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Minneapolis Star Tribune: Time to scale back oil-industry windfalls

Last week’s announcement that Gale Norton will be joining Royal Dutch Shell, just nine months after stepping down as interior secretary, captures nicely the coziness that has characterized relations between the oil industry and the Bush administration.

Congress, under Republican control, has been only too happy to look the other way. But that is about to change with the new Democratic majorities, and some changes may come quite soon.

House Speaker-elect Nancy Pelosi has pledged to lay out a new renewable-fuels initiative in the first 100 hours of the new session, to be financed by revenue from the oil industry. Details of the funding mechanisms remain to be worked out, but the task should not be onerous: Oil companies are awash in windfalls that are unearned, undeserved, unwise and, in some cases, probably illegal.

The most disgraceful example: Continuing retention of royalties under a special relief program established in the late 1990s, when oil prices were so low that production incentives seemed justifiable. The companies were supposed to resume royalty payments as prices marched toward near-record highs; instead, they have seized on an administrative error that stands to let them keep perhaps $10 billion.

Royalties, we hasten to note, are payments to the American people for exploiting public oil and gas reserves at a profit.

Of some five dozen oil companies affected, only five (including Shell) have agreed to forgo some portion of this unintended largess. Last month, a bill forcing the others to do the same failed by just two votes in the House. Better luck this year, for sure.

Then there is the potentially criminal matter of Interior Department officials underbilling producers on other oil and gas royalties, essentially by accepting their unaudited production estimates. The Justice Department is already investigating possible crimes; Congress may find need of an independent inquiry.

And then there is the program of lush incentives for deep-water drilling, which an Interior-commissioned economic analysis shows will pay the oil industry as much as $48 million for exploration that might expand known reserves by a whopping 1.1 percent.

The list goes on, but you get the idea. The new Congress need not be shy about scaling back this financial favoritism. For once, oilmen may be ashamed to make their standard pitch that requiring them to pay fairly for this public resource will simply encourage them to leave it in the ground.

The above editorial appeared in the Minneapolis Star Tribune on Tuesday, Jan. 2:

© 2007, Star Tribune (Minneapolis)
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