Oil firms may avoid $7 billion in public royalties
By Edmund L. Andrews, New York Times
WASHINGTON — The federal government is on the verge of one of the biggest giveaways of oil and gas in American history, an estimated $7 billion during five years.
New projections, buried in the Interior Department's just-published budget plan, anticipate the government will let companies pump about $65 billion worth of oil and natural gas from federal territory in the next five years without paying any royalties to the government.
Based on the administration figures, the government will give up more than $7 billion in payments between now and 2011.
The companies are expected to get the largess, known as royalty relief, even though the administration assumes oil prices will remain above $50 a barrel in that period.
Administration officials say the benefits are dictated by laws and regulations that date back to 1996, when energy prices were relatively low and Congress wanted to encourage more exploration and drilling in the high-cost, high-risk deep waters of the Gulf of Mexico.
"We need to remember the primary reason that incentives are given," said Johnnie M. Burton, director of the Minerals Management Service. "It's not to make more money, necessarily. It's to make more oil, more gas, because production of fuel for our nation is essential to our economy and essential to our people."
But what seemed to be modest incentives 10 years ago have ballooned to levels that have alarmed even ardent supporters of the oil and gas industry.
"It's one of the greatest train robberies in the history of the world," said Rep. George Miller, D-Calif., who has fought royalty concessions on oil and gas for more than a decade.
Republican lawmakers are also concerned about the royalty relief program. "I don't think there is a single member of Congress who thinks you should get royalty relief at $70 a barrel" for oil, said Rep. Richard W. Pombo, R-Calif., chairman of the House Resources Committee.
The original law, known as the Deep Water Royalty Relief Act, had bipartisan support and was intended to promote exploration and production in deep waters of the outer continental shelf.
At the time, oil and gas prices were comparatively low and few companies were interested in the high costs and high risks of drilling in water thousands of feet deep.
Based on the government's assumptions about future prices — that oil will hover at about $50 a barrel and natural gas will average about $7 per thousand cubic feet — the total value of the free oil and gas over the next five years would be about $65 billion, and the foregone royalties would total more than $7 billion.
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