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2006-03-30

How Lobbyists Helped Secure Billions in Taxpayer Subsidies For Big Oil Companies Despite Record Profits

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A new report by Government Accountability Office estimates the oil and gas industry will be able to avoid paying between 20 and 80 billion dollars in royalties to the government. Industry lobbyists helped secure a provision passed by Congress 10 years ago subsidizing oil drilling in the Gulf of Mexico. We speak with Edmund Andrews, the New York Times reporter who exposed the story. [includes rush transcript]

We return now to the issue of lobbying, specifically how lobbyists helped secure billions in taxpayer subsidies for the oil and gas industry.

Earlier this week the New York Times exposed that the government stands to lose between twenty and eighty billion dollars because of a provision passed by Congress 10 years ago subsidizing oil drilling in the Gulf of Mexico. At the time the vote in Congress received little attention with the exception perhaps of lobbyists from the oil and gas industry.

The New York Times set the scene like this: It was after midnight and every lawmaker in the committee room wanted to go home, but there was still time to sweeten a deal encouraging oil and gas companies to drill in the Gulf of Mexico.

"There is no cost," declared Representative Joe Barton, a Texas Republican who was presiding over Congressional negotiations on the sprawling energy bill last July. An obscure provision on new drilling incentives was ""so noncontroversial,"" he added, that senior House and Senate negotiators had not even discussed it.

Mr. Barton’s claim had a long history. For more than a decade, lawmakers and administration officials, both Republicans and Democrats, have promised there would be no cost to taxpayers for a program allowing companies to avoid paying the government royalties on oil and gas produced in publicly owned waters in the Gulf.

Now, a new report by Government Accountability Office estimates that because of this so-called non-controversial provision, the oil and gas industry will be able to avoid paying between twenty and eighty billion dollars in royalties to the government.

  • Edmund Andrews, reporter for the New York Times.

Articles:

Transcript

This is a rush transcript. Copy may not be in its final form.

AMY GOODMAN: We’re joined now in Washington by Edmund Andrews. He’s a reporter for the New York Times who has been closely covering this issue and exposed this story this week. Welcome to Democracy Now!

EDMUND ANDREWS: Thank you for having me.

AMY GOODMAN: It’s good to have you with us. Why don’t you lay out the story, the power of the oil industry?

EDMUND ANDREWS: Well, the story begins, as you said, about — it really begins about ten years ago, when Congress passed a law — it was actually an amendment to another energy bill — that gave incentives to companies drilling in deep waters in the Gulf of Mexico. The idea was to get companies out into these high-cost, high-risk areas. The government would give them a break on the royalties that they would normally be paying, the government, for drilling in public waters. And the idea was, though, that this break on royalties, which can add up to billions of dollars, would be available in times of fairly low prices, but if oil and gas prices went, you know, climbed sharply, above about $34 a barrel for crude oil, for example, then that break on the royalties would stop.

Essentially, what’s happened over the intervening years is that for a variety of reasons, having to do with lobbying, having to do with shrewd litigation, having to do with just the ambiguities that lawmakers didn’t notice in their own legislation, this incentive has ballooned. It’s ballooned in value, because the value of — the sales value of oil and gas has climbed so sharply, and because, as it turns out, a lot of production out in the Gulf is still going to be royalty-free, even though we have historically high prices right now.

And one of the things that astonished me in reporting on this story over the last several months was that this actually came as a surprise to expert lawmakers on the Hill. The people who had been behind this legislation ten years ago, who had, you know, who had supported its extension and enhancement in more recent times, as recently as last year, they didn’t seem to know, most of them, that, in fact, we were going to be giving up billions of dollars in royalties over the next five years.

And the story of how that happens is — basically the way I would sum it up is sort of a textbook Washington story of a law that gets passed; it’s sufficiently complicated that the only people who really pay attention to its implementation day in and day out, year in and year out, through all the legal subtleties, are the people with the most profit on the line, the oil and gas companies. The lawmakers stop paying attention. They don’t carry out much oversight on what happens in the years afterwards, and the administrators that actually implement the law slip up from time to time, and that’s what happened here. They slip up, and then they get — they come under pressure from the industry itself and voluntarily add sweeteners. It all happens so suddenly and in such small steps you don’t notice it, until suddenly now we’re in this situation where we’re talking about billions and billions of dollars being given up over the next few years, and as you said, the G.A.O. has estimated that over the long haul, 25 years, the government could be out anywhere from $20 billion to $80 billion. It’s a tremendous amount of money.

