When We Were Kings - Royalty Relief for Big Oil

It’s no news flash that the energy bill, signed into law in August, was filled to the brim with giveaways to Big Oil. Readers of the Chopping Block already know the statistics: $1.7 billion in new tax breaks and more than $2.3 billion in additional spending for the oil and gas industry. But while commentators and pundits have focused their attention on the bill’s spending and tax breaks, there were some oil and gas giveaways that failed to catch the public’s eye. Indeed, some of the sweetest handouts in the entire bill were the royalty breaks to oil and gas companies drilling offshore in the Gulf of Mexico.

Offshore drilling has always been a big part of our domestic oil and gas mix, accounting for approximately 30 percent of the oil and 23 percent of the natural gas produced domestically. It has also been a major source of revenue for the government: in 2005, the U.S. Treasury is expecting to pull in nearly $6 billion from oil and gas leasing in public waters, according to the Minerals Management Service.

According to an assessment by Citigroup Smith Barney, the companies most likely to benefit most from this free-pass include Apache, Anadarko Petroleum, Devon Energy, Forest Oil, Kerr-McGee, Noble Energy, Nexen, and Pioneer Natural Resources. With near uniformity, these companies reported record profits in 2005, totaling more than $5 billion in the first half of the year.

This is not the first time that the oil and gas industry has gone to Congress demanding royalty breaks. In 1995, oil companies convinced Congress to pass the Deep Water Royalty Relief Act, claiming that with oil at $15 a barrel, the industry could hardly scrape by. Yet with oil prices at $65 a barrel, oil companies have convinced Congress to let the good times roll. What remains unclear is why Congress continues to coddle the oil industry, while consumers are paying record prices at the pump.