How much are you paying at the pump now? $2.79 per gallon? $3.20? As gas prices keep going up, don't you wonder if the costs to the oil companies are really going up or if something else is going on?
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None of us really knows the truth about all the ways oil companies are gouging us, but I can shed light on a few ways they are cheating.
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The government offers all the major oil companies an opportunity to remove oil and natural gas from federal lands or offshore areas controlled by the government. In return, they simply pay the government a royalty payment of one-eighth or one-sixth of the price for their first sale of the raw oil or natural gas.
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Because the oil and gas will be refined before sale to consumers, the money the government makes on the first sale of raw oil or natural gas is far less than one-eighth or one-sixth of what will be made by the oil companies. It is not even in the same ballpark as $2 or $3 per gallon we pay at the pumps.
Yet, the oil companies are not satisfied with receiving the lion''s share of the public''s oil or natural gas. They also want to keep some of the government's royalties!
In 2001, in a case I worked on while at the Department of Justice, each of the major oil companies agreed to repay the government $430 million dollars for cheating on government royalties. This year, they are up to their old tricks.
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The Department of Justice just announced that it required Conoco Phillips to repay $97 million and Shell to repay $56 million for underpaid royalties, this time for natural gas they removed from federal lands. These companies lied about royalties, pocketing an extra $150 million to go with the seven-eighths in gas they got for free!
Here's how these schemes work. An oil company with a government lease creates a subsidiary. It then sells the raw oil to its subsidiary as soon as it leaves the pipeline. Because it is selling the oil basically to itself, it artificially sets the price lower than a fair market price. Remember, it is this first sale on which the oil company pays the one-eighth royalty. The subsidiary then sells the oil back to the parent company or to another company at a high price, making a nifty profit.
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The parent oil company wins, too, by improperly reducing the amount of royalty to the government based upon the low price it paid to itself! In other words, by playing this shell game, oil companies can easily shave off $150 million or more from the royalty payments owed to the government.
You may be astonished to learn that, despite this enormous savings, the oil companies do not reduce the price of gas at the pumps or for heating your house. They just keep stuffing their own pockets.
Fortunately, whistleblowers are willing to step forward. In 2001, whistleblowers received a handsome $100 million for reporting the oil scheme. Thus far, the government has paid out $25 million in rewards for the same old tricks the oil companies keep committing.
The government was pleased to pay these rewards because without whistleblowers' help, the oil companies would still be holding over half a billion dollars of the taxpayers' money.
