Oil valuation controversy
Patrick Crow's July 5, 1999, Watching Government column claimed that the "POGO controversyellipsewas miring the U.S. Minerals Management Service's effort to promulgate a controversial oil royalty reform regulation" (OGJ, July 5, 1999, p. 34). Mr. Crow knows, however, that MMS's rule, designed to eliminate the phony "posted price" system, has in fact been mired for years. Big Oil's advocates have grasped at every straw along the way to avoid paying what they owe.
America's major oil-producing states (Alaska, Texas, California, Louisiana, New Mexico, and Oklahoma) agree that market prices should determine royalties and have gone on record supporting MMS's proposed rule. Senators Hutchison (R-Tex.), Murkowski (R-Alas.), Nickles (R-Okla.), and Domenici (R-N.M.) are out of step with their own states, private landowners, and Indian tribes who themselves have already collected nearly $5 billion in royalty-and tax-evasion settlements.
We have not yet seen, but are hopeful, that Mr. Crow will report on the most incriminating evidence of Big Oil's bad faith to date: the recent testimony of Harry C. Anderson, former secretary of crude oil pricing at ARCO. Mr. Anderson testified under oath that ARCO knew that its posted prices for California crude oil were well below the fair market value. And, in order to avoid royalty and tax payments, ARCO followed the lead of other major price posters: Chevron, Unocal, and Texaco. These revelations were reported in numerous national publications including Business Week, and all other major trade publications, with the noticeable exception of your publication.
Finally, had Mr. Crow called us with regard to the two federal whistleblowers, rather than relying on the Washington Times, he would have learned that the senators' letter had numerous glaring errors. Most fundamentally, MMS had already established a need to move to market indices and away from affiliate transfer years before the memos written by Speir and Berman.
A July 15 letter from MMS clearly addressed and refuted the senators' allegations. It stated, "Indications that posted prices used in the current rules no longer reflected market value and that index prices, such as Nymex, were better value indicators arose from many sources, not just the opinions of Messrs. Speir and Berman. All state and Indian commenters who responded to our Advance Notice of Proposed Rulemaking in December 1995 recommended that MMS develop a new rule that relied on index prices to establish value in non-arm's-length situations."
In other words, the evidence collected by America's oil producing states, and not the machinations of POGO, Berman, and Speir, caused MMS to opt to eliminate the posted price system.
Project on Government Oversight
Oil industry not to blame
Climate models predict that increasing carbon dioxide should have caused a global warming. Satellite measurements show no increasing global warming trend. It's factual, however, that as the sun changes due to sunspots, the climate is affected either with higher or lower temperatures. Human effects on temperature are much smaller than first projected, and perhaps, insignificant with natural sunspot temperature changes.
Yet, we tend to blame the visible oil and gas industry for destroying the environment in its quest to meet the nation's energy needs. Thus, the major oil companies have opted to do upwards of 70% of their energy drilling and production out of the country. The industry has been blamed when, in fact, the vast majority of the pollution problems are caused by the farming industry. Every year, farms dump more than 40 billion lb. of fertilizer on fields all across the country. In addition, they use more than 500 million lb. of pesticides. The 7,700 sq miles of dead zone in the Gulf of Mexico is the end result of an ecological chain reaction set in motion by all the fertilizers, sewage, and runoff that ends up in the Mississippi and Atchafalaya rivers. Yet, we blame everything on the visible oil and gas industry, when farming is mostly responsible-not that I fault them for raising our food.
Dailey J. Berard
New Iberia, La.
In your Aug. 16 editorial, "Protectionism fails again," you stated "ellipsethe producers who cry 'unfair' at the bottom of every price cycle should find a new agenda" (OGJ, Aug. 16, 1999, p. 19).
We do not cry "unfair" at the bottom of every price cycle, but we certainly did during the crash of 1998-99, because it was obvious that certain foreign governments were trying to drive us out of business and violating the trade laws and conducting "unfair" business tactics.
Yes, it is "unfair" for foreign countries that produce oil to conspire to drive out the "high-cost" independent producers in the U.S. to gain their precious market share. Yes, it is "unfair" that small oil companies must compete in a global economy against a cartel of foreign oil countries that control 40% of the world's oil supply and manipulate the price. Yes, it is "unfair" that small oil producers must pay federal, state, and local taxes and comply with a myriad of regulations and laws (including trade laws) unlike our foreign competitors. Yes, it is "unfair" when our own elected officials work against their fellow Americans by not even allowing America's small oil producers their "day in court."
Independents know that life can be "unfair" at times, especially in the rough world of oil and politics. Heaven knows that we would never want an "unfair" advantage over big oil or foreign countries. However, we believe that our foreign competitors should abide by the trade laws of the U.S. and the World Trade Organization.
The 1,380 members of the North Texas Oil & Gas Association will continue to cry "unfair" until every Washington politician realizes that the free market you speak of is a myth. You see, most remember the days of oil price controls and the crude oil windfall profits tax. And, if $40 oil ever returned for any period of time, the President and the Congress would scream about "obscene profits." Where does your free-market theory fit price controls, windfall profits tax, and obscene profits?
It's time that independents stand against integrated international oil companies and foreign oil countries when they try to run us out of business. Next time, we will not only cry "unfair," but we will yell "unfair," and we'll be right, because it is "unfair" and it is against the law!
Let the antidumping filing by Save Domestic Oil be a warning to every foreign oil minister, to the management of every major oil company, and to anyone who tries to drive us out of business again that independents will use every law and tool available to fight for the jobs and livelihood of our families and employees.
D. Alex Mills,
North Texas Oil & Gas Association
Wichita Falls, Tex.
With respect to your editorial in your Aug. 16, 1999, issue, I suggest a name change for your periodical: Big Oil & Gas Journal.