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A Bureaucratic Error in Big Oil's Favor

August 4, 2008 - by Donny Shaw

At Public Citizen’s CitizenVox blog, Tyson Slocum reminds us of the oil company tax loophole that Congress should fix before they consider opening more publicly owned areas to drilling.

>Because of a bureaucratic oversight by the Department of Interior during the implementation of the [Deep Water Royalty Relief Act of 1995], oil companies that secured leases in 1998 and 1999 were exempted from royalties, regardless of the prevailing market price of oil. This stands in stark contrast to other, similar leases, which require the payment of royalties if the price of oil exceeds a certain threshold. The day the bill was signed in November 1995, West Texas Intermediate oil was trading at $18.28/barrel. With oil now trading nearly 600 percent higher at more than $120/barrel, these companies have been and will be extracting very valuable energy from public land without paying any royalties to American taxpayers.

Fixing this accidental loophole, which the Government Accountability Office estimates will cost the government a total of $14.7 billion, has been a goal of Democratic congressional leaders since taking control of Congress. Upon taking office in January 2007, the House voted to bar companies from new leases unless they agree to renegotiate the 1998-99 contracts as part of their comprehensive energy bill. But that provision was removed from the bill by the Senate before it was signed into law.

Correcting these leases and recovering the money that they have cost taxpayers seems like good compromise material for Democrats looking to work out a deal on expanded drilling.

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