U.S. Royalty to Give Windfall to Oil Companies - New York Times

http://www.nytimes.com/2006/02/14/business/14oil.html?_r=5&oref=slogin&oref=slogin&oref=slogin&oref=slogin&oref=login
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WASHINGTON, Feb. 13 — The federal government is on the verge of one of the biggest giveaways of oil and gas in American history, worth an estimated $7 billion over five years.

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Royalty-Free Oil and Gas

New projections, buried in the Interior Department's just-published budget plan, anticipate that the government will let companies pump about $65 billion worth of oil and natural gas from federal territory over the next five years without paying any royalties to the government.

Based on the administration figures, the government will give up more than $7 billion in payments between now and 2011. The companies are expected to get the largess, known as royalty relief, even though the administration assumes that oil prices will remain above $50 a barrel throughout that period.

Administration officials say that the benefits are dictated by laws and regulations that date back to 1996, when energy prices were relatively low and Congress wanted to encourage more exploration and drilling in the high-cost, high-risk deep waters of the Gulf of Mexico.

"We need to remember the primary reason that incentives are given," said Johnnie M. Burton, director of the federal Minerals Management Service. "It's not to make more money, necessarily. It's to make more oil, more gas, because production of fuel for our nation is essential to our economy and essential to our people."

But what seemed like modest incentives 10 years ago have ballooned to levels that have alarmed even ardent supporters of the oil and gas industry, partly because of added sweeteners approved during the Clinton administration but also because of ambiguities in the law that energy companies have successfully exploited in court.

Short of imposing new taxes on the industry, there may be little Congress can do to reverse its earlier giveaways. The new projections come at a moment when President Bush and Republican leaders are on the defensive about record-high energy prices, soaring profits at major oil companies and big cuts in domestic spending.

Indeed, Mr. Bush and House Republicans are trying to kill a one-year, $5 billion windfall profits tax for oil companies that the Senate passed last fall.

Moreover, the projected largess could be just the start. Last week, Kerr-McGee Exploration and Development, a major industry player, began a brash but utterly serious court challenge that could, if it succeeds, cost the government another $28 billion in royalties over the next five years.

In what administration officials and industry executives alike view as a major test case, Kerr-McGee told the Interior Department last week that it planned to challenge one of the government's biggest limitations on royalty relief if it could not work out an acceptable deal in its favor. If Kerr-McGee is successful, administration projections indicate that about 80 percent of all oil and gas from federal waters in the Gulf of Mexico would be royalty-free.

"It's one of the greatest train robberies in the history of the world," said Representative George Miller, a California Democrat who has fought royalty concessions on oil and gas for more than a decade. "It's the gift that keeps on giving."

Republican lawmakers are also concerned about how the royalty relief program is working out.

"I don't think there is a single member of Congress who thinks you should get royalty relief at $70 a barrel" for oil, said Representative Richard W. Pombo, Republican of California and chairman of the House Resources Committee.

"It was Congress's intent," Mr. Pombo said in an interview on Friday, "that if oil was at $10 a barrel, there should be royalty relief so companies could have some kind of incentive to invest capital. But at $70 a barrel, don't expect royalty relief."

Tina Kreisher, a spokeswoman for the Interior Department, said Monday that the giveaways might turn out to be less than the basic forecasts indicate because of "certain variables."

The government does not disclose how much individual companies benefit from the incentives, and most companies refuse to disclose either how much they pay in royalties or how much they are allowed to avoid.

But the benefits are almost entirely for gas and oil produced in the Gulf of Mexico.

The biggest producers include Shell, BP, Chevron and Exxon Mobil as well as smaller independent companies like Anadarko and Devon Energy.

Executives at some companies, including Exxon Mobil, said they had already stopped claiming royalty relief because they knew market prices had exceeded the government's price triggers.

About one-quarter of all oil and gas produced in the United States comes from federal lands and federal waters in the Gulf of Mexico.

As it happens, oil and gas royalties to the government have climbed much more slowly than market prices over the last five years.

The New York Times reported last month that one major reason for the lag appeared to be a widening gap between the average sales prices that companies are reporting to the government when paying royalties and average spot market prices on the open market.

