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Another tale of expropriation



It's harder to criticize Mississippi when the Democratic Congress seeks to do it, too:

The Democrats also insist that the big five oil companies have received sweetheart deals from the government that have ripped off taxpayers. So let's take a closer look. The most controversial issue involves $6 billion in royalty payments that oil companies are said to owe the government for oil pumped from federal waters. The facts suggest otherwise.

These were leases for drilling rights in the Gulf of Mexico signed between oil companies and the Clinton Administration's Interior Department in 1998-99. At that time the world oil price had fallen to as low as $10 a barrel and the contracts were signed without a requirement of royalty payments if the price of oil rose above $35 a barrel.

Interior's Inspector General investigated and found that this standard royalty clause was omitted not because of any conspiracy by big oil, but rather because of bureaucratic bungling in the Clinton Administration. The same report found that a year after these contracts were signed Chevron and other oil companies alerted Interior to the absence of royalty fees, and that Interior replied that the contracts should go forward nonetheless.

The companies have since invested billions of dollars in the Gulf on the basis of those lease agreements, and only when the price of oil surged to $70 a barrel did anyone start expressing outrage that Big Oil was "cheating" taxpayers out of royalties. Some oil companies have voluntarily offered to renegotiate these contracts. The Democrats are now demanding that all these firms do so -- even though the government signed binding contracts.

The Democratic bill strong-arms oil companies into renegotiating the contracts or pay a $9 per barrel royalty fee from these leases. If the companies refuse, they lose their rights to bid for any future leases on federal property. So at the same time that the U.S. is trying to persuade Venezuela and other nations to honor property rights, Congress does its own Hugo Ch�vez imitation.

(WSJ via Coyote Blog via The American.)

 

 


Rafael Mangual
Project Manager,
Legal Policy
rmangual@manhattan-institute.org

Katherine Lazarski
Manhattan Institute
klazarski@manhattan-institute.org

 

Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.