Uncollected Debt to the Public
In 1995, President Clinton signed the Deep Water Royalty Relief Act (DWRRA), effectively eliminating royalties on leases for drilling in most of the Gulf of Mexico water deeper than 656 ft1. In 2000, the Mineral Management Service continued royalty relief with a similar program.8 The Bush administration extended and added to the reliefs in 2005 and the federal government has never collected the royalties that would have been due on these offshore leases. The act financially incentivizes drilling in areas where the oil companies themselves would not otherwise risk drilling. As a result, oil companies involved with deep water drilling in the Gulf of Mexico have largely been on a royalty-free ride for the last 17 years.
The U.S. Public Trust Doctrine holds that federal lands and resources are to be entrusted to the federal government for the benefit of the American public.2 DWRRA worked as a sort of “sale” to oil companies, incentivizing an influx in deep water drilling for a set time-period, with the intent of following with a sunset clause and eventually reaping the benefit of collecting royalties from a more developed deep water drilling industry. However, the senate passed the energy legislation without the proposed bill of provisions such as a price threshold.3 As a result, despite how high the price of gasoline has reached, oil and gas companies with record profits continue drilling with the benefit of royalty relief in the Gulf of Mexico and without due return for the sale of resources extracted from public land. When compared to individual mineral rights owners, rarely is there no cost to those leasing the land or no benefits for whomever owns the land.
The Minerals Management Service (MMS) has estimated that from 1996 to 2000, royalty relief in deep water Gulf of Mexico may have cost the government as much as $80 billion in public revenue.3 However, due to the complexity of the royalty relief act and lack of transparency by the government and the oil companies, the exact figures are unknown3. Still, the fact remains that despite oil companies’ record profits, they are permitted to continue extracting from public land at little benefit to the American people. This royalty relief act appears to be in direct violation of the intent of the U.S. Public Trust Doctrine as there is certainly no benefit to the American public in the case of Gulf of Mexico deep water offshore drilling; in fact, the public actually bears a cost,
Additionally, the DWRRA holds that the more risky drilling in an area is, the more royalty relief is given to the oil companies. Surprisingly, while incentivizing riskier drilling in deep waters, the act also limits liability for damage to $75 million per incident.5 As a result, oil companies drilling in the Gulf of Mexico can effectively get public resources at no cost them and, if they cause damage, they are not liable to pay for it if it exceeds the capped amount. As the highly publicized and damaging BP oil spill in recent history has demonstrated, damages often exceed $75 million. There are many such spills the public never hears of.
The top two most profitable companies in 2011, Exxon Mobile and Chevron, profited $41.6 billion and 26.9 billion respectively.6 It is unconscionable that an industry with record profits continues to receive royalty relief from the federal government while education programs are being cut to balance the national budget. The integrity of the process is questionable when on one side of the fiscal scale, health benefits for elders are being cut and on the other side the public pays oil and gas companies to drill in risky places. In April 2005 President Bush urged action in regards to energy. He said, “With oil at more than $50 a barrel, by the way, companies do not need taxpayers’-funded incentives to explore for oil and gas.”7 Oil is now more than $80 a barrel. We agree with President Bush. It is time to end the royalty relief subsidy set exclusively for the oil and gas industry and for the American public to have their national resources managed in a more fiscally responsible way.
1 Outer Continental Shelf Deep Water Royalty Relief Act: report. 43 U.S.C. §§ 1331-1356. Washington, D.C.?: U.S. G.P.O., 1994. Print.
2 The Public trust doctrine. Albany, N.Y.: Government Law Center of Albany Law School, 1991. Print.
3 “U.S. GAO – Oil and Gas Royalties.” U.S. Government Accountability Office. N.p., 5 June 2008. Web. 17 June 2012. .
4 Humphries, Marc. Royalty Relief for U.S. Deepwater Oil and Gas Leases. Washington, D.C.: Congressional Research Service, Library of Congress, 2008. Print.
5 Alexander, Lynn. Recovering 600 Billion by Collecting the Rent on Our Public Lands. Resource Renewal Institute, January 2011
6 Keating, Caitlin. “20 Most Profitable Companies 2012.” CNNMoney: Fortune 500. Cable News Network, 7 May 2012. Web. 26 June 2012. .
7 Will Senate Republicans Stand With the American Taxpayer or Allow Oil Companies to Reap a $60 Billion Giveaway from Offshore Drilling Leases?.” Democratic Policy Committee. N.p., 18 June 2008. Web. 20 June 2012. .
8 Hallwood, Paul. “Rent Sharing and Offshore Oil Production.” “A Note on US Royalty Relief, Rent Sharing and Offshore Oil Production” by Paul Hallwood. UC Department of Economics, 1 Apr. 2007. Web. 20 June 2012. .