U.S. Demands $440 Million From Oil Firms

In a tough crackdown on royalty underpayments, the Interior Department said Thursday that it is demanding $440 million in additional payments from 20 companies for crude oil produced in California since 1980.

California’s share of the federal collections could be as much as $180 million, according to an informal estimate by a state official. The state gets 50% of royalties collected for oil produced on land and 27.5% for offshore production.

The Interior Department ruling ends a lengthy investigation prompted by the success of the city of Long Beach and the state of California in collecting additional funds from oil producers.

The Interior Department will begin sending out bills within the next few months “to make certain the American public and California get what is due,” said Robert Armstrong, assistant secretary for land and minerals management.

Thursday’s decision represents a victory for Clinton administration officials who wanted to take an aggressive approach toward underpayments by demanding immediate payment rather than conducting further inquiries and audits.

An interagency task force studied the issue and said the total amount owed by oil companies could range from zero to as much as $856 million, depending on the technique used to calculate the underpayments.

The issue centers on the official “posted price” used by oil companies to determine the royalties owed on crude produced on federal leases. The higher the price, the greater the royalty payments to federal and state governments. The lower the price, the more money saved by the oil industry.

Government officials say many oil companies based their payments on posted prices that did not reflect the true market value of the oil. The administration has calculated the amounts underpaid by using the prevailing market price of Alaskan crude oil from 1980 through 1988. For royalties paid since 1988, the government will depend on audits of individual companies to determine the amounts underpaid.

California and Long Beach collected $320 million from a group of companies in a 1992 court settlement dealing with payments for oil pumped in state waters. California asked the federal government to take a closer look at the monies collected on federal leases.

After lengthy studies, the Clinton administration decided to “deal with this once and for all,” Armstrong said in announcing the decision to ask for $440 million. “We believe this is the best course of action to make certain the American public and California get what is due.”

The federal government will send letters to the 20 oil companies responsible for 97% of the production on federal leases in the state.

Petroleum industry representatives were reluctant to comment on the decision.

The “issue is between individual oil companies and the Interior Department,” said Jeffrey B. Wilson, a spokesman for the Western States Petroleum Assn. in Glendale.

“We haven’t received any letters or bills . . . and it would be premature for us to comment,” said Paul Weeditz, a spokesman for Texaco.

“We believe we have made royalty payments in accordance with our contracts,” said Albert Greenstein, media relations manager for Arco.

The announcement was welcomed by members of Congress who have been urging the Interior Department to take a tough stance on collecting the money.

“In a time when governments are stretched to the limit financially, collection of any debt is imperative,” said Rep. Steve Horn (R-Long Beach), who conducted a hearing on the issue.

“It’s a big win--I’m very, very pleased,” said Rep. Carolyn Maloney (D-N.Y.), who participated with Horn in the collection effort. The Interior Department “will be able to collect a lot of money that is due the American taxpayer,” she said.

Maloney expressed concern about recently passed House legislation that would limit royalty collections in future cases by imposing a seven-year statute of limitations.

The Interior Department ruling was hailed as a “huge victory” by Danielle Brian, executive director of the Project on Government Oversight, the investigative group that originally disclosed the government’s internal estimates of substantial uncollected royalties.

Brian said royalty collections for underpayments in other states could total as much as $1.3 billion.

The government has issued new instructions to its personnel to review oil prices and collection policies throughout the United States, and it expects to collect more money, said Cynthia Quarterman, director of the Minerals Management Service, the Interior Department agency in charge of royalties.

The agency collects about $4 billion a year in royalties from federal leases.