International Herald Tribune Editorial - Royalty rip-off

International Herald Tribune Editorial - Royalty rip-off
Copyright by The International Herald Tribune
Published: December 12, 2006


The U.S. treasury is already short more than a billion dollars because of the Interior Department's failure over the last decade to collect all the royalties owed from oil and gas producers in the Gulf of Mexico. The new Congress needs to fix the problem, or persuade a sluggish Bush administration to do so.

This failure — and how much it is costing the U.S. taxpayer — has been richly detailed over the last year by Edmund Andrews of The New York Times. The problems are twofold. The first is a loophole in leases signed by the Clinton administration in 1998 and 1999 to encourage deep-water exploration at a time when oil and gas prices were relatively low. The leases gave companies a break on royalty payments, but did not include a standard escape clause that would have restored full royalties when prices went up. The loophole has already cost the taxpayers $1.5 billion and, if not corrected, could cost $10 billion more over the course of the leases.

A bill that would have forced companies to renegotiate these flawed leases before being granted new ones failed by only two votes in the House on Friday. Unless the Interior Department succeeds in renegotiating the leases quickly, the new Congress should pass the legislation.

The more serious problem involves royalty collection, which is the responsibility of the department's Minerals Management Service. Whistleblowers have testified to the service's shortcomings, and last week, the Interior Department's inspector general said that the service relied too heavily on statements by oil companies, instead of independent audits.

Officials say they are trying hard to renegotiate the flawed leases. As for the broader management failures, they have hired new people and begun an internal review. This is all to the good, but the Interior Department has a long history of accounting failures and a more recent history of giving the oil and gas industry much of what it wants on public lands. When Congress summons Secretary Dirk Kempthorne to testify, it will want more than promises.