Magazine article Insight on the News

Simplifying Royalty Regulations Will Yield Greater Revenues

Magazine article Insight on the News

Simplifying Royalty Regulations Will Yield Greater Revenues

Article excerpt

What would strike the general public as an arcane matter escalated to the point of White House threats of a government shutdown in early October. Democratic Sen. Barbara Boxer, in a tough reelection race, and the royalty collectors at the Minerals and Management Service, or MMS, of the Department of Interior are trying to impose a radical, untested change in royalty-evaluation regulations in order to correct alleged underpayment by producers.

Under the proposed new rule, according to MMS' own rosy projections, Boxer's home state of California only could add $540,000, or .00076 percent, to its $75 billion annual budget. Thus, one wonders why she and the president have placed such priority on instituting the new rule.

America's trial lawyers are the key to the puzzle. They are bounty hunters under the qui tam provisions of the False Claims Act, which dates from the Civil War. Complaints are filed by individuals, called relators, or "whistleblowers" who sue on behalf of the United States. The relators often are public-interest groups with an ideological agenda. In a recent settlement of $45 million with the Mobil Oil Corp., the whistle-blowers received $8.1 million of the settlement proceeds. For giant companies it often is cheaper to negotiate a settlement than fight in court for years, but for small producers and refiners, such as Wyoming Refining, conceding could mean bankruptcy.

The dispute between oil and gas producers and the MMS escalated because Clinton-era bureaucrats found a cadre of outside backers in the person of the trial lawyers who, not surprisingly, pour millions into liberal-Democrat campaign coffers. Records show Clinton and Boxer among the lawyers' favorites. According to the last published Federal Communications Commission reports, Boxer had received almost $1 million from lawyers and their political-action committees, while her opponent, Matt Fong, had received barely one-fifth as much.

Typically, oil royalty rates are 12.5 percent, or one-eighth of the production onshore and one-sixth offshore. There is widespread agreement that the current royalty system is both too complicated and uncertain, but the new rule proposed by MMS makes matters worse. …

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