Protect State's Natural Resources and Income from Oil Field Sabotage

Problem: The Attorney General failed to protect Texas oil and gas resources from intentional sabotage, refusing to intervene in Exxon Corp v Emerald Oil and Gas Co. before the Texas Supreme Court in 2009. Exxon plugged wells it abandoned due to a dispute with landowners, leaving wells unrecoverable. Exxon filed fraudulent sworn plugging reports with the Railroad Commission. These sworn statements covered up the damage Exxon caused to the wells. “Exxon committed irrefutable, intentional, and flagrant violations of state rules regulating the oil field,” per Texas General Land Office Commissioner Jerry Patterson.

Significance: Oil and gas produced on Texas Permanent School Fund lands have earned more than $11.5 billion for the Permanent School Fund which helps offset the state’s share of funding for public education. Exxon’s reckless plugging permanently damaged over 100 wellbores to the detriment of the landowners, subsequent producers, taxing authorities and the taxpayers of Texas. State leases contain terms which ought to be followed, for the good of the people of this state and our energy resources which must be protected from “waste” and to protect the integrity of leases, of railroad commission rules, and the tax revenues from production of energy resources.

Solution: The Attorney General of Texas should intervene in such vital matters before the Supreme Court of Texas. Regardless of an invitation, the Attorney General should have appeared as a friend of the Court. He refused. Instead, the job fell to the General Land Office which plead with the Texas Supreme Court to understand the meaning of “waste” under the law of Texas, to enforce explicit lease provisions, and to please allow someone other than Exxon to sue Exxon for Exxon’s unconscionable actions. The Land Office attempts were ineffective, and characterized by Exxon’s lawyer as “… a grandstand play by an interloper.”

 Prosecute Price Fixing

Problem: The Attorney General has deprived the State and its Counties of tax and royalty income by permitting price fixing and suppression.

Certain large oil and gas companies sell gas from the wellhead side, which they own or control, to the plant or pipeline side, which they also own or control. Certain large oil and gas owners/operators structure transactions to avoid paying fair market value. [1]

Significance:There are over 800 gas-processing “plants” in Texas with potential tax-underpayment issues. Per-plant price fixing through affiliated sales agreements is estimated at $7-8 million yearly, amounting to billions in lost ad valorem-tax and severance-tax revenues. These numbers do not even include the tax-underpayment issues associated with gas-processing “facilities” and “pipelines.” Royalty owners, including the state of Texas, are entitled to a fair basis for their royalties. Moreover, illegal tax avoidance by price fixing harms all Texas taxpayers who then shoulder an unfair burden to meet State and County budgets.

Solution: The Attorney General can and should demand honest well head pricing, investigating the same large companies which own/control both the “selling” wellhead side and the “buying” plant/pipeline side of sales agreement. Chapters 23 and 201 should be enforced in a clear manner so offending, collusive companies pay fair ad valorem and severance taxes, not on the prices they are arbitrarily fixing between their “selling” wellhead side and “buying” plant/pipeline side.

Prevent Unconstitutional Taxation

Problem: The margin tax, favoring big oil with massive deductions, is an unconstitutional income tax. An informal Attorney General opinion enabled the margin income tax despite clear analysis to the contrary from the Texas State Comptroller that the margin tax is an income tax and was passed in violation of the Bullock Amendment to the Texas Constitution VIII8 sec 24(a).

Significance: The margin income tax $1.8 billion shortfall in its first year skews school finance, causes substantial expense and havoc to taxpayers. Even greater shortfalls will fall massively and unfairly on the shoulders of all margin income tax payers except big oil.

Solution: The Attorney General should reverse the incorrect informal AG opinion which rejected the proper analysis of the Texas Comptroller exposing the unconstitutionality and unfairness of the margin income tax.

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[1] Certain affiliated sales agreements favor the “buying” plant/pipeline side, with low wellhead prices. By minimizing the wellhead revenues, certain producers are paying billions less in gas royalties to the State and private royalty owners, ad valorem taxes to Counties, and severance taxes to the State, which depend on the wellhead side’s revenues. These same large oil and gas companies, which own most of Texas’s most-lucrative lucrative gas-processing facilities and gas pipelines, wrongly interpret Chapters 23 and 201 of the Texas Tax Code. The less they pay, the more other Texas taxpayers must pay in order to meet yearly County and State budgets.