Will BP Make Out Like Bandits From Its Gushing Oil?
|May 28, 2010||Posted by Staff under Progress Report, The Progress Report|
Will BP Make Out Like Bandits From Its Gushing Oil?
Americans Are Robbed of their Share of Oil Rent
The unfolding catastrophe at the Deepwater Horizon rig, which exploded April 20 in a disaster that killed 11, can be directly linked to oil-friendly legislation over the last two decades. These two 2010 articles are from (1) The Los Angeles Times, May 25, on subsidies by Kim Geiger and Tom Hamburger of Tribune Washington Bureau and (2) AlterNet, May 26, on liability by Zach Carter.
by Kim Geiger & Tom Hamburger and by Zach Carter
- Oil companies have a rich history of U.S. subsidies
On Monday, three senators introduced a bill to reduce tax breaks and royalty waivers for big oil companies.
A 2008 General Accounting Office report found that out of 104 jurisdictions throughout the world, only 11 received a smaller portion of oil revenue than the U.S. government.
Packaging of federal leases sold by the Interior Department had in effect given away drilling rights. Bill Freudenburg, professor at UC Santa Barbara, noted that in the early 1980s, the Interior Department began selling drilling leases at an average rate of $263 per acre compared with $2,224 per acre in the previous decades.
“I don’t know of too many places where it is harder and more expensive to get oil out of the ground than the North Sea off of Norway. And Norway somehow manages to get a 75% take [of oil revenue], basically double of what we get.”
Since the government began aggressively issuing offshore drilling permits under President Reagan, the industry has received tens of billions of dollars in tax breaks and subsidies, including exemptions from royalty payments — the fees due when a company extracts resources from U.S. government property.
The royalty waiver program was established by Congress in 1995, when oil was selling for about $18 a barrel and drilling in deep water was seen as unprofitable without a subsidy. Today, oil sells for about $70 a barrel, but the subsidy continues.
The 2005 Energy Policy Act passed when drilling was already proceeding at a brisk pace, and industry profits were setting records. It granted billions of dollars in tax and royalty relief plus a $50-million annual earmark for technical research. Then- Sen. Barack Obama voted in favor.
Oil companies won a lawsuit last year requiring the government to pay back $2.1 billion in royalties from previous years, including about $240 million to BP.
The Government Accountability Office estimates that the deep-water waiver program could cost the Treasury $55 billion or more in lost revenue over the life of the leases, depending on the price of oil and gas and the performances of the wells.
An increasing number of analysts say the waiver program has pushed drilling into fragile and remote areas where emergency response plans were inadequate.
“If it wasn’t profitable for them to do it, then that’s a good argument for leaving the oil in the ground,” said Robert Gramling at the University of Louisiana, Lafayette. The government-subsidized rush to deep-water exploration led to a situation where the industry was doing “things that were technically possible but were beyond our ability to undo them if we find out we have a problem.”
“No reputable economist believes that increasing the amount of drilling we do will have any real impact on energy prices,” said Rep. Nick J. Rahall II (D-W.Va.).
The bill introduced in the Senate on Monday would charge an excise tax — worth $5.3 billion over 10 years — on oil produced under certain leases. It would also close other tax breaks to industry. A bill in the House would require companies that seek new leases to renegotiate existing royalty waivers or pay a fee.
The industry lobbies effectively during efforts to rein in subsidy programs. Oil and gas spent $174.7 million and registered 788 lobbyists to influence lawmakers and regulators last year. Since 1998, the industry has spent $966.8 million on lobbying, making it the sixth-biggest-spending interest group in Washington.
- BP Will Make Out Like Bandits From Its Gushing Oilr
There is a theory of law — a conservative theory — which says that BP should have to pay out much more than whatever the ultimate economic tab for the oil mess comes to. The government should amplify, rather than reduce, those costs in order to ensure that dealing out damage to innocent bystanders does not become a regular business practice.
Transocean, the firm that actually owns the rig BP was leasing, has its liability capped at $65 million. The Houston-based company also had the rig insured for more than it is actually worth. With the liability cap, it’s likely to actually profit from the disaster. Just in case the government decides to actually do something, the company is in a hurry to pay its shareholders dividends — $1 billion in cash — leaving it with less money to pay out in any future lawsuits. Transocean even opened an office in Switzerland with just a dozen employees in order to dodge U.S. corporate income taxes.
Joel Hirschhorn (frequent contributor): There is a Boycott BP page on Facebook. Over at the Public Citizen website you can sign a petition: Take the Beyond BP Pledge! Send a clear message to BP by boycotting its gas and retail store products. Don’t spend a cent of your hard-earned money to feed the bottom line of a corporation that has a sordid history of negligence, willfully violates environmental regulations, and is spewing thousands and thousands of barrels of oil a day into the Gulf of Mexico. I pledge to boycott BP for at least three months. Note that n the West, BP sells gas under the long-established Arco brand.
US and Alaska Fail to Collect $92 Million Damage Claim Filed …
How Much Has Changed?
Did Big Oil really need relief from royalties?
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