Graphic showing how Chevron circumvents royalty payments to the federal government through selling natural gas to Dynegy. From New York Times.This is off The New York Times:
WASHINGTON, Oct. 30 — The Interior Department has dropped claims that the Chevron Corporation systematically underpaid the government for natural gas produced in the Gulf of Mexico, a decision that could allow energy companies to avoid paying hundreds of millions of dollars in royalties.
The agency had ordered Chevron to pay $6 million in additional royalties but could have sought tens of millions more had it prevailed. The decision also sets a precedent that could make it easier for oil and gas companies to lower the value of what they pump each year from federal property and thus their payments to the government.
Interior officials said on Friday that they had no choice but to drop their order to Chevron because a department appeals board had ruled against auditors in a separate case.
How's that for a Halloween trick on the American taxpayer, while Chevron gets tens of millions in free royalties for a treat? It gets even scarier:
In a written statement, the department’s Minerals Management Service said it would have been useless to fight Chevron.
“It is not in the public interest to spend federal dollars pursuing claims that have little or no chance of success,” the agency said. “M.M.S. lost a contested and controversial issue” before the appeals board. “Had we simply wanted to capitulate to ‘big oil,’ the agency would not have issued the order in the first place.”
[....]
“The government is giving up without a fight,” said Richard T. Dorman, a lawyer representing private citizens suing Chevron over its 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.”
[....]
But the Bush administration has come under fire on Capitol Hill 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 intended to make sure they are paying their full share.
BOO! Here is the real Halloween scare--the Bush administration has refused to even make sure that Big Oil is paying the U.S. government the royalties for pumping oil and natural gas on federal lands. The Bush administration is siding with Big Oil in giving away natural resources that is owned by the U.S. government. And the Bush administration even knows they are giving away these resources to Big Oil without payments. Continuing with the Times story:
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 Republicans and Democrats have complained that 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.
“This latest revelation proves that the Bush administration is incapable of preventing big oil companies from cheating taxpayers,” said Representative Edward J. Markey of Massachusetts, 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.”
Three separate instances of the Bush administration dragging its feet in collecting almost $8 billion in royalties from Big Oil companies—that is the Bush administration putting the interests of Big Oil above that of the whole country’s interest.
The real problem here is that the entire royalties’ process is secretive. According to the NY Times story, the Interior Department "does not announce that it is accusing companies of underpaying royalties nor does it announce its settlements in these disputes." In fact, the U.S. government does not even disclose how much money each company pays in royalties. This has introduced a form of cheating by the Big Oil and energy companies. In the Chevron case, Chevron sold its holdings in more than 50 processing plants to Dynegy, a natural gas company, in exchange for a 26 percent stake in Dynegy, in 1996. Companies, such as Chevron, are allowed to deduct processing costs--which involve separating water and liquid fuels such as propane and methane from natural gas--from their sales revenue when they calculate their royalty obligations. For the next seven years, Chevron sold all its domestic natural gas to Dynegy for processing. During that time, Chevron understated it natural gas sales to Dynegy, while also inflating the costs of processing the gas at Dynegy. This combination reduced the royalty obligations Chevron had to pay to the federal government. According to the Times:
From 2001 to 2003, after detailed audits of several Chevron leases, the Interior Department said the company was reducing its “sales value” by exaggerating processing costs at six of Dynegy’s many plants. At one plant, auditors estimated Chevron had claimed five times the actual costs.
At first glance, the suspected underpayments seemed trivial: about $6 million out of hundreds of millions in royalties. But the audits were limited to only a handful of plants. Had the Interior Department pressed its claims successfully, it could have recovered money tied to all the other plants, and for other years.
Chevron paid the $6 million but appealed. The file in that case now runs more than 900 pages, most of it still off-limits to the public.
Chevron’s ties with Dynegy also appeared to be closer than those between the other companies. Chevron described Dynegy as an affiliate in some reports to shareholders. Chevron was also Dynegy’s biggest supplier of raw natural gas, its biggest customer for gas processing and one of its biggest for processing byproducts like propane and methane.
There is so much more here. The state government of New Mexico sued Chevron over this same issue, forcing Chevron to pay $10.4 million in extra royalties without admitting wrongdoing. Private property owners in Oklahoma, who leased land to Chevron, also sued the company over this same issue, forcing Chevron to pay $60 million to settle out of court in 2005. This is a convoluted, systematic process by which Chevron is able to get away with avoiding royalty payments, in a system where all information regarding royalties is considered proprietary information by companies, and thus is secretive. And it is not just Chevron that is getting away with this. According to the Times:
John Bemis, the assistant commissioner for gas and minerals in New Mexico, said his state was challenging a growing number of such alliances. In addition to the $10.4 million royalty settlement with Chevron, New Mexico persuaded ConocoPhillips to settle a similar case in August for $9.5 million and is negotiating with BP in a third case.
Interior Department officials have shown little interest in evidence from either New Mexico’s experience or a current court fight with Chevron over federal royalties.
Trick or treat.
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