Iowa Congressman Bruce Braley Speaks Out on Oil Accountability

This morning Iowa Congressman Bruce Braley addressed the House of Representatives on oil accountability.

Madam Speaker I rise today to express my serious concerns that inadequate oversight, efficient procedures, and unethical lapses at the Department of Interior Minerals Management Services are costing to federal government millions of dollars each year. The MMS is responsible for negotiating, implementing and overseeing all federal leases for resources removed by private companies from public lands. And is supposed to be a guarding of our nation’s precious public resources.

Unfortunately evidence suggests that the cozy relationships between MMS officials and oil and gas companies have allowed these companies to underreport the resources they remove from federal lands and underpay the royalties they owe to the federal government. Evidence that MMS has failed to detect and pursue these violations by oil and gas companies is especially troubling as gas prices continue to rise, corporations make record profits and average American are struggling to fill their gas tanks and make ends meet. Most hard working tax paying Americans would be outraged to know that these companies are cheating the government out of this royalties, which are a critical source of revenue for the U.S. treasury and which would allow us to invest in another priorities.

Oil Accountability Report Card -- Can We Count on Our Candidates?

Today we get the news that the House has sent the President a new energy bill. That bill whatever its virtues and vices, is absolutely silent on one of the biggest issues facing the public today - the ongoing fleecing of taxpayers by the big oil companies.

The U.S. needs tougher penalties on the companies who cheat Americans by not paying their full royalties. It will apparently take a Democratic Administration to crack down on Big Oil fleecers. But can we be sure that our candidates will do the right thing?

We've been researching the reasons that some of our candidates may be playing it coy and we'll be rolling out some of that information in coming posts but hopefully our candidates will step up and do the right thing. It seems like a no brainer but nothing is simple in Washington DC when there are millions of dollars involved.

Oil Accountability Project

Today, the GOP blocked the energy bill because it included new taxes on oil companies. It was blocked because it included billions of dollars in new taxes on the biggest oil companies.

The Democratic leaders fell one vote short, 59-40, in getting the 60 votes needed to overcome a GOP filibuster. And in order to move the bill forward, Democrats said they would strip the taxes from the legislation. Reid of Nevada revised energy package would include the first increase in automobile fuel efficiency in three decades and massive increases in the use of ethanol as a motor fuel, but it will "eliminate the tax title."

And thus, the Republican leader Mitch McConnell of Kentucky predicted the revised bill would be approved with wide bipartisan support.

Here are is the list of compromises already made to the bill:

• Senate Democrats earlier dropped a House-passed provision that would have required investor-owned utilities nationwide to generate 15 percent of their electricity from solar, wind and other renewable sources.

• The mandate was fought by the electric utility industry and, especially the Atlanta-based Southern Co. They argued that the mandate would lead to higher electricity costs, especially in regions that do not have an abundance of wind or solar energy, such as the Southeast.

• The oil companies had pressed lawmakers to oppose repeal of the $13.5 billion in tax breaks provided them by Congress in 2004 and 2005. They argued the tax relief was essential as an incentive for domestic oil and gas production and refinery expansion and that rolling back the tax breaks would lead to higher energy prices.

Democrats released a report by the Joint Economic Committee on Wednesday that concluded that rescinding the tax breaks would have no impact on production decisions or "have any effect on consumer prices for oil and gas."

We exposed that last year's Abramoff/Safavian/Ney scandal revealed a number of massive scandals in the Department of Interior. But they were just the tip of the iceberg. Even though the spotlight has faded a bit, the litanies of scandals, rip-off and handout to big oil continues. Especially at the Minerals Management Service -- the part of the DOI that is supposed to collect royalties from oil companies who are extracting resources from our public lands.

However, for the past six years, government whistleblowers have alleged that a lack of oversight, deficient procedures, and cozy industry ties between MMS officials and oil and gas companies have created a system that allows the companies to underpay the federal government for scarce resources extracted from public lands.

