‘Relief’ for Oil and Gas A Fiscal Headache for Taxpayers

May 10, 2006 | 3 min read | Print Article

“Now, we don’t think oil companies need tax incentives or subsidies to drill for oil at $70 a barrel, or for that matter at $25.” Wall Street Journal, April 28, 2006

Oil and gas companies that drill on public lands or off-shore pay for the oil and gas they remove in the form of royalties. Because of out-dated energy policy, oil and gas companies often pay little to no royalties to the owners of the resources—U.S. taxpayers. At a time when oil companies are experiencing record profits there is no need for them to get more for free. With prices at more that $100/barrel, they should have more than enough incentive to produce more oil. As Secretary of Energy Bodman acknowledged as early as April of 2006, it could be more than three years before consumers see relief at the pump. When Americans are getting continuing to get hit hard in the pocketbook, it is absurd to further pad the pockets of big oil.

$9 Billion in Losses in the Next Five Years

In the Gulf of Mexico, the federal government has been giving royalty “relief” to oil and gas companies since the mid-1990’s to drill off-shore. In 1995, the Deep Water Royalty Relief Act provided royalty “relief” for all leases sold from 1996-2000. While only a few of the leases have come online, this is already a multi-billion giveaway. With oil at only $15/barrel at the time, royalty “relief” might have seemed like a small incentive for drilling, but has since become the biggest subsidy the oil and gas industry the oil industry receives.

Energy companies over the next five years are likely to extract $65 billion in oil and gas from leases without paying the full royalty. According to the New York Times, this translates into a $7-$9 billion revenue shortfall at current prices. To add more fuel to the fire sale, the Department of Interior estimates that royalty-free oil will quadruple by 2011 and natural gas will increase by 50%, dramatically increasing taxpayer losses.

The “Relief” Keeps Coming…the Energy Policy Act of 2005 Included More Royalty Provisions

Last summer more provisions for royalty relief were added to the Energy Policy Act. These royalty relief provisions might have slipped under the radar screen if oil were still $15/barrel but today with oil at $70/a barrel it is outlandish we expand this free ride.

WE URGE YOU TO SUPPORT THE END OF ROYALTY “RELIEF” FOR OIL AND GAS COMPANIES.