POGO's Top Five Recommendations for Increasing Revenue and Cutting Costs pointed out the need to fix the management of oil and gas royalty collections as one major source for increased revenue for taxpayers. The Government Accountability Office (GAO) also pointed out yesterday that ensuring the accurate collection of royalties remains a major management challenge for the Department of Interior. When testifying before the Interior, Environment, and Related Agencies Subcommittee of the House Appropriations Committee (whose website is remarkably bereft of information--yesterday's testimony hasn't even been posted), the GAO admitted that oil and natural gas companies may come to DOI seeking royalty relief if prices continue to be low.
While we cannot be sure how much money taxpayers are losing through the Royalty-In-Kind program, we are pretty confident about how much taxpayers got ripped off from royalty relief in the 1990s, when the Minerals Management Service (MMS) failed to include price thresholds in leases issued in 1998 and 1999. It cost taxpayers at least $1 billion, according to the most recent GAO estimates. The GAO also found that forgone royalties from leases issued between 1996 and 2000 could total as much as $53 billion.
Admittedly, the likelihood of royalty relief does not seem to be high, especially since President Obama specifically targeted "excessive royalty relief" in his FY2010 budget guidelines.
Interior's acting Inspector General Mary Kendall told the subcommittee that both MMS and the Bureau of Land Management (BLM) still have "incompatible data tracking systems...[putting DOI] at risk of losing millions of dollars in royalties." As a result, "the existing process is heavily reliant upon companies doing the right thing."
So if there's going to be more revenue for taxpayers, in addition to ending the Royalty-In-Kind program, MMS and BLM need to improve their tracking systems, and for the love of God, if oil and gas companies get royalty relief again, please include price threshholds to prevent taxpayers from being ripped off if prices rise again.
-- Mandy Smithberger
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