Washington, D.C. – Chair Raúl M. Grijalva (D-Ariz.) and Rep. Alan S. Lowenthal (D-Calif.), Chair of the Subcommittee on Energy and Mineral Resources, today released a Government Accountability Office (GAO) report finding that U.S. taxpayers have been deprived of nearly $20 billion in offshore oil and gas revenues due to a Newt Gingrich-era law that exempted certain offshore leases from having to pay federal royalties and Bureau of Ocean Energy Management (BOEM) policies that consistently undervalue the resources managed by the agency.
The GAO report, Offshore Oil and Gas: Opportunities Exist to Better Ensure a Fair Return on Federal Resources, available at https://www.gao.gov/products/GAO-19-531, assesses the Department of the Interior’s offshore oil and gas fiscal system. GAO found that the Deepwater Royalty Relief Act of 1995 (DWRRA) – authored by Rep. Billy Tauzin of Louisiana, who switched parties and became a Republican before the law was enacted – has resulted in approximately $18 billion in foregone royalty payments between 2000 and 2018, a number that will continue to rise.
GAO found that BOEM’s internal leasing practices and methods have additionally shortchanged taxpayers by more than $1 billion over the same period.
In 1995, Congress passed DWRRA to incentivize oil and gas exploration specifically in “deep water” (more than 200 meters down) in the Gulf of Mexico that might otherwise be uneconomic, provided the price of oil stayed below a certain threshold. Despite clear Congressional intent, industry sued and falsely claimed that the law was written to guarantee royalty reductions regardless of the price of oil. The courts agreed, resulting in the $18 billion in foregone royalty revenue GAO is now reporting. That number will increase as production from these leases continues.
GAO finds that BOEM’s method for determining minimum acceptable bids for offshore oil and gas leases does not ensure a fair return for U.S. taxpayers. When a company bids on a lease, BOEM evaluates the adequacy of the bid using economic and geologic models to guarantee that the bid represents at least fair market value for underlying resources. According to GAO, BOEM uses an unreasonably high depreciation rate when valuing offshore oil and gas resources and often lowers its own threshold in reaction to industry bids. GAO found these policies resulted in BOEM forgoing the collection of more than $1 billion of what should have been taxpayer revenue between 2000 and 2018.
“Corporate welfare at taxpayer expense is everywhere in our economy, and we have to rip it out at the roots,” Grijalva said today. “This is not a fair or free market. This is handing out public money to special interests that don’t need them, don’t deserve them and aren’t paying their fair share. Our laws and standards need to reflect the fact that public resources are there for the benefit of the public, not for companies who don’t feel like paying for the privilege of selling them.”
“Oil and gas development in federal waters is a public resource and the American people should get a fair return on any extraction of these resources,” Rep. Lowenthal said. “The GAO report highlights what many of us have been saying for years – the public is being shortchanged billions of dollars due to Department of Interior practices. The good news is that many of these unfair practices can easily be addressed by having the Interior Department improve their policies and practices, including updating the current royalty structure and the bid valuation process to ensure the government provides a fair return to the American public for the use of public lands and waters.”
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