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Royalty-Free Oil and Gas

Industry executives and administration officials contend that the disparity mainly reflects different rules for defining sales prices. Administration officials also contend that the disparity is illusory, because the government's annual statistics are muddled up with big corrections from previous years.

Both House and Senate lawmakers are now investigating the issue, as is the Government Accountability Office, Congress's watchdog arm.

But the much bigger issue for the years ahead is royalty relief for deepwater drilling.

The original law, known as the Deep Water Royalty Relief Act, had bipartisan support and was intended to promote exploration and production in deep waters of the outer continental shelf.

At the time, oil and gas prices were comparatively low and few companies were interested in the high costs and high risks of drilling in water thousands of feet deep.

The law authorized the Interior Department, which leases out tens of millions of acres in the Gulf of Mexico, to forgo its normal 12 percent royalty for much of the oil and gas produced in very deep waters.

Because it take years to explore and then build the huge offshore platforms, most of the oil and gas from the new leases is just beginning to flow.

The Minerals Management Service of the Interior Department, which oversees the leases and collects the royalties, estimates that the amount of royalty-free oil will quadruple by 2011, to 112 million barrels. The volume of royalty-free natural gas is expected to climb by almost half, to about 1.2 trillion cubic feet.

Based on the government's assumptions about future prices — that oil will hover at about $50 a barrel and natural gas will average about $7 per thousand cubic feet — the total value of the free oil and gas over the next five years would be about $65 billion and the forgone royalties would total more than $7 billion.

Administration officials say the issue is out of their hands, adding that they opposed provisions in last year's energy bill that added new royalty relief for deep drilling in shallow waters.

"We did not think we needed any more legislation, because we already have incentives, but we obviously did not prevail," said Ms. Burton, director of the Minerals Management Service.

But the Bush administration did not put up a big fight. It strongly supported the overall energy bill, and merely noted its opposition to additional royalty relief in its official statement on the bill.

By contrast, the White House bluntly promised to veto the Senate's $60 billion tax cut bill because it contained a one-year tax of $5 billion on profits of major oil companies.

The House and Senate have yet to agree on a final tax bill.

The big issue going forward is whether companies should be exempted from paying royalties even when energy prices are at historic highs.

In general, the Interior Department has always insisted that companies would not be entitled to royalty relief if market prices for oil and gas climbed above certain trigger points.

Those trigger points — currently about $35 a barrel for oil and $4 per thousand cubic feet of natural gas — have been exceeded for the last several years and are likely to stay that way for the rest of the decade.

So why is the amount of royalty-free gas and oil expected to double over the next five years?

The biggest reason is that the Clinton administration, apparently worried about the continued lack of interest in new drilling, waived the price triggers for all leases awarded in 1998 and 1999.

At the same time, many oil and gas companies contend that Congress never authorized the Interior Department to set price thresholds for any deepwater leases awarded between 1996 and 2000.

The dispute has been simmering for months, with some industry executives warning the Bush administration that they would sue the government if it tried to demand royalties.

Last week, the fight broke out into the open. The Interior Department announced that 41 oil companies had improperly claimed more than $500 million in royalty relief for 2004.

Most of the companies agreed to pay up in January, but Kerr-McGee said it would fight the issue in court.

The fight is not simply about one company. Interior officials said last week that Kerr-McGee presented itself in December as a "test case" for the entire industry. It also offered a "compromise," but Interior officials rejected it and issued a formal order in January demanding that Kerr-McGee pay its back royalties.

On Feb. 6, according to administration officials, Kerr-McGee formally notified the Minerals Management Service that it would challenge its order in court.

Industry lawyers contend they have a strong case, because Congress never mentioned price thresholds when it authorized royalty relief for all deepwater leases awarded from 1996 through 2000.

"Congress offered those deepwater leases with royalty relief as an incentive," said Jonathan Hunter, a lawyer in New Orleans who represented oil companies in a similar lawsuit two years ago that knocked out another major federal restriction on royalty relief.

"The M.M.S. only has the authority that Congress gives it," Mr. Hunter said. "The legislation said that royalty relief for these leases is automatic."

If that view prevails, the government said it would lose a total of nearly $35 billion in royalties to taxpayers by 2011 — about the same amount that Mr. Bush is proposing to cut from Medicare, Medicaid and child support enforcement programs over the same period.

