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Alabama gets $34 million in energy revenue. Report finds oil companies using loophole to avoid paying billions

The U.S. Department of the Interior announced Thursday that Alabama received $34 million this fiscal year from energy revenues produce on federal and Native American lands, and in offshore oil and natural gas collection. 

A recent report from the U.S. Government Accountability Office, however, finds that the Department of the Interior has allowed oil companies to use a loophole to skip out on paying U.S. taxpayers billions in oil and gas revenue from offshore rigs operating in the Gulf of Mexico. 

Alabama’s take in the energy funds this year is a $3.4 million increase from fiscal year 2018, according to a press release from the U.S. Department of the Interior, which noted that total revenues increased 31 percent this year to approximately $12 billion. 

Alabama ranked as the 9th highest recipient of energy funds this year, behind California, which receives $47.27 million. Native American tribes and individual Indian mineral owners received more than $1 billion of the funds this year. 

“Removing burdensome and unnecessary regulations have spurred economic growth across the country, and consequently, applications for permits to drill (APD), which allow for drilling on public lands, have increased by 300 percent since FY 2016,” according to the Department of the Interior. 

The announcement Thursday came the same day a report was published that shows the world’s biggest oil companies are using a loophole to avoid paying $18 billion in royalties on oil and gas drilled since 1997. 

The U.S. Government Accountability Office’s report states that the Bureau of Ocean Energy Management “systematically underestimates the value of offshore oil and gas leases, resulting in the government collecting hundreds of millions of dollars less than it otherwise could.”

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The Outer Continental Shelf Deep Water Royalty Relief Act, enacted in 1996 to spur drilling in the Gulf of Mexico, allowed oil companies to forgo paying royalties on oil produced from new leases. 

The 1996 rule was poorly written, according to The New York Times, and what was intended to be a temporary reprieve from paying those royalties was accidentally made permanent on some wells.

The New York Times reported that oil companies paid no royalties on about 22 percent of oil produced from federal leases in the Gulf of Mexico in 2018 because of the loophole, and the losses are likely to continue as many of those wells are still producing. 

Frank Rusco, a director of the G.A.O.’s Natural Resources and Environment team director and the author of the report, in an interview with the newspaper described the findings as an extreme example of the Department of the Interior failing to make sure U.S. taxpayer get the fair market value of oil and gas taken from the gulf. 

“These leases sold 20 years ago might keep producing for decades. The amount of forgone royalties is going to continue to increase,”

Rusco told The New York Times “It’s a strong case for Interior to review how it collects revenues on oil and gas.”

In a response to the newspaper the Department of the Interior said it takes the responsibility of ensuring Americans get a fair value for public resources seriously. 

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“Corporate welfare at taxpayer expense is everywhere in our economy, and we have to rip it out at the roots,” said Congressman Raúl M. Grijalva, D-Arizona, chair of the House Natural Resources Committee in a press release on the report.  “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,” said U.S. Rep. Rep. Alan S. Lowenthal, D-Calif., Chair of the Subcommittee on Energy and Mineral Resources

Alan Lowenthal, D-California, chair of the Subcommittee on Energy and Mineral Resources. “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.”

The Department of the Interior is also under fire from an environmental group that filed a lawsuit in September that alleges the government is allowing offshore oil drillers to skip critical safety tests put in place to prevent another event like the deadly Deepwater Horizon disaster. 

The suit alleges that the Department of the Interior is allowing oil companies to skip critical safety tests of “blowout preventers” through the use of waivers, which don’t receive public scrutiny and are handled out-of-sight at a rate of “at least one per day.” 

In a statement to APR last month, a Department of the Interior spokesman said the lawsuit “grossly misrepresents the facts” and denied the allegations therein.

Eddie Burkhalter is a reporter at the Alabama Political Reporter. You can email him at [email protected] or reach him via Twitter.

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