JUAN GONZALEZ: Now, as your article indicates, when this provision was first developed, the price of a barrel of oil was about $16 a barrel. These days, it’s $60 or higher on most days, so the — certainly, the people in the energy subcommittees in the House, as the price of oil continued to escalate, somebody must have been aware that this was, in essence, a huge break in the main of the government’s cash flow. Wouldn’t somebody have moved in recent years to try to fix this?

EDMUND ANDREWS: Well, there have been a couple — sorry?

AMY GOODMAN: Go ahead.

EDMUND ANDREWS: There have been lawmakers on the Hill who have been, you know, sort of critics and opponents of this program from the very start, and they did, in fact, try to kill off this program or at least rein it in, both — at various points, when it came up on the House and Senate floors, you know, whenever there was a chance for it to be brought up for discussion, they came out and opposed it.

But essentially, the powers that be in Congress in the last few years were working on the assumption that this was actually a set of incentives that would not apply in the environment we’re in right now, where you have oil at more than $60 a barrel. Their assumption was that these incentives had stopped kicking in at the moment and would only apply if oil dropped back down to, say, below $34 a barrel. And they were mistaken about that. Nobody seemed to realize, as recently as, you know, late last year that, in fact, there’s a lot of oil and gas that is going to be given away for free, essentially, even in this price environment. They just didn’t realize it.

They thought that they were locking in this kind of modest incentive program, when, in fact, it had been broken open in a series of small ways over the years and just didn’t know it, and I think this — again, the story is how a seemingly modest program that is complicated becomes shaped — well, the outcome of that program is determined by a host of really small details, and in all the drama of high politics in Washington and, you know, top policy priorities of an incoming administration, the details of an existing program, the ambiguities of a law that’s already been passed, don’t get much attention.

JUAN GONZALEZ: So, are we to assume that now that the information is out and everyone knows about it, that Joe Barton in the House, who is from an energy state and is in charge of House energy policy is moving rapidly now to close this loophole?

EDMUND ANDREWS: I don’t think so. I don’t know what Mr. Barton’s view on this is at the moment, but the signals that I get from other House Republicans and from the Bush administration is that the money that’s set to be given away over the next several years is essentially locked into the contracts that government willingly signed in recent years. So their basic argument appears to be that there’s nothing they can do, that the damage is done, and they simply have to abide by these contracts.

You do have a partisan sort of finger pointing going on from both Democrats and Republicans. What the Republicans are trying to say is that, essentially, this problem would not have happened had not the Clinton administration fouled up on the contracts it signed during two years in 1998 and 1999. There is a lot of truth to this — there’s partial truth to this. The leasing officials during the Clinton administration did make a really big mistake in all the leases that they signed in two years, where they sort of omitted this escape clause, this clause that said you don’t get these benefits if prices go beyond a certain level.

AMY GOODMAN: We’re talking to Edmund Andrews, who is a New York Times reporter. You talk about ambiguities. What isn’t ambiguous is in January, oil giant ExxonMobil reported it made a record $36 billion last year, a sum larger than the economies of 125 countries. Exxon became the first company to ever make more than $10 billion in a financial quarter. And during the last three months of 2005, the oil giant made over $1,300 every second, nearly $5 million every hour, and the country’s three major biggest oil companies, ExxonMobil, Chevron and ConocoPhillips earned a combined $63 billion last year. Finally, can you talk about the connection?

EDMUND ANDREWS: Well, most economists would agree that the oil business is a high risk business. It’s also a cyclical one. You have really good times and really bad times. So there’s nothing inherently wrong with making big, big profits in a moment of soaring environments, but one thing I would point out here is that, if you look at the politics of it, last year, as Congress was sort of locking in one more time these particular incentives, not realizing, perhaps, that they were already poised to cause taxpayers billions of dollars over the next five years, at the same time that they were doing that, the Bush administration, President Bush, went to the mat on the issue of a windfall profits tax. The Senate, last October, passed a tax cut extension bill, which will included a one-year $5 billion windfall profit tax on the major oil companies.

That issue is still not resolved. The House doesn’t favor it, but my point is here that as soon as the Senate did that, the White House came out and very bluntly, powerfully said, 'If this is part of the tax bill, we will recommend a veto.' The Bush administration, by contrast, did register opposition to adding new incentives for oil and gas drilling last year, but they didn’t fight it. They merely noted their opposition. And that, I think, tells you something about the sort of — the priorities here, which fights they’re willing to pick and which fights they’re not willing to pick. They were not willing to do anything that irritated the oil companies, and they were willing to go to the mat for them.

AMY GOODMAN: Well, Edmund Andrews, I want to thank you very much for being with us, a reporter with the New York Times.

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