As oil and gas companies continue to make enormous profits in a time of record-high gas prices, watchdog groups are accusing these companies of shortchanging American taxpayers out of billions of dollars in royalties for drilling rights on public property. Members of Congress are also being blamed for making sweetheart deals with Big Oil engineered to avoid the payment of royalties.

"These oil companies along with some members of Congress have really engineered one of the greatest train robberies of all time," says California Congressman George Miller.

You might not realize it, but American taxpayers own some very valuable property, some of it located in the deep waters of the Gulf of Mexico. If oil and gas companies want to drill on this territory they are required to lease it out from the U.S. government, which collects royalties from them on the taxpayers' behalf.

Big Money

It's no paltry sum. Royalties from oil and gas exploration are the government's second largest source of revenue, behind income tax.

"I think the American taxpayers are losing billions of dollars," Kevin Gambrell, former director of the Federal Indian Minerals Office in Farmington, New Mexico, told NOW.

Gambrell worked for seven years collecting royalties from petroleum companies working on federal and Native American lands in the Four Corners region.

"I think oil and gas companies were always trying to figure out how not to pay royalties or to pay as little as possible," Gambrell said.

He said he caught many oil and gas companies lying and cheating to avoid paying the full royalties owed. He adds that when he tried to go after a company for the royalties they owed, he received phone calls from Congressional offices leaning on him to side with industry.

The Royalty Treatment

Back in 1995, Congress passed the Deep Water Royalty Relief Act that reduced the amount of royalties oil and gas companies had to pay. At the time, when gas prices were fairly low, the move was seen by many as an incentive to get petroleum companies to drill for oil and natural gas and keep energy production inside the United States.

Since then, a number of other royalty relief measures have been passed, such as the one included in the most recent energy bill, signed last summer, which increased the amount of oil that can be drilled without paying royalties.

Royalty relief under the 1995 act could cost taxpayers up to $80 billion over the next twenty-five years, depending upon the outcome of an industry lawsuit, according to a recent draft report by the Government Accountability Office. This includes a mistake by the government when drawing up some of the royalty agreements, which could cost $10 billion.

Who's following the money, and who's keeping it? Get ready for a crude awakening. Next time on NOW.

Related Links:

Statement by Walter Cruickshank, Deputy Director, Minerals Management Service, United States Department of the Interior, before the Committee on Government Reform, Subcommittee on Energy and Resources, United States House or Representatives, March 1, 2006. [Requires Adobe Reader]

Statement by the Kerr-McGee Corporation, an oil company that has sued the Bush administration to expand royalty relief. [Requires Adobe Reader]

Government Accountablity Office: Briefing on Oil and Gas Royalties, March 27, 2006 [Requires Adobe Reader]

Report of the National Energy Policy Development Group, May 2001 [3MB - Requires Adobe Reader]

Department of the Interior, Audit of the Minerals Management Service, March 2003 [2MB - Requires Adobe Reader]

NOW: Crude Behavior: An investigation on the oil industry

From http://www.pbs.org/now/shows/224/index.html