Oily 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….”

So wrote the Los Angeles Times in an editorial this summer. Indeed, this larcenous behavior by the large oil companies has been a routine practice since the early years of this century.

Unlike simple burglaries, big oil thefts are complex and varied. There is the geological type, where the company siphons off oil underneath adjacent property so that it comes up on the property the company is legally entitled to produce from. Then there is the type where the company undercounts the barrels it produces. Indian tribes, among others, have been ripped off with the latter technique for years.

At times the companies would buy and sell from their subsidiaries, or to and from each other, to establish a sweetheart price lower than the actual market price, so they could underpay royalties to the federal and state governments, which are the trustees of the public lands.

The controversy in Congress for the past four years has been over the accounting practice of assigning a posted price to the oil that is well below market price. This, claim oil industry whistle-blowers and senators including Barbara Boxer (D-Calif.), violates the contractual agreements between the lessor governments and the lessee oil companies. The agreements with the U.S. government require that “the value of production for purposes of computing royalty on production from this lease shall never be less than the fair market value of the production.”

Congress is too full of oil-industry senators and representatives taking tens of millions of dollars in campaign contributions to stand up for the taxpayers’ assets in these public lands. So the last bastion of democratic government — the courts — have been witness to many lawsuits filed by numerous states and the federal government, including those initiated under the False Claims Act by private citizens.

This act allows citizens who have evidence of fraud practiced on the federal government by corporate contractors or lessees to sue to recover the sums defrauded. Often the Justice Department will join these suits. The state lawsuits alone have already recovered about $5 billion dollars through settlements. A number of big companies are settling their share of a lawsuit that was brought by two whistle-blowers, and the U.S. government, in Texas. That suit aimed to recover a total of $5 billion for alleged violations reaching back for years.

Pressed by the state of California since 1981, the federal government finally agreed to publish a final revised rule on the royalty valuation of crude oil on federal lands, to stop the underpayments. But, led by the oil-marinated senators Tim Hutchinson (R-Ark.), Pete Domenici (R-N.M.), John Breaux (D-La.), and Don Nickles (R-Okla.), Congress has blocked this crude oil valuation rule for two years. The same senators are pushing for a another year delay, which Interior Secretary Bruce Babbitt estimates will cost the Federal Treasury, the states, and Indians nearly $6 million a month.

The federal and state lands, owned by the American people, have long been plundered by the oil, timber, mining, and grazing companies that manage to get these valuable natural resources for a fraction of their real market value. And, in the case of the 1872 Mining Act, gold and other hard-rock minerals entirely for free.

The struggle to get fair market value for these resources should be won through omnibus federal and state laws that prohibit these multibillion-dollar giveaways of the people’s heritage to corporations. How? By applying the same yardstick that corporations do when they deal in the marketplace for their goods and services. It is called fair market value.