'Able Danger' Identified 9/11 Hijacker 13 times -- GOPUSA

'Able Danger' Identified 9/11 Hijacker 13 times -- GOPUSA: "'Able Danger' Identified 9/11 Hijacker 13 times
By Sherrie Gossett
CNSNews.com Staff Writer
February 15, 2006

Washington (CNSNews.com) -- The top-secret, military intelligence unit known as 'Able Danger' identified Mohammed Atta, the leader of the Sept. 11 hijackers, 13 times before the 2001 attacks, according to new information released Tuesday by U.S. Rep. Curt Weldon, (R-Pa.), chairman of the House Armed Services and Homeland Security Committees.

Able Danger has been identified by Weldon and team member Lt. Col. Anthony Shaffer as an elite group of approximately two dozen individuals tasked with identifying and targeting the links and relationships of al Qaeda worldwide.

On June 27, 2005, Weldon said that Able Danger had offered in the year before the Sept. 11, 2001, terrorist attacks to share its intelligence with the FBI and to work with them to take down the New York City terrorist cell involving Mohammed Atta and two other 9/11 terrorists. Weldon said Clinton administration lawyers prevented the information from being shared with the FBI."

According to Weldon, the lawyers told Able Danger members, " [Y]ou cannot pursue contact with the FBI against that cell. Mohamed Atta is in the U.S. on a green card and we are fearful of the fallout from the Waco incident," a reference to the FBI's raid on the David Koresh-led Branch Davidian compound in Waco, Tex., in April 1993.

Media reports indicated that lawyers for Able Danger were concerned that sharing data with domestic law enforcement was illegal.

Weldon on Tuesday said that despite testimony indicating that Able Danger's data had been destroyed, he has discovered data still available. "And I am in contact with people who are still able to [do] data mining runs on pre-9/11 data," Weldon said. "In those data runs that are now being done today, in spite of what DOD (Department of Defense) said I have 13 hits on Mohammed Atta ..."

Weldon would not name the individual helping him obtain the Able Danger data.

As recently as two weeks ago additional Able Danger material was found in files at the Pentagon, Weldon said. "[A] general was present as the information was taken out of file cabinets ..."

The program and its pre-9/11 intelligence will be the subject of hearings Wednesday conducted by the Armed Services Committee. Most of the hearings will be open, but parts will be closed, Weldon said, due to witness fears of retaliation.

The witness list includes Dr. Steve Cambone, Eric Kleinsmith, J.D. Smith, Lt. Col. Shaffer, Commander Scott Philpot and Dr. Eileen Pricer.

Weldon also said his staff is still identifying additional witnesses. "At least one additional witness has come forward who just retired from one of the intelligence agencies, who will also testify under oath that he was well-aware of and identified Mohammed Atta's both name and photo prior to 9/11 occurring." Weldon said.

"Today and tomorrow, Lieutenant Colonel Shaffer will testify in his uniform under oath in spite of an aggressive effort by [Defense Intelligence Agency] bureaucrats to tarnish his image," Weldon said.

The congressman has detailed a "smear campaign," allegedly conducted by DIA officials against Shaffer.

The information provided by Shaffer contradicts the official conclusion of the 9/11 Commission, that U.S. intelligence had not identified Atta as a terrorist before the attacks on New York City and the Pentagon.

Weldon also said that despite the fact that Dr. Philip Zelikow, executive director of the 9/11 Commission has denied meeting with Shaffer, "irrefutable evidence" of a meeting will be presented at Wednesday's congressional hearing.

During a hearing Tuesday afternoon before the Subcommittee on National Security, Shaffer testified under oath that he met with Zelikow at Bagram Air Force Base in Afghanistan. According to Shaffer, Zelikow said: "What you said today is very important. We need to continue this dialog when you return to the U.S." Zelikow gave him his business card at the time, Shaffer said. It is not known whether the business card is the "physical evidence of that meeting" Weldon said would be presented at Wednesday's hearing.

Weldon also said that within days of the Able Danger story breaking in the New York Times, his office received a call from 9/11 Commission member Jamie Gorelick, assistant attorney general during the Clinton administration. In an interview after the press conference, Weldon told Cybercast News Service that Gorelick told a Weldon aide that the message was "extremely urgent." Weldon was in Pennsylvania at the time and Gorelick was on vacation in Cape Cod.

