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Project on Government Oversight

Written Statement of POGO's Danielle Brian, before the Senate Energy Committee Hearings on the Department of Interior's Proposed Rule on Oil Valuation

Related Content: Oil & Gas Royalty Revenue
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June 11, 1998 | By: Danielle Brian

The current discussion over the Department of Interior's rulemaking is clearly very important for all those directly affected. The oil companies have linked arms in opposition to the proposed Rule because it would require the majors to pay more in royalties than they have been paying. The Department of Interior, in representing the interests of the taxpayers, Native American nations, and State public school systems, entered into the rulemaking process precisely because it finally realized that the major oil companies were not paying royalties on the market value of the oil, as was required.

It should, therefore, not come as a surprise that the oil companies do not like the proposed Rule. The very purpose in revising the Rule is to force these companies to pay what they owe, because for years, they have been getting away with paying significantly less than they owe. But how often is a regulated industry happy with the regulations it must abide by? If industry were silent, wouldn't that indicate that perhaps the taxpayer was not getting its due for the production on public lands?

This rulemaking process has already taken too long -- money is being lost as we wait -- in no small part thanks to Senator Kay Bailey Hutchison. I believe the last published version of the rule already went too far in allowing the major oil companies to benefit from the exceptions that were intended for the independents. For example, the new language places greater reliance on the gross proceeds standard in the case of exchanges than any of the previous drafts of the Rule.

As a result, any renewed discussions with industry would only move us back towards the "old" days of posted prices and non-existent well-head markets. This process must, by definition, be confrontational -- the taxpayers want the money owed to them, and the oil industry doesn't want to pay it. If we wait until industry approves of the Rule and stops lobbying against it, we the people will have lost the war. 

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