Royalty Payments to Oil Firms Stir Debate

With $60 million a year at stake, the oil industry and the Clinton administration are expected to face off today in a Senate vote on a bill to permit the continuation of low royalty payments to state and local government on petroleum pumped from public lands.

The Interior Department ruled last year that oil companies calculated royalty payments on the basis of artificially low prices and developed new regulations to peg the payments to market prices. But Congress has voted on several occasions to stop the department from carrying out a new pricing policy after some lawmakers from major oil-producing states questioned its fairness.

The latest proposed congressional moratorium is contained in the Interior Department appropriations bill, which is scheduled for a vote in the Senate. It would extend the current pricing policy through June 2001 and would cost the Treasury an estimated $60 million in annual payments.

The argument centers on whether the amount of royalties being paid reflects the true value of the oil.

Sen. Barbara Boxer (D-Calif.) will offer an amendment to end the moratorium and allow the Interior Department to collect higher payments. “Oil companies are cheating American taxpayers out of their rent payment,” Boxer said.

Supporters of the moratorium said that the rules are very complex, making it difficult for the oil industry to calculate what it owes the government.

“We simply want a fair, workable set of regulations that will not cripple the country’s oil [producing areas], already suffering from recent economic downturns in the energy industry,” Sen. Pete V. Domenici (R-N.M.), one of the key sponsors of the moratorium in the Interior bill, said in a statement.

The federal government’s interest in the issue was prompted by the success of California in a lawsuit alleging that companies were underpaying royalties. The state has collected $345 million in settlements related to the lawsuit, filed in 1975 by the city of Long Beach on behalf of the state’s interest in the Wilmington offshore oil field.

The industry says that efforts to increase its payments ignore the cost of transportation. In calculating payments, the government does not compensate companies for the full cost of moving oil from the drilling site to the point of sale, according to Ken Leonard, a senior manager of the American Petroleum Institute, the industry’s main trade association.

The issue “is not about royalty rates, but rather how value is established,” Sen. Kay Bailey Hutchison (R-Texas), who with Domenici co-authored the moratorium measure, said in June when the Appropriations Committee approved the regulatory freeze. “I support a valuation program that ensures both the state and national governments receive all royalties due to them, but which maintains fundamental principles of equity and does no further harm to our domestic oil industry.”

She denounced the Interior Department’s plan to collect increased royalties as a “backdoor tax increase on an industry already on its knees.”

But Boxer, strongly supported by the administration, insisted that the industry wants to keep from paying a fair and appropriate share of royalties. The transportation argument is irrelevant, she said.

“It’s like someone who rents an apartment, and calls up the landlord, and says, “I have to drive to work so I need a reduction in my rent,’ ” Boxer said.

She dismissed the notion that the law’s complexity prevents oil companies from paying their fair share to the government.