3/11/2011 — 

WASHINGTON, DC - In the wake of President Obama's decision to not yet tap the Strategic Petroleum Reserve in response to current events in the Middle East and northern Africa,  U.S. Senator Jack Reed (D-RI) today restated his strong belief that the administration should quickly sell $500 million of oil from a faltering cavern in the reserve to avoid losing the oil, saying: "Selling this oil now will help consumers, prevent a major oil leak, and ensure that hundreds of millions of dollars of crude oil is not wasted."

In 2009, the federal government found that Bayou Choctaw Cavern 20 near Baton Rouge, Louisiana had "structural problems that pose an environmental risk."  On February 16, 2011, Energy Secretary Steven Chu testified before Congress that: "We have an issue with one of our reservoirs.  And there's one cavern that has some integrity issues.  And we're draining that and backfilling other storage locations.  But we're concerned of an overfill in those stores' locations.  And so… we don't want to lose this crude."

Reed stated: "Selling this oil now would seem to make sense from both an economic and an environmental standpoint.  The cavern has structural integrity issues and we need to move the oil to avoid losing it.  Selling it now will prevent a potential environmental hazard, reduce prices at the pump in the short term, and create additional revenue to pay for restoring the reserve in a new, safer location.  Letting this oil just seep into salt caverns would be both fiscally and strategically irresponsible."

In a further effort to protect taxpayers, the economy, and the environment, Reed, who chairs the Appropriations Subcommittee on Interior & Environment, is calling for offshore oil and gas companies to pay their fair share of drilling royalties and inspection fees.  Reed wants companies that tap oil and gas reserves on federal taxpayer property to help improve safety by increasing user fees for permits and inspections.  He also wants stronger oversight to ensure energy companies drilling in public lands and waters are paying the appropriate level of royalties to the American people. 

"These natural resources belong to the American people, and we need to ensure that big oil companies are paying fair-market value for the right to drill on public lands.  Modest user-fee increases will help prevent future oil spills and ensure the American people are fairly compensated," said Reed.  "A $17,000 inspection fee is a drop in the bucket when you consider the precious lives, billions of dollars, and thousands of jobs the BP Gulf oil spill cost our nation."

The Obama Administration has proposed a six-fold increase in the fees oil companies pay for deepwater rig inspections.  Reed supports the plan to increase inspection fees on facilities with one to 10 wells from $3,250 to $17,000.  This additional funding will help the agency hire over 100 new inspectors and engineers to help ensure the safe and secure production of offshore resources.

During a hearing Reed chaired this week on Interior's 2012 budget, Reed noted: "We did a little checking.  And just as a comparison, for example, BP, which had Gulf of Mexico revenues last year of $10.9 billion, is being asked to pay under this new scheme about $1.5 million.  That is 0.01 percent of their revenues.  Similarly, Shell Oil which made $6.1 billion in the Gulf last year is being asked to pay $1.8 million or 0.03 percent of their gross revenues.  And I could go on and on and on.  This money seems to be essential to benefit these companies and the American public by allowing you to be more thorough in inspections, more confident in your leasing, and I am just surprised that this would be greeted by any opposition.  I think it's a sensible business-like way of getting the job done."

Reed also highlighted the importance of keeping focus on the revenue collecting side, calling for better auditing of the resources that energy companies are taking out of the ground to ensure that taxpayers are fairly compensated. 

In 2008, the Government Accountability Office (GAO) discovered that the Bush Administration's lax oversight of the Minerals Management Service (MMS) had created a "culture of ethical failure," and that MMS employees who were supposed to oversee management of oil and gas royalties were instead breaking rules and accepting gifts from the oil and gas lobby.

Interior Secretary Ken Salazar testified that the administration is making progress with reorganizing the former MMS.  The Interior Department is requesting a budget of $148 million for the revenue office, an increase of about $38 million above the 2010 level.   

"In the past, the federal government has not done enough to ensure it is assessing and collecting the appropriate amount of royalties from oil companies drilling in public waters.  So while oil companies are reaping record profits, and consumers continue to pay sky-high prices, taxpayers may be getting fleeced and that must stop.  We need to fix this system and recoup billions of tax dollars from the oil companies," said Reed.

Under the Obama administration, domestic oil production has increased to nearly the highest level in a decade. 

But while the oil industry tries to push increased drilling as the solution to reducing gas prices, the U.S. Energy Information Administration (EIA) has repeatedly stated for years that offshore drilling "would not have a significant impact on domestic crude oil and natural gas production or prices.?  According to the EIA, even with increased drilling there would be no impact on prices at the pump by 2020 and only a 3 cent per gallon difference by 2030.

"We must continue to pursue viable long-term solutions to reduce the overall cost of driving our cars, heating our homes, and powering our businesses.  One of the most effective ways is improving energy efficiency through weatherization and increased fuel efficiency standards," concluded Reed.  "We should address this faltering reservoir issue now and provide short-term relief, but we must also continue to develop energy efficient technologies that can power our economy in the long run.  Investing in clean, energy efficient technology over the long-term will strengthen our security, help families save on their energy bills, and create jobs here in Rhode Island.  It's a question of competitiveness and making smart investments.  On a bipartisan basis, we need to start recognizing that slogans like 'drill, baby, drill' aren't a substitute for a balanced, well thought out energy policy."