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Latest Industry PR Campaign Doesn't Wash

Another gambit to improve public image

December 1, 1997 | By Hans Voss
Great Lakes Bulletin News Service

The oil and gas industry is waging an expensive public relations campaign to take credit for the Natural Resources Trust Fund. Full page newspaper ads and radio spots describe the Fund's role in conserving land, and praise the industry's $500 million "contribution" to the Fund over the past 20 years.

Don't be fooled. This anniversary celebration is a bald-faced attempt by the industry to bolster its reputation by snowing the public and claiming credit it doesn't deserve.

Let's set the facts straight. The oil and gas industry has never "contributed" a single penny to the Trust Fund. The Trust Fund revenues are the royalties from publicly owned minerals.

That means you and I, and the rest of Michigan's 9.3 million residents own the oil and gas, and the drilling rights, on public land. The Department of Natural Resources Real Estate Division simply contracts with energy companies, on behalf of the public, to get the fuel out of the ground.

In return, the companies make regular royalty payments to us. These payments are required by law to be deposited into the Trust Fund. That's it. There are no "contributions." Just the public's share of the profit from oil and gas development. (And many would say that the 1/6 royalty is not enough to be our fair share.)

The Natural Resources Trust Fund is one of Michigan's greatest achievements of environmental policy in the last quarter century. It was established in 1976 as part of a compromise solution to the battle over drilling in the Pigeon River State Forest.

The agreement designated that state royalties from oil and gas development would create an enduring legacy of wild land protection and recreational opportunities for all Michigan residents. The Fund has supported hundreds of worthy projects around the state, including nature preserves, campgrounds, boat launches, ball fields, and public parks.

By using words like "contribution," and describing itself as the Trust Fund's "sole principal funding source," the industry is portraying itself as supremely generous benefactors to a public that should be grateful. The DNR is publicly endorsing this charade -- a senior agency official is quoted in the Michigan Oil & Gas News as calling the PR campaign "a class act."

Class Act? In reality, both the Michigan Oil and Gas Association and the DNR have been undermining the Trust Fund for years. The public has been cheated out of millions of dollars because of shoddy state oversight, and a take-all-you-can-get attitude from the energy industry. As a result, Trust Fund revenues have fallen far short of what they would have been under responsible management.

There is no more telling example of this hypocrisy than the 1993 agreement that the DNR and the industry privately worked out to write off millions of dollars in production costs before paying royalties. That agreement, signed without the knowledge of the public, the Legislature, or the Natural Resources Commission, diverted at least $12 million from the Trust Fund directly into the pockets of oil industry executives and their investors.

Unfortunately, the Trust Fund in its 20th year has become a victim of the state's blind allegiance to the oil and gas industry. The public lands, public treasury, and public trust have suffered.

Consider that from 1989 to 1995, the number of natural gas wells on state-owned land jumped more than seven-fold, from 393 to almost 3,000. This occurred because hundreds of thousands of acres of public land were leased. The production of gas on those lands, moreover, nearly tripled, from 41 billion to 102 billion cubic feet per year.

But the revenues to the Trust Fund during the same period actually dropped, from $28.6 million in 1989 to $26.2 million in 1995. The public's royalty income per well went from $72,774 to $8,786.

How could this happen? Lower market prices for natural gas are part of the reason. Even so, state and federal officials have protected the oil and gas companies from the realities of free enterprise, with what they often refer to as their "partnership" with the industry. This is done with subsidies -- at the state level, by diverting revenues from the Trust Fund, and through an even larger federal tax credit that enables Michigan gas companies and investors to write off more than $100 million a year.

The industry has pushed the state to lease ever larger blocks of public lands -- up to 100,000 acres at a time. It was not the gas they were after, but the much more valuable subsidies. The losers in this twisted loophole party have been us -- our public forest lands are scarred by thousands of new wells and miles of pipelines, and our legacy, obtainable through the Natural Resources Trust Fund, has been shortchanged.

Most of us use oil and gas in some way almost daily. Of course it makes sense for Michigan to develop its energy reserves, and to support a viable oil and gas industry. But it must be done in balance with environmental protection, and within the guidelines of fair and open public policy.

This balance tipped long ago. Michigan residents deserve honesty and accountability, not more PR

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