Gorelick reportedly told Weldon's staff to pass on to Weldon the following message: "I did nothing wrong." Weldon also said Gorelick later called the Senate Judiciary Committee staff twice with the same message.

During his press conference Weldon also said the Able Danger group warned officials from the U.S. Central Command (CENTCOM) that terrorists were likely to target an American platform in Yemen at the Port of Aden. This message was relayed two days before the USS Cole Navy destroyer was attacked by al Qaeda on Oct. 12, 2000. Seventeen sailors died and 40 were injured in the attack.

Navy Captain Scott Philpott, also affiliated with Able Danger, reportedly briefed the head of Special Operations Command (SOCOM), Gen. Peter Schoomaker on the threat. Schoomaker is currently the chief of staff for the U.S. Army.

The USS Cole, which was headed to the Port of Aden to refuel, was never warned to stay away from the port, according to Weldon, who added that Able Danger had also warned CENTCOM two weeks prior to the USS Cole attack that there was massive terrorist activity in Yemen.

"I don't know what's going on. But I can tell you that this country needs to get to the bottom of who does not want the American people to know the facts leading up to 9/11; why the 9/11 Commission deliberately denied information to the commissioners ..." Weldon said.

He indicated that there were parties on both sides of the aisle who did not want the Able Danger issue to be pursued, and that he had been under unidentified pressure. Weldon would not elaborate.

"Was this an effort by both (Clinton and Bush) administrations to keep information from the American people about what was known before 9/11?" Weldon asked "If that's the case that is outrageous and wrong."

When Bush Makes Decisions
Colonel (ret.) Larry Wilkerson's worst national security nightmare is the rise of a "dumb tyrant" into the Oval Office. Wilkerson, Colin Powell's former chief of staff, admitted last month that he is living that nightmare. If there was any doubt, yesterday's front page of The New York Times clears it away. [more]

--Patrick Doherty | Wednesday, February 15, 2006 11:30 AM

Cheney's Last Hunting Disaster Mortal peril isn't the only risk of going hunting with Dick Cheney. So is suffering a serious lapse in ethical behavior. If you're a Supreme Court justice, hunting with the Veep might draw accusations of bias and prejudice and possible law breaking. This is precisely what happened when Antonin Scalia joined Cheney in his other famous hunting trip. Cheney just happened to have a little "business" pending with the judge. You might recall that, in 2003-2004, that business was the matter of Cheney's secret energy task force, which the Supreme Court was being asked to review. [more]

--Alexandra Walker | Monday, February 13, 2006 11:32 AM
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Colonel (ret.) Larry Wilkerson's worst national security nightmare is the rise of a "dumb tyrant" into the Oval Office. Wilkerson, Colin Powell's former chief of staff, admitted last month that he is living that nightmare. If there was any doubt, yesterday's front page of The New York Times clears it away.

Two headlines scream executive incompetence: "U.S. And Israelis Are Said To Talk Of Hamas Ouster" and, "U.S. Royalty Plan To Give Windfall To Oil Companies."

Here's why. First Hamas. The reported deal to isolate Hamas is based on a woefully ill-informed assessment of the Islamic party. Take a look at Beirut Daily Star Editor-at-Large Rami Khouri's piece in yesterday's TomPaine.com , entitled, "Hamas Will Compromise ." Unlike the Bush administration, Khouri went down to talk to the Hamas leadership in Beirut.

After hours of discussion, Khouri came away convinced of two things. First, given properly structured negotiations, Hamas will talk and compromise with Israelis. Second, that it is foolish to expect Hamas to foreswear the "principles" that got them elected in a free and fair vote. That second point may be distasteful, but, to paraphrase Khouri, that's bound to happen when you have two parties both convinced that God gave them the land. What is more, Khouri sees the elevation to power as a deeply moderating influence on Hamas, as it now has to produce the quality-of-life and anti-corruption results it promised.

