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Friday, Aug. 21, 1998
Royalty plan is criticized
Oil industry backs `in-kind' payments
By MICHELLE MITTELSTADT
Associated PressWASHINGTON - A drive by the energy industry and oil patch politicians to change the way companies pay royalties to the federal government for oil and natural gas pumped from federal lands isn't workable at present, congressional investigators have concluded.
The General Accounting Office, in a report issued this week, raised questions about the ``royalty-in-kind'' concept promoted by congressional Republicans, including Sen. Kay Bailey Hutchison and Rep. Mac Thornberry, both of Texas.
Under their proposal, oil and natural gas producers would pay their royalties to the government in product rather than cash. Currently, producers estimate the value of the oil and gas they've pumped and then pay royalties - a system that pleases neither government regulators nor the energy industry itself.
The dispute over royalty collections isn't inconsequential.
The Interior Department's Minerals Management Service (MMS) collected some $2.5 billion last year in royalties for gas from leases on federal land and another $1.6 billion in royalties for oil pumped from government-owned lands.
MMS, which contends taxpayers are being shortchanged under existing rules, is pushing a new royalty collection system tied to market prices. But MMS has run afoul of the oil industry and Republicans on Capitol Hill and has been barred by Congress from changing its rules in the near term.
Oil companies have their own problems with the current collection process, which has exposed some of them to lawsuits charging that they've undervalued their royalty payments. But they dislike the changes proposed by MMS even more - pushing the royalty-in-kind concept instead.
But GAO found shortcomings with royalty-in-kind, saying the government doesn't have an appropriate network to accept a flow of oil and gas.
Analysis of past royalty-in-kind programs ``indicates that it would not be feasible for the federal government to take its oil and gas royalties in kind except under certain conditions,'' the investigators wrote.
And those conditions - easy government access to pipelines, expertise in marketing oil and gas, leases that produce relatively large quantities of oil and gas - don't exist at present, GAO found.
MMS estimates royalty-in-kind would cost the government anywhere from $140 million to $367 million yearly - a figure rejected by Thornberry.
Hutchison noted that the GAO cited the success of a Texas royalty-in-kind venture. ``The Texas program has increased revenues to the state treasury. I believe our program can be adapted to fit the needs of the entire nation, and we need to consider this as one option for creating a fair royalty valuation system,'' she said.
Two Democrats who have battled the oil industry over royalties, Sen. Barbara Boxer of California and Rep. Carolyn Maloney of New York, welcomed the GAO findings.
``This report is a real boost for those of us in Congress who are determined to ensure that the largest oil companies in the world live up to their contracts to pay the correct sum to the American people,'' said Boxer.
Royalty-in-kind ``is way too `kind' to Big Oil and would leave the government with additional costs,'' said Maloney. ``It just doesn't make any sense.''
Thornberry and the Independent Petroleum Association of America questioned the GAO's methodology.
The report doesn't examine Thornberry's legislation, said IPAA vice president Ben Dillon. ``They just talked about RIK in general, in theory,'' he said.
Said Thornberry, R-Clarendon: ``We have made changes in our bill . . . at various stages along the process which deal with some of the issues they bring up.
``The bottom line is if (the Congressional Budget Office) doesn't say that this is going to put the taxpayers in a better position, then I don't think anybody's interested in pursuing it, including me.''Post your comments about local news eventsFront Page || Main Index || News || Business || Texas || South Texas Outdoors || Birdwatching || Sports || Entertainment || Selena || Education || South Texas Attractions || World Wide Web