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By John Hanchette

OLEAN -- Here are some interesting and infuriating figures concerning Big Oil, the federal government and additional royalties collected from major energy companies on behalf of American taxpayers as a result of auditing and enforcement efforts.

First, the background:

Under federal law and executive branch regulations, energy companies are required to pay the federal government (and thus, U.S. taxpayers) a royalty of 12 to 16 percent on oil and natural gas they extract from beneath coastal waters or federal lands owned by the American public. Each year, substantial royalty sums remain unpaid. The Department of Interior is tasked to enforce this collection and it dispatches numerous government auditors and accounting experts hired from the private sector to check the books.

The legal logic makes sense. If a driller is exploring on private property, that company must acquire expensive mineral rights or lease them, and if behind in payments can expect a lawsuit from the landowner or local ejection by the sheriff or state officials. We -- citizens and federal taxpayers all -- philosophically own the public lands and waters, so why shouldn't we too be reimbursed, no matter in what murky form of dispersal or rebate, for the huge profits we are allowing Big Oil to make from our lands and waters?

Over the years of the 20th century -- back when a billion dollars was serious money -- these oil and gas royalties have produced significant relief for taxpayers: over $100 billion in federal revenues.

But a disturbing trend of precipitous reduction has emerged in recent years.

Here, according to the federal Minerals Management Service, is the extra income generated for American taxpayers by such auditing and enforcement efforts in recent years:

2000 (The year George W. Bush was first elected president) -- $330 million

2001 (The first year of his administration) -- $197 million

2002 -- $49 million

2003 -- $40 million

2004 -- $37 million

Even the most uninterested among you should be able to discern a definite pattern here.

Put another way by the Congressional Budget Office, between 1989 and 2001, auditing and enforcement efforts regarding underpayment of royalties -- fraudulent or otherwise -- for oil and gas produced by private energy companies in publicly owned American waters generated an average $176 million a year for federal coffers, thus easing the burden on American taxpayers.

Yet from 2002 to 2005, according to the CBO, in a period of almost frenetic drilling and exploration, zooming retail prices for a barrel of crude and eye-popping record profits for Big Oil, the average annual sum generated by audits and enforcement was a mere $46 million.

Seems a bit contradictory, right? Shouldn't the royalty take be going up instead of down?

Oh, sure, overall domestic oil field production dropped a bit after the turn of the millennium. In 2001, according to the federal Energy Information Administration, energy companies were producing 2.1 billion barrels a year from American oil fields, and that fell to 1.9 billion barrels by last year.

But offshore drilling in the Gulf of Mexico -- where most of the recent auditing action has taken place -- generated an increase from an average 300 million barrels a year in the 1990s to 485 million barrels by 2003, and held steady until Hurricanes Katrina and Rita hit last year. So production figures aren't really the answers to the puzzle. They don't really explain an 89 percent drop in oil and gas royalty collections since George W. Bush became president.

What about recent legislation? Did somebody change the percentages? Well, that may be one influence.

In 1995, to spur more oil exploration, Congress and the Clinton administration put through the Deep Water Royalty Relief Act, which reduced the amount of royalties paid for Gulf of Mexico drilling during Bill Clinton's last term. After that expired in 2001, Dubya's first interior secretary, Gale Norton, who never saw a pro-business initiative she didn't like, extended royalty holidays to big producers. Then last year, as the national deficit ballooned exponentially, President Bush expanded the royalty relief program and -- hidden in the minutiae of an energy budget bill -- further gave Big Oil domestic drillers a $2.6 billion tax break.

OK, so overall oil policy has been dumb in both recent Democratic and Republican administrations. What about legal action? Could the answer be there? Well, not for the above mystery, but in the future -- yes.

One huge energy corporation, Kerr-McGee, has filed a mammoth lawsuit claiming that Congress never authorized the Department of Interior to set royalty cut-offs on leases awarded at the end of the Clinton years whenever the price of crude oil reached a certain per-barrel price. If the company wins the suit, as many experts predict, about 75 percent of the oil and natural gas produced in the Gulf of Mexico over the next five years will be royalty free. The Government Accountability Office predicts such an outcome could mean the federal government -- and taxpayers -- could lose about $80 billion in royalty revenues over the next quarter century.

In addition, much of the recent income from oil and gas royalties has been produced by citizen action groups in court, not by the Department of Interior. A decade ago -- again during the Clinton administration -- a watchdog organization called the Project on Government Oversight sued to bring missing royalty payments into public coffers. More than 10 big oil companies insisted they had done nothing wrong, but paid out more than $400 million to settle the case.

Have big energy companies just been way more honest in the 21st century, more oriented to good corporate citizenship, more willing to pay the royalties owed? Is that the explanation for the dwindling audit reclamations? Not much evidence for that.

