Big oil gets a free lunch from Uncle Sam
Big petroleum companies are showing record profits through windfall gains thanks to supply shortages and increased demand. Top oil companies announces record profits, while consumers and businesses outside the energy segment, both big and small, suffer from higher energy prices.
Yet it turns out that US is giving away $7 billion in royalty payments for natural gas and oil the federal government owns in the Gulf of Mexico.. This money is going to major oil companies over the next five years.
The giveaway dates back to a time when oil companies weren't doing so fabulously and oil was selling for around $18 a barrel. As an article in the New York Times ("U.S. Has Royalty Plan to Give Windfall to Oil Companies, 2/14/06) notes:
Administration officials say that the benefits are dictated by laws and regulations that date back to 1996, when energy prices were relatively low and Congress wanted to encourage more exploration and drilling in the high-cost, high-risk deep waters of the Gulf of Mexico.
With the price of oil at over $50 a barrel, you would think that these companies would need no encouragement to work under straight-up leases and pay the customary 12% royalties. And the ever depending US federal deficit needs this money, not to mention the people who cannot afford to heat their houses. At the same time, the Bush administration is trying to kill a $5 billion dollar windfall profits tax fro the oil companies passed by the Senate last year.
Big oil companies are using the best legal help in the world to hold on to this found money. In fact they want lots more, as the Times article points out:
Last week, Kerr-McGee Exploration and Development, a major industry player, began a brash but utterly serious court challenge that could, if it succeeds, cost the government another $28 billion in royalties over the next five years... If Kerr-McGee is successful, administration projections indicate that about 80 percent of all oil and gas from federal waters in the Gulf of Mexico would be royalty-free. That's over of a fourth of all oil and gas produced in the US.
The government keeps secret the actual benefits to individual oil from the royalty giveaways, and the companies (including Shell, BP, Exxon Mobil, Chevron, Devon Energy, and others) themselves are equally tightlipped.
It's a simple case of corporate welfare, made worse by its timing and its effect on the US economy. But big oil (with its big money) has lots of power in Congress and, more importantly, has the undying allegiance of the two men who run the White House. Even if the Congress passes a bill somehow recouping a bit of these unneeded incentives, the President is likely to veto it. Public outrage has been limited, as the news media have hardly pushed the story, where it and other stories have been pushed of the news by real stories like the Michelle Kwan withdrawal from the Olympics, MCDonald's french fry fiasco, and the Vice President's unfortunate target practice. And that's just fine with big oil.
