Oil Company Rip-Offs

Question: Do you believe, Mr. or Ms. Presidential, Vice Presidential, or Senate or House Candidate, that Big Oil has stolen billions of dollars from federal and state taxpayers?Background: Oil companies pay rental fees, or royalties, for the privilege of drilling on public and American Indian tribal lands. For decades, the giant firms -- accounting for 68 percent of the production from these lands -- have pegged the royalties to whatever prices they themselves chose to "post" at the wellhead. But if the market had set the prices, they would have paid the taxpayers and tribes billions of dollars more than they did.Harry Anderson knew about this from the inside, and he knew it was a huge rip-off. As secretary of Atlantic Richfield's pricing committee, his job had been to decide what prices to post. ARCO and other majors posted them artificially low, the now-retired Anderson said in a sworn statement. They paid "at least four to five dollars [per barrel] below what we accepted as fair market value."Why had Anderson participated? "My plan was to get to retirement," he acknowledged in a deposition. "The senior executives of ARCO [decided to] take the money, accrue for the day of judgment [the day they'd be caught], and that's what we did. I would not have been there in any capacity had I continued to exercise the right they had given me to dissent to this process during the discussion stage....I did not get to be a manager and remain a manager being oblivious and blind to signals."Anderson testified in September in an under-valuation lawsuit brought by the State of California against Exxon after other oil companies had settled. Later, a jury ruled for Exxon, saying it had complied with its contractual obligations under the particular contract with the state. Platt's OilGram News, a publication for the oil industry, disclosed Anderson's deposition.Let's go step-by-step through the story.1974: The State of California discovered that six major oil companies were underpaying royalties and sued them.1993: The Project on Government Oversight (POGO)--a tiny, nonpartisan, nonprofit, Washington-based public interest organization--began to prod the Interior Department's Minerals Management Service (MMS) to require the majors to pay royalties tied to market prices.1994: The MMS stonewalled. POGO then began to use the Freedom of Information Act to pry out of MMS documents relating to the pricing and valuation of California crude oil since 1980.1995: The MMS, under pressure, proposed regulations requiring Big Oil to link royalty payments to market prices. The majors "don't want to pay their fair share," Interior Secretary Bruce Babbitt would say later. "They have established a collusive procedure for cheating the public of a fair return."1996: Merely from production on federal lands in California starting in the 1960s, ten major oil companies owed more than $1 billion in unpaid royalties, MMS director Cynthia Quarterman admitted at a House hearing held by Carolyn Maloney (D-N.Y.). Yet, POGO would point out, 90 percent of the royalties collected by the MMS from 1985 to 1995 "came from federal land outside California." Twenty-five additional coastal and inland states share in the federal royalties earned from more than 6,000 onshore and offshore leases. The states generally spend their shares on schools; the federal government uses its share for conservation, parks, environmental programs, and historic preservation.1997: POGO obtained the last of thousands of documents it had sought under a succession of Freedom of Information Act requests. In a sometimes startling report, POGO disclosed the following: The MMS had made wide-ranging, so-called global settlements with Mobil, Exxon and Chevron; the settlements had the effect of limiting the potential payback of all ten major oil companies to only $385 million of the more than $1 billion the agency had said they owed for drilling on federal lands in California; and, finally, internal documents of the MMS itself described the settlements as "California Royalty Secret Deals."In another key development, a federal judge consolidated lawsuits accusing eighteen mostly large oil companies of having knowingly underpaid royalties owed federal taxpayers and Indian tribes since 1988. The plaintiffs, including POGO and former ARCO marketing executives Benji Johnson and John Martineck, brought the litigation under the False Claims Act, which lets citizens sue on the government's behalf and enables them if successful to share in the award. They asked for billions of dollars in trebled actual damages and civil penalties.1998: The Justice Department joined the False Claims Act litigation. Mobil bowed out, agreeing to settle for $45 million, of which POGO received $385,000. (Disclosure: I became an unpaid director of POGO after it had sued under the False Claims Act.) Interior, after a lengthy public-comment process, tried to make its proposed market-based-royalty regulations final, only to be blocked in the Senate. "They've found a way to fund corporate welfare for oil companies and other special interests," is how President Clinton put it recently.The "way" was three successive riders (one in 1999) on humanitarian relief bills that, as a practical matter, were unstoppable. The riders cost the taxpayers tens of millions of dollars. In 1999, the fourth rider in two years, attached to Interior's appropriations bill, gave the Senate this choice: Approve the encumbered bill, or deny Interior any money at all.Because the first three riders, in particular, were neither fully debated nor voted upon on the merits, they drew scant public attention. Indeed, Senator Barbara Boxer (D-CA) would tell the Senate, they were "agreed to many times in the dead of night," in committee, to protect the "5 percent of the oil companies that are ripping off the people."All of the riders were sponsored