NBC’s “The Fleecing of America” is an ongoing series that tells viewers about wasteful government spending. Yet the latest edition of the series changed the rules and blamed oil companies for the government’s billion-dollar error.
“Oil companies earn billions of dollars pumping oil from federal lands and are required to share the wealth with taxpayers through royalty payments,” reporter Lisa Myers began her September 28 “Nightly News” story. Anchor Brian Williams had introduced her segment as “a new twist” on “The Fleecing of America.”
Myers’ story focused on a lawsuit filed by a former Interior Department employee suing his former bosses for what he argued was lax enforcement of royalties agreement with oil companies. “The auditors claim the companies cheated taxpayers out of tens of millions in royalties and that their bosses at Interior refused to collect it,” Myers noted.
Of course, royalties are a form of taxation paid by oil companies, the cost of which is passed onto consumers in the form of higher prices. Higher royalty payments could also eat into profit margins that fuel research and capital improvements to oil drilling equipment.
What’s more, Myers’s “share the wealth” imagery conjures up a comparison to dividends that corporations pay shareholders. Yet taxpayers, unlike company shareholders, do not receive dividends from taxes. Rather, government bureaucrats and legislators were the ones missing out on billions of dollars they otherwise wouldn’t have to spend.
But did the oil companies do anything illegal? Myers conceded they did not.
Citing the Interior Department, Myers noted that “because of a mistake in oil leases signed in 1998, taxpayers have lost some $1.3 billion in royalties.”
What’s more, Myers added, “Interior officials say they have no legal recourse” and so won’t attempt to “recover that money.” But even so, according to the AP, about 10 oil companies are actually voluntarily negotiating with the government to contribute money in royalties, including Chevron (NYSE: CVX), Shell Oil, and BP (NYSE: BP).
Another thing Myers left out of her story was some important back story to the “mistake” that is “costing” the government billions.
According to the Web site for the House Committee on Government Reform, “The Deep Water Royalty Relief Act of 1995 was enacted to provide an incentive to gas companies to explore and extract oil and natural gas from US waters.” Under that law, leases were supposed to have “defined volume suspension and price threshold” controls “so that companies would be able to recover their capital investment before having to pay royalties.”
However, those “critical price thresholds that suspended royalty relief” were inadvertently left out of oil leases signed in 1998 and 1999, the Committee on Government Reform noted.
Indeed, as the Associated Press (AP) reported on September 28, “during 1998 and 1999, about 1,100 leases were obtained in the Gulf of Mexico by 59 different energy companies,” but “most leases have not been productive.”
And while the government may be missing money from mistakes it made in the late 1990s in crafting drilling leases, it draws revenue from numerous oil leases that pre-date or follow the two years of erroneous contracts.
As the AP also noted, unlike Myers, that oil companies typically pay 12 to 16 percent royalty fees on “oil and gas extracted from federal property.”
NBC isn’t the first media outlet to portray the royalty setback as a financial blow to the government. In separate stories in January and September, New York Times reporter Edmund Andrews wrote articles on the contract errors, similarly complaining about the “cost” to government.
The Business & Media Institute has found that the media, including NBC, have repeatedly drilled oil companies in the past year for their profit margins, attacking them as greedy and unconcerned with providing affordable energy to consumers.
In a story on proposed windfall taxes on oil profit on the March 14 “Nightly News,” NBC’s Chip Reid subtly suggested oil company executives are a patently dishonest bunch.
“Unlike the last time they testified before Congress, today the nation's top oil executives had to swear to tell the truth to frustrated senators who are getting an earful from constituents,” said Reid as he opened his story.