On September 19th, DOI Inspector General Earl Devaney echoed these concerns in his report "Minerals Management Service (MMS): False Claims Allegations." The report describes a process systemically plagued by ethical lapses, process failures, mismanagement and conflicts of interest. The IG report highlights the need for vigorous oversight of the oil and gas industry with an eye towards real accountability.

Taxpayers for Common Sense and Project on Government Oversight assert the MMS's closeness with its clients taints its mission to pursue uncollected royalties for the Treasury. This has been especially true, they say, in the six years since the Bush administration instituted a new process called "compliance review." Beth Daley, an investigator for Project on Government Oversight, said there has been a fundamental change with auditors being told not to audit oil companies that hold federal leases: "It was never a great culture, but it has taken a turn for the worse." Before, the agency relied more on auditing to determine whether proper royalties were being levied and paid.

As a result of these alleged abuses, whistleblowers have brought forth legal actions claiming oil and gas companies systematically undervalue the amount and value of resources removed from public and Native American lands, with one case (Burlington Resources) recently settling for more than $97 million. Evidence in these cases suggests oil companies prefer to risk federal penalties rather than pay the actual amounts owed since the prospect of real penalties (particularly under this Administration) stands so remote.

The question to ask is if we have any reason to believe things will be any different under a Democratic president? Of course we all hope so, but will the candidates go on the record pledging to end the sloppy and corrupt practices at the DOI that are costing us all millions and millions of dollars?

Protecting the Public's Resources

The Department of Interior’s (DOI) Minerals Management Service (MMS) is responsible for collecting almost $10 billion of royalties owed each year on oil and gas produced from federal and Indian lands—the second largest source of income for the Treasury behind the IRS. However, for the past six years, government whistleblowers have alleged that a lack of oversight, deficient procedures, and cozy industry ties between MMS officials and oil and gas companies have created a system that allows the companies to underpay the federal government for scarce resources extracted from public lands.

On September 19th, DOI Inspector General Earl Devaney echoed these concerns in his report “Minerals Management Service (MMS): False Claims Allegations.” The report describes a process systemically plagued by ethical lapses, process failures, mismanagement and conflicts of interest. The IG report highlights the need for vigorous oversight of the oil and gas industry with an eye towards real accountability.

Taxpayers for Common Sense and Project on Government Oversight assert the MMS's closeness with its clients taints its mission to pursue uncollected royalties for the Treasury. This has been especially true, they say, in the six years since the Bush administration instituted a new process called "compliance review." Beth Daley, an investigator for Project on Government Oversight, said there has been a fundamental change with auditors being told not to audit oil companies that hold federal leases: "It was never a great culture, but it has taken a turn for the worse." Before, the agency relied more on auditing to determine whether proper royalties were being levied and paid.

As a result of these alleged abuses, whistleblowers have brought forth legal actions claiming oil and gas companies systematically undervalue the amount and value of resources removed from public and Native American lands, with one case (Burlington Resources) recently settling for more than $97 million. Evidence in these cases suggests oil companies prefer to risk federal penalties rather than pay the actual amounts owed since the prospect of real penalties (particularly under this Administration) stands so remote.

The following areas demonstrate the problems at MMS and the need for genuine leadership from the next Administration:

DEFICIENT OVERSIGHT: During the last several years, more than $500 million in royalty underpayments that the MMS failed to detect and recover has been recouped through False Claims Act lawsuits brought by private individuals on behalf of the federal government. For example, this August, Burlington Resources agreed to pay the United States $97.5 million to resolve claims that it underpaid royalties owed on natural gas produced from federal and Indian leases. The suit against Burlington was originally filed by a whistleblower under the False Claims Act. Interestingly, MMS chose not to require Burlington to pay interest on the under-reporting, deeming such a payment “a hardship” to the company.

ROYALTY UNDERREPORTING: Inspector Devaney points to a substantial body of evidence indicating that oil and gas companies are systematically undervaluing the amount of natural resources they extract from public lands. He characterizes MMS management as “a Band-Aid approach to holding together one of the Federal Government’s largest revenue producing operations.”

