The case involved Chevron’s accounting of natural gas sales to a company it partly owned. The decision likely sets a precedent for oil and gas companies to slash their royalty payments instead of having a portion of those revenues go to public health, environmental and citizen organizations for use in the battle against climate change. It also has renewed criticism the US government is reluctant to confront oil and gas companies and collect royalties – instead leaving more money in the hands of its cohorts in industry.
The Bush Administration has largely been conspicuous in its inaction, and deafening in its silence over climate change, instead working behind the scenes to emasculate potential agents of reform like the Environmental Protection Agency – and now the Department of the Interior. The non-profit Clean Air Watch recently charged the Bush Administration with misleading people about the health dangers of breathing particle soot by saying an EPA proposal was “contaminated by politics and White House interference.” “The government is giving up without a fight,” said Richard T. Dorman, a lawyer representing private citizens suing Chevron over federal royalty payments. “If this decision is left standing, it would result in the loss of tens of millions, if not hundreds of millions, of dollars in royalties owed by other companies.”
In return for the right to drill on federal lands and in federal waters, energy companies are required to pay the government a share of their proceeds. Last year, businesses producing natural gas paid $5.15 billion in government royalties. But the Bush administration has come under criticism for its record on collecting payments. While the Interior Department has sweetened incentives for exploration and pushed to open wilderness areas for drilling, it has also cut back on full-scale audits of companies to make sure they are paying their full share.
Administration officials knew that dozens of companies had incorrectly claimed exemptions from royalties since 2003, but they waited until December 2005 to send letters demanding about $500 million in repayments. In February, the Interior Department acknowledged that oil companies could escape more than $7 billion in payments because of mistakes in leases signed in the 1990s.
Top officials are trying to renegotiate those deals, but some have complained the administration is dragging its feet. In addition, four government auditors last month publicly accused the Interior Department of blocking their efforts to recover more than $30 million from the Shell Oil Corporation, the Kerr-McGee Corporation and other major companies. The Chevron case offers a glimpse into what is normally a secretive process. To protect what energy companies consider proprietary information, the Interior Department does not announce that it is accusing companies of underpaying royalties nor does it announce its settlements in these disputes. Nor does government disclose how much money each company pays.
“This latest revelation proves that the Bush administration is incapable of preventing big oil companies from cheating taxpayers,” said Congressman Edward Markey, a senior Democrat on the House Committee on Resources. “The public has been systematically fleeced out of royalties that these companies owe for the privilege of drilling for oil and gas on lands belonging to all of us.”