What the White House is ignoring is that with Mahmoud Abbas still holding the presidency and Hamas holding the premiership, the Palestinian Authority for the first time represents most of the Palestinian people in the territories. The Bush administration and the previous Sharon government have argued that until they have a real partner for peace talks they will not negotiate. Therefore, they speciously argued, unilateral moves—like this past summer's withdrawal from Gaza and this week's Israeli announcement that it will annex as much as one third of the West Bank—are necessary. Isolating this new government, unilaterally grabbing an enormous amount of territory, and having no intention of negotiating is tantamount to asking for a new—and more deadly—intifada. This time, however, with Arab populations angered throughout the region, an intifada may not stay exclusively a Palestinian affair.

Given the other major regional crises—over the European cartoons, Iraq's incipient civil war, and the West's confrontation with Iran over its nuclear facilities— it is hard to see how the interests of the White House will be served by trying to steamroll the Palestinian electorate. Even worse, now that the administration's plan has been leaked, the PLO would be idiots to think that they could play along with the U.S.-Israeli plot and contest an election fixed by America. Bush can only lose if he continues down this course.

The other headline, "U.S. Royalty Plan To Give Windfall To Oil Companies," is another example of Bush leading America further in the wrong direction. Beyond the breathtakingly bald raid on the U.S. Treasury, the move comes at a time when oil companies are posting record profits—in turn caused by the risk premium associated with Bush's ideological misadventure in the Persian Gulf.

Byron Dorgan, Democratic senator from North Dakota, has in fact called for a tax on oil companies' windfall profits. That initiative speaks to the level of frustration Americas are having with Washington's inability to put the country on a sustainable energy course. Indeed, the latest report from the Financial Times, published yesterday, says that geopolitical instability and major underinvestment in oil production capacity will result in years of higher oil prices. And that's before we consider leading oil investment banker Matthew Simmons' thesis that Saudi oil has peaked.

While I agree with Sen. Dorgan's goals, my own sense is that tit-for-tat treasury raiding is more catharsis than solution. I'm not in any way defending the oil oligopoly, but I think a windfall profits tax is just another band-aid. The longer-term solution that I would prefer is to increase the royalties the U.S. government charges on oil and gas extraction in the first place. In other words, what we should be doing is the exact opposite of what President Bush just anounced. Currently, I estimate that the royalty charged by the government is about $2/barrel. Oil prices are today $61/barrel. It's time to capture some of that value for the American people. It is after all, our oil.

Bush's action on oil royalties is a great example of the lengths to which our nation will go to make it look like oil is inexpensive at the gas pump. Since 1980, America has fooled itself into thinking that it could preserve the cheap energy conditions that existed after World War II. The 1973 Arab-Israeli war changed that when Saudi Arabia used oil as a weapon against the United States. Now we are fighting a war in Iraq and preparing for a war with Iran while our energy policy gives oil production subsidies to the largest single industry on the planet. Indeed, we are truly addicted.

Taken together, the result of these two decisions portends deep trouble for America. Our energy crisis is getting worse while Bush's attempt to crush Hamas is a time bomb under the entire Middle East.

If there is one good thing in this news, however, it is that Bush is making it harder and harder for Democrats in 2008 to hold on to their current muddled positions on Palestinine and energy security. The only question is whether Republicans like McCain and Hagel can grab and hold a sane majority before the Democrats get their act together.

--Patrick Doherty | Wednesday, February 15, 2006 11:30 AM

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http://www.tompaine.com/articles/2006/02/15/a_trust_by_any_other_name.php

A Trust, By Any Other Name

Barry Lynn

February 15, 2006

Barry Lynn is a senior fellow at the New America Foundation and author of End of the Line, The Rise and Coming Fall of the Global Corporation (Doubleday). This piece was originally published in the Financial Times and appears with permission from the author.

The collapse of an overly consolidated U.S. flu vaccine system two years ago did not set off any bells. Nor did the revelation, by experts studying the potential impact of an avian flu pandemic on commerce, of deep fragilities in our hyperrationalized medical and food supply systems. The mega-merger of Procter & Gamble and Gillette last year did not do it. Nor did the general consolidation of food processors; in the U.S., 10 groups account for half of all retail sales, with single companies often capturing more than 75 percent of particular product markets. Neither the fact that Wal-Mart controls 30 percent of sales for many goods in the U.S. economy, nor that four companies account for 94 per cent of U.K. supermarket sales, seem to concern policymakers.