HABITUAL UNDERPERFORMANCE: In its 2006 assessments, the Office of Management and Budget (OMB) scored MMS overall as "not performing." Specifically: Strategic Planning at 60%, its Program Management at 66% and its Program Results and Accountability at 32%. In 2007, after firing and replacing MMS Director Johnnie Burton in July, the OMB glossed over the structural problems at MMS with a superficial score of "performing" despite the fact that even in the 2007 edition, OMB rates MMS "Accountability" at 62%--a substandard grade by any system.

ETHICAL LAPSES: In describing ethical lapses and bungling of revenue collection, the Department of Interior’s own Inspector General, Earl Devaney, said “Short of crime, anything goes at the highest levels of the Department of Interior.” In December, 2006 Devaney issued a highly critical audit of MMS’s compliance program.

CORRUPTION AND COLLUSION: According to a December 15, 2006 New York Times article and a December 30, 2006 CBS News report, the Department of Justice’s Public Integrity Section, the DOI Inspector General, and the FBI have two ongoing criminal investigations involving conflicts of interest involving MMS officials. Historically, MMS has created the specter of overly cozy relationships between auditors and oil and gas companies by locating “resident auditors” in the offices of the companies they are supposed to be overseeing.

These reports coupled with the settled and pending whistleblower suits demonstrate the need for vigorous oversight and genuine reform at MMS in order to avoid future recurrence. Such reform would provide substantial resources to invest in the strategic development of new sources of energy.

"Told to Be Lax"

In March the New York Times reported on a whistle-blower lawsuit by a former government auditor:

A former top auditor at the Interior Department accused senior officials on Wednesday of prohibiting him and other investigators from recovering hundreds of millions of dollars in underpayments from oil and gas companies that drill on federal land and in federal waters.

“There’s hundreds of millions of dollars, billions of dollars out there, and I don’t think we should be scared of the oil companies,” said Bobby L. Maxwell, a former senior auditor who, as a private citizen, sued the Kerr-McGee Corporation, claiming it intentionally cheated the government of royalties for oil and gas it produced in the Gulf of Mexico.

In February, a federal jury in Denver agreed with Mr. Maxwell and ruled that Kerr-McGee had underpaid the government by $7.5 million.

“There were statements made: ‘Don’t bother the oil companies,’ ” Mr. Maxwell told the House Natural Resources Committee, which is investigating allegations of mismanagement in the royalty program run by the Minerals Management Service of the Interior Department.

“The M.M.S. is the proverbial ostrich that has its head in the sand, that sees nothing, knows nothing, but says that no royalties are due,” Mr. Maxwell continued.

Click here to read the entire article

"Bureaucratic Bungling"

In January the New York Times covered some of the investigations going on at MMS:

The Minerals Management Service, an obscure agency in the Interior Department, collects more than $10 billion a year from companies that pump oil and gas from federal lands and federal waters in the Gulf of Mexico. To encourage drilling when oil prices were low, Congress waived many royalties for companies drilling in very deep water. But the ''royalty relief'' was supposed to stop if oil cost more than $34 a barrel, when deepwater drilling was assumed to be profitable.

A year ago, the minerals agency admitted what mid level officials had known for six years: that it had signed leases in 1998 and 1999 allowing oil companies drilling in the Gulf of Mexico to escape $7 billion to $10 billion in royalties over the next five years -- even if energy prices remain at record levels. The giveaway came from a mistake made under President Bill Clinton, but Bush administration senior officials ignored it as oil prices shot to new highs.

Last week, Interior's inspector general, Earl E. Devaney, called the agency's response ''shockingly cavalier'' and ''a jaw dropping example of bureaucratic bungling."