by Texas Republican Kay Bailey Hutchison, Big Oil's staunchest ally and the leading recipient of its campaign contributions. The industry has given her $1.2 million in campaign donations in the past five years.1999: The total amount that major oil companies agreed to pay over a multi-year period to settle under-valuations lawsuits approached the $5 billion mark. The principal recipients: Alaska, $3.7 billion; California, $345 million; Louisiana, $400 million; Texas, $30 million: Alabama, New Mexico and Florida, a combined total of $23 million, and the federal government, $45 million. The companies "have been found guilty of having cheated," Boxer told the Senate.Nevertheless, the majors continued to shortchange the federal government at the rate, Interior said in data published in the Congressional Record, of $66 million a year. "With $66 million, you can hire 1,000 teachers," Boxer declared. "You can put 44,000 new computers in classrooms. You can buy textbooks for 1.2 million students. You can provide 53 million hot lunches for schoolchildren."But the False Claims Act case produced cave-ins. Chevron, the Wall Street Journal reported on September 10, had agreed to settle for $95 million, BP Amoco for about $30 million, Conoco for about $28 million, and Occidental for $7.3 million.In Washington, meanwhile, the industry suffered pivotal setbacks. President Clinton threatened to veto any appropriations bill to which riders had been attached for the benefit of commercial interests, and, for the first time, the Senate barred riders on these bills. Undaunted, Hutchison tried to preserve royalty underpayments with an amendment to Interior's appropriations bill. Unlike the riders, however, her amendment was subject to full, open debate on the Senate floor. The debate, on September 23, was prolonged, bitter and educational. Telecast by C-SPAN2, it drew scorching press and public condemnations of Hutchison's amendment as corporate welfare.The debate turned on political philosophy as well as money. "I believe these public lands are a public trust," Richard Durbin (D-IL) said. "The philosophy on the other side ... is that the public lands are in some way an intrusion of the Federal Government into many of these states."MONEY GREASES THE WHEELS OF CONGRESSBut it was when Russell Feingold (D-WI) linked Congress's inaction against royalty underpayments to the campaign contributions that lubricate "the political process," and when he "called the bankroll," that senators who'd been bankrolled were infuriated. Just during the 1997-1998 campaign cycle, Feingold reported, "Exxon gave more than $230,000 in soft money and more than $480,000 in PAC money; Chevron gave more than $425,000 in soft money and more than $330,000 in PAC money; Atlantic Richfield gave more than $525,000 in soft money and $150,000 in PAC money; BP Oil and Amoco, two oil companies that have merged into a newly formed petroleum giant, gave a combined total of more than $480,000 in soft money and $295,000 in PAC money." The two-year grand total was $2,915,000.(The campaign contributions, of course, were exclusive of federal lobbying expenditures. In 1997-1998, according to the Center for Responsive Politics, ten major oil companies--those already named plus Phillips, Shell, Texaco and Unocal--spent a staggering $55.3 million on lobbying.)Of the nearly $3 million in campaign contributions, Feingold pointed out, better than half -- $1,660,000 -- consisted of soft-money donations "straight out of the corporate treasury." Until 1978, when the Federal Election Commission opened a loophole, he recalled, such donations were "supposed to be essentially illegal." He cited this language from the never-repealed Tillman Act of 1907: "It is unlawful for any national bank, or any corporation organized by authority of any law of Congress, to make a contribution or expenditure in connection with any election to political office."Failing to silence Feingold by contending that campaign financing was "not germane" to the debate on royalties, his opponents made arguments such as:The oil companies "are actually begging to pay their fair share"; Mary Landrieu (D-LA).Hutchison's amendment would prevent taxation of oil "beyond the real value"; Pete Domenici (R-NM).Her amendment represents "the overwhelming majority of the Senate who want to do the right thing," would avert a "raise [in] the price of gasoline for every working American," and would "protect jobs"; Hutchison.In the end, the Senate backed Hutchison. Republicans cast 46 of the 51 aye votes, joined by Democrats John Breaux and Landrieu, both of Louisiana; Jeff Bingaman (NM), Blanche Lincoln (AR), and Daniel Inouye (HI). Of the 47 nay votes, Democrats cast 40, joined by Republicans Susan Collins and Olympia Snowe, both of Maine, Judd Gregg (NH), James Jeffords (VT), William Roth (DE),Gordon Smith (OR), and Arlen Specter (PA). John Warner (R-VA) voted "present."What of John McCain (AZ), the GOP presidential candidate and Feingold's vigorous co-sponsor of campaign-finance reform? He had left his book tour to cast the decisive vote to end debate when Boxer was attacking Hutchison's amendment. But a short time later, when the amendment was voted on, he was reported "necessarily absent." Had he been present, he said the next day, "I would have opposed the Hutchison amendment."Less than two months afterward -- thanks to whistleblowers, POGO, the Freedom of Information Act, changed Senate rules, open debate, senators like Boxer, Feingold and Durbin, President Clinton, and angry press and public reactions -- Big Oil and its Senate allies lost the war. On November 15, as part of the final budget compromise with the White House, GOP leaders abandoned Hutchison and her crusade. On March 15, Interior will be free at last to start collecting market-based royalties from Big Oil.

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