The Great American Oil Rip-Off

America’s big oil companies have been ripping off federal and state governments for decades by underpaying royalties for oil drilled on public lands. The Interior Department tried to stop the practice with new rules, but Congress has succeeded in blocking their implementation, and will again if a Senate bill calling for a moratorium on the new rules, proposed by Sens. Kay Bailey Hutchison (R-Texas) and Pete V. Domenici (R-N.M.) and scheduled for a floor vote as early as Wednesday, is enacted.

Not since the Teapot Dome scandal of the 1920s has the stench of oil money reeked as strongly in Washington as it is in this case. Back then, President Warren G. Harding’s interior secretary, Albert B. Fall, went to jail for taking a $400,000 bribe for leasing naval oil reserves to two private developers without bothering to go through public bidding.

Hutchison’s acceptance of $1.2 million in campaign spending contributions from oil and gas interests between 1994 and 1998 is not illegal. But did those contributions have no effect on her current push for oil industry breaks?

The large, integrated oil companies--not the small independent producers--have been cheating state and federal treasuries by computing their royalties on the so-called posted price rather than fair market price, which could be as much as $4 or $5 per barrel lower. The Interior Department estimates this practice costs the taxpayers up to $66 million a year. Two years ago, Interior drew up rules that would stop the underpayment, but Congress has blocked implementation.

The latest attempt at delay comes in the form of a rider to the measure funding the Interior Department and would postpone the rules until the end of June 2001. By then, the public will have lost nearly $200 million, money usually earmarked for education, land and water conservation and help for Indian reservations.

California deserves much credit for adoption of the federal rules. Since 1981, the state has pushed, and even sued, the federal government to stop the royalty undervaluation. With Clinton administration’s backing, California finally succeeded when the current Interior rules were adopted.

Sacramento also led the oil-producing states in the litigation charge against the oil companies. In 1975, the City of Long Beach--the state’s trustee for the Wilmington oil field--sued seven of the large oil companies to recover the royalty underpayment to the state. So far, the lawsuit has netted California $350 million in settlements--all these funds are earmarked for education--but the case is still dragging on in court. Through litigation, the states have recovered about $5 billion all told, half by Alaska. Congress should not buckle to the pressure of the oil lobby. The Hutchison-Domenici bill should be defeated.