Or is the notorious fondness that Dubya and Vice President Richard Cheney have for Big Oil a key factor? Did the Bush administration, from the get-go, pressure its Interior Department to lay off tough collection stances and water down the audit process?

Hmnnnn. The trail may be getting warmer. Consider the following.

According to a comprehensive and well-written article by Edmund L. Andrews in last Thursday's New York Times, four veteran federal auditors who monitor such leases subject to royalty payment contend in a quartet of lawsuits against oil companies that Interior Department supervisors routinely smothered their attempts to reclaim more than $31 million "in fraudulent underpayments of royalties for oil produced in publicly owned waters in the Gulf of Mexico."

Gee. Stiffed again by idling bureaucrats who are supposed to be protecting our interests as they suck down undeserved salaries and perks? Who'da thunk it? Do you think maybe the bosses who issued back-off orders are trying to please their bosses, who are trying to please their bosses, and on up the federal ladder? That thought occurs to me.

The guys complaining in court aren't just any bozos with their feet up on federal desks. Two are senior supervisory auditors with the Minerals Management Service and sport records of good service. They claim they were told to drop their assertions that Shell Oil underpaid royalties by at least $18 million.

Another veteran auditor charges in court he was told by Denver regional supervisors to forget his demand that two dozen energy companies in the Rockies cough up $1 million or so in back interest.

A fourth auditor, former Interior Department legend Bobby L. Maxwell, filed suit accusing senior officials in Washington of ordering him to walk away from claims that Kerr-McGee cheated the federal government and taxpayers out of $12 million in royalty payments. Maxwell was famous within Interior for being able to figure out the most intricate schemes of those who would cheat the federal government. Over a career of two decades, he routinely drew official praise and department awards, and single-handedly recovered hundreds of millions of dollars for the taxpayer.

The Interior Department, naturally, eliminated his job in 2004. He commenced legal action against those above and settled for a sum (paid by you and me) that allows him to live in "retirement" in Hawaii. He told The New York Times the Interior Department "has lost its sense of mission, which is to protect American taxpayers."

So what does the Interior Department say to all this? The agency, in writing, denied the claims of cover-up and suppression, and tried to make the suing auditors appear like money-grubbing hucksters.

Dubya's bureaucrats in Interior note, with all the finesse of an angry elephant, that under the federal False Claims Act, created by Congress to allow individuals to expose fraud against the government and federal taxpayers, a corporation that loses in court has to pay triple the amount of recovered money plus back interest -- and that the plaintiffs could receive about 30 percent of the monies recovered as their reward. Thirty percent of the potential $120 million due if the companies lose is a cool $36 million.

But this is typical federal bushwa popular in an oppressive bureaucracy. Public servants adhere to the rules and try to protect the taxpayer from marauding billion-dollar companies, and the government tries to make it seem the courageous individuals are the greedy bastards at fault. I don't buy it.

As reporter Andrews wrote in the Times, "In their suits, the auditors contend that they had no choice but to go outside (the Interior Department) because their supervisors ordered them to 'cease work' on five separate investigations and drop their claims."

The response of the auditors in question is upright, responsible, logical, brave and encouraged by federal law itself. And don't try to tell me the sums involved -- the missing royalties -- are peanuts in relation to the total royalties paid by honest oil companies each year, and therefore unworthy of collection.

If the Internal Revenue Service can expend manpower and time trying to collect $5.97 in interest due on the third quarter underpayment of my estimated federal taxes last year (as it did and as I complied), the Interior Department can damn well go after $31 million for the common weal. In fact, the scariest thing might not be the missing royalties. The worst consequences may come from a new Interior Department policy that prohibits auditors from issuing subpoenas for oil company documents -- a practice previously allowed, and one which allowed individual auditors to recover millions each year without much taxpayer expense.

When the Times inquired, Interior officials sniffed at the very notion. Enforcement of subpoenas "can take years and be very costly" the Interior flacks replied in writing. "We have not found them to be very effective tools." Who are they trying to kid? Don't they watch "Law and Order"? It's on about 19 times a day.

And so it goes in Dubya's kingdom of pretend. It isn't just the initial blunder that's so egregious in all these public affronts to which we've become inured. It's the arrogance and false pride encountered in being urged to swallow this incredibly rancid bullcrap, and then being told it's lobster or filet mignon.

I hope the auditors win their court cases. I hope they get to share 36 million smackers. I'll gladly cough up another $5.97 to advance that result.

John Hanchette, a professor of journalism at St. Bonaventure University, is a former editor of the Niagara Gazette and a Pulitzer Prize-winning national correspondent. He was a founding editor of USA Today and was recently named by Gannett as one of the Top 10 reporters of the past 25 years. He can be contacted via e-mail at Hanchette6@aol.com.

Niagara Falls Reporter www.niagarafallsreporter.com September 26 2006