What about Samsung’s effort to capture world markets for liquid crystal display screens and D-Ram computer chips? Or Tokyo’s rewriting of antitrust laws to allow companies to consolidate 100 percent monopolies over key technologies? Or the capture of 60 percent of the global sneaker market by Nike and Adidas? In every case, there has been almost no reaction. Mittal Steel’s play for Arcelor may not be a global-scale problem, as the two companies combined account for only 10 percent of the world steel market. But what of the fact that three companies account for 75 percent of global iron ore production?

There is no shortage of competition in many markets. Just ask Volkswagen or Delta Airlines. But the further down, we look below the level of branded companies, the more consolidation we tend to find. This is true in commodities, services, industrial components and shipping. Many executives and investors do understand what is happening, and recognize the stakes. In a recent article for McKinsey & Co., one consultant wrote of the rise of “global mega-institutions.” Although the writer did not refer to these as oligopolies, he described their character well. Not only, he wrote, have these companies developed “extraordinary scale and scope,” but they capture “disproportionately high profits.” It seems that only the citizen and politician remain in the dark. The global corporate endgame is well under way, and none of our societies is prepared for it, intellectually or institutionally.

It is not as if we need to search long for evidence of the problems traditionally associated with monopoly. Capture of political power? Consider Boeing’s hold over the Bush administration. Extreme pricing distortions? We see them throughout Wal-Mart’s supply system. Artificial control over what technologies are brought to market and when? One blatant example is the power over renewable energy systems of British Petroleum and Royal Dutch Shell. Extreme profiteering? America’s big energy companies have not only resurrected the art of gouging the consumer, they have raised it to a new state of perfection.

As bad as these old-fashioned problems may be, many of our 21st-century global oligopolies appear to pose entirely new dangers. This is due largely to how power is exercised in systems characterized by extreme outsourcing. Alfred D. Chandler, an industrial scholar, has written that one of the main factors behind the rise of the huge, vertically integrated corporation early in the 20th century was enforcement of U.S. antitrust law, which limited the horizontal growth of these companies. Unable to exert power over the market, many scrambled instead to internalize key functions, for competitive advantage.

This means we cannot ignore the effect on global industrial organization of the radical relaxation of antitrust enforcement by the Reagan administration in 1981. One result of giving big companies a license to grow horizontally was that many producers, once they captured control over their markets, opted to sell off or shut down expensive and risky manufacturing and research and development operations and buy these “services” from outside suppliers with few or no other pathways to the marketplace. Over time, many of these top-tier companies relied ever more on their power to dictate prices to their suppliers (including workers) to capture profits.

The increasing power of a few leading trade-oriented companies over entire production and supply systems results in a variety of economic and political ills. One is the degradation of many production systems themselves. That is what happens when the actual producers of goods or components are unable to capture a sufficient share of revenue to support innovation, or sometimes even to maintain existing machinery and workforces. Another is the heightening of competition within society as opposed to between leading companies. In a production system marked by extreme outsourcing, oligopoly does not result in the end of competition so much as the redirection of competition downwards, as lead companies capture more power to set supplier against supplier, community against community and worker against worker.

It is here we find at least a partial explanation for one of the more confusing paradoxes of today’s global system—the simultaneous rise in consolidation and competition. So far, especially in America, the tendency has been to blame extreme competition on “globalization,” not least because faulting foreigners for domestic ills can be a good way to sell books and win votes. The real explanation, however, is not only globalization, or even mainly globalization, as much as radical changes in the structure of industry. In other words, it is not the Chinese who destroy U.S. and European jobs, but roll up by the world’s largest traders and retailers of the power to pit producer against producer, and to capture most or all of the gain from the arbitrage.

Outright monopoly is absolutely defensible—when granted temporarily to reward companies for bringing truly new ideas to market. But most of today’s powerful companies are not the result of new ideas, only the strategic reordering of markets. If anything, their goal is the oldest one in commerce—to fence in the place where deals are done, and to tax producers and consumers for the right to meet there. It will not be long until we realize that to save our free market system will require, among other actions, far more aggressive enforcement of antitrust. Simply stopping any further roll out of power will not be enough. True believers in the free market will admit there is no other choice than to roll the power back.