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January 23, 2006

Are energy companies short-changing taxpayers with their royalty payments?

Energy prices have increased dramatically over the past five years, but royalty payments to the U.S. government has remained level, The New York Times reports today after a three-month investigation.

Energy companies are required to pay royalties to the government for the right to withdraw oil and natural gas publicly owned lands and coastal waters.

The article, written by Edmund L. Andrews, says that federal regulations allow the companies to write down the sale price of the natural gas they sell, thereby lowering the royalties they pay. Often, the price they report for calculating royalties is substantially lower than the price they report to shareholders, according to the article:

... [A]n often byzantine set of federal regulations, largely shaped and fiercely defended by the energy industry itself, allowed companies producing natural gas to provide the Interior Department with much lower sale prices - the crucial determinant for calculating government royalties - than they reported to their shareholders. As a result, the nation's taxpayers, collectively, the biggest owner of American oil and gas reserves, have missed much of the recent energy bonanza.

For fiscal 2005 alone, if the royalty payments for natural gas had kept up with market prices, they would have been $700 million higher, the Times reports.

Posted by Tim Barmann at January 23, 2006 1:37 PM

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