report offers two approaches to collecting:

In one, the department previously hired a consultant who said the California oil should be valued at the same price charged for oil from Alaska that flows into the California market. This approach could yield additional revenues for the government of as much as $856 million.

A second approach, proposed by Interior officials, would call for an investigation based on the value of private sales contracts among the oil companies to measure the true market value of California crude.

Armstrong, the assistant interior secretary, has the power to send bills directly to the companies demanding immediate reimbursement of the underpayments. This approach is favored by the Energy Department and Commerce Department representatives on the interagency team but is strongly opposed by officials from Interior’s Minerals Management Service and solicitor’s office, sources indicated.