12.15.25

Natural Resources Democrats Expose How Oil Companies Slashed Their Royalty Payments by $2.7 Billion Using Timing Loophole

Gov Watchdog Confirms Companies Exploit Outdated Rules to Reduce What They Owe for Drilling on Public Lands and Waters 

Washington, D.C. – Today, Ranking Member Jared Huffman (D-Calif.) released a Government Accountability Office (GAO) report exposing how oil and gas companies have exploited a timing loophole to cheat American taxpayers out of as much as $2.7 billion in royalty payments over the past decade.
The watchdog report, requested by former Ranking Member Raúl M. Grijalva (D-Ariz.), confirms that companies are gaming the system to avoid paying their fair share for drilling on lands and waters that belong to the American people.

Between 2014 and 2024, companies systematically revised down their original royalty reports — slashing $96 billion in reported royalties to $93 billion, a $2.7 billion decrease in federal revenue for American taxpayers. The report found that $300 million in these reductions came from adjustments submitted 4-6 years after the original payment, leaving agencies virtually no time to investigate before the statutory audit deadline of 7 years expires.

According to the report, even oil industry representatives admitted that modern electronic accounting systems have eliminated the need for such an extended adjustment period. Yet the outdated six-year window remains on the books, and companies continue to exploit it.

GAO recommended Congress shorten the adjustment timeframe, the same recommendation the Interior Department's own royalty office made over a decade ago.

Read the full GAO report here.

Background

Royalty revenue from oil and gas production on federal lands and waters generates billions of dollars annually for federal and state programs. The Interior Department's Office of Natural Resources Revenue (ONRR) oversees these payments to ensure companies pay what they owe.

Oil companies can go back and reduce their reported royalties up to six years after their original payment, but ONRR only has seven years total to audit and collect. Companies exploit this timing gap by waiting until late in the six-year window to submit large adjustments slashing their payments, leaving ONRR with as little as one year to verify transactions and recover underpaid royalties before the statutory deadline expires. This creates a lucrative loophole for companies to reduce what they owe without adequate federal oversight.

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