Federal Treasury To Lose Billions Through Oil Royalty Relief

Federal Treasury To Lose Billions Through Oil Royalty Relief

The high cost of fuel continues to empty the wallets and pocketbooks of individuals, families, farmers, and business owners throughout the country. Unfortunately, due to the volatility of the oil markets, consumers probably should not expect prices to come down any time soon.

The U.S. Department of Energy reported last week that the average price for regular gasoline in the Midwest was $2.75, up 10 cents from the week before and up 60 cents from a year ago. Oil prices reached an all-time high of more than $70 per barrel, and the Energy Department has projected that gasoline prices this summer will likely average 25 cents more than last summer. Prices could spike higher if there are unexpected supply disruptions caused by the weather or refinery problems.

But as the price of oil goes up and ordinary consumers try to cope with sticker shock at the fuel pumps, petroleum companies are enjoying record profits. Current market conditions have created a financial windfall for the petroleum industry, but the companies are also reaping additional profits as a result of a law designed to promote oil and gas production when market conditions are less favorable to the industry.

Ordinarily, oil and gas companies sign leases for the right to drill on federal lands and pay royalties to the federal government for the oil and gas produced. When oil prices were relatively low in the mid-1990s, a law providing royalty relief was approved to encourage oil and gas exploration and production. But with today's record high oil prices, most experts agree that the companies no longer need such incentives and are likely to make high profits even without royalty relief.

The amount of money the federal government foregoes by waiving oil and gas royalties is significant. Earlier this year, the Interior Department's Minerals Management Service reported that the incentives for oil and gas companies that drill in the Gulf of Mexico could be worth $7 billion through 2011. More recently, a Government Accountability Office study found that these incentives will cost the federal government at least $20 billion over the next 25 years. Meanwhile, the companies expected to benefit from royalty relief include some of the largest and most profitable companies in America, including ExxonMobil, Shell, BP, and Chevron. These four companies alone made nearly $100 billion in profits in 2005.

I have cosponsored legislation that would end the practice of allowing oil and gas companies to drill on federal lands without paying the American people for that privilege. The bill would suspend royalty relief and direct the Secretary of the Interior to renegotiate leases to eliminate royalty waivers. With oil and gas prices at the current high levels, and oil and gas companies reporting record profits, Congress must act to halt further losses to the taxpayer.

http://www.house.gov/skelton/col060423.htm