Click here to read the entire article

Timeline of Recent Events Related to Oversight of MMS

December 5th, 2006: Department of Interior Inspector General releases Audit Report of MMS’s Compliance Review Process (no. C-IN-MMS 0006-2006). The audit report shows that compliance reviews should only be used in conjunction with audits, in the context of a well-designed risk-based compliance strategy.

December 6th, 2006: MMS Director Burton says “We appreciate the work of the IG’s office…” and MMS’s detailed improvement plan will be delivered to the OIG within 30 days (Jan. 6th, 2007).

December 28th, 2006: Minerals Revenue Management of MMS releases “Action Plan to Strengthen Minerals Management Service’s Compliance Program Operations” to House and Senate Resources committees.

January 18, 2007: Secretary Kempthorne and Asst. Secretary Allred announced the establishment of an “independent panel (that) should be convened to review the procedures and processes surrounding MMS’s management of mineral revenue…The new panel will operate as a Subcommittee under the auspices of the Royalty Policy Committee (RPC).” This independent subcommittee is to report back to the full RPC within six months on reporting, accounting, audit and compliance procedures. As yet unseen. Members of the committee attached.

February, 2007: OMB lists MMS as “NOT PERFORMING”. OMB references OIG-audit-related improvement plans as: “Implement the new Office of Inspector General recommendations from its 2006 report related to the compliance review process, including the implementation of improved performance measures.” OMB notes the status on 9-6-07 as “Action taken, but not completed.” OMB scores Strategic Planning of MMS at 60% and Program Management at 66%. Program Results and Accountability is scored at 32%.

February 15th, 2007: Senate Energy Committee requests GAO report on MMS’s Royalty in Kind (RIK) program.

May 7, 2007: Director of MMS Johnnie Burton retires. Walter Cruickshank appointed as Acting Director of MMS on May 23.

May 23, 2007: Greg Smith, the head of the beleaguered Royalty-In-Kind program at the Department of Interior Minerals Management Service (MMS) announced he is retiring.

"Broad Failures in Oil Program"

In September, the New York Times reported on Interior Department inspector general, Earl E. Devaney's report on the MMS:

The Interior Department’s program to collect billions of dollars annually from oil and gas companies that drill on federal lands is troubled by mismanagement, ethical lapses and fears of retaliation against whistle-blowers, the department’s chief independent investigator has concluded.

The report, a result of a yearlong investigation, grew out of complaints by four auditors at the agency, who said that senior administration officials had blocked them from recovering money from oil companies that underpaid the government.

The report stopped short of accusing top agency officials of wrongdoing, concluding that the whistle-blowers were sometimes unaware of other efforts under way to recover the missing money and that they sometimes simply disagreed with top management.

But it offered a sharp description of failures at the Minerals Management Service, the agency within the Interior Department responsible for collecting about $10 billion a year in royalties on oil and gas. Many of the issues, including the complaints by whistle-blowers, were initially reported last year by The New York Times.

Prepared by the Interior Department’s inspector general, Earl E. Devaney, the report said that investigators found a “profound failure” in the agency’s technology for monitoring oil and gas payments.

It suggested that the agency was too cozy with oil companies and that internal critics had good reason to fear punishment.

“It demonstrates a Band-Aid approach to holding together one of the federal government’s largest revenue-producing operations,” Mr. Devaney concluded.

Click here to read the entire article

"The Royalty Mess"

In September of this year, the New York Times editorialized on the lax oversight of the MMS in a piece aptly headlined "The Royalty Mess".

A yearlong investigation has now provided unassailable evidence that the Interior Department abdicated its responsibility to collect royalties from oil and gas companies that drill on public lands, chiefly the Gulf of Mexico. The report increases the pressure on Congress to find a way to recover the money. It also increases the pressure on Dirk Kempthorne, the interior secretary, to accelerate his reforms of the Minerals Management Service, the agency that failed to collect the royalties.

The investigation grew out of the discovery that a loophole in leases signed by the Clinton administration in 1998 and 1999 had allowed oil companies to duck royalties due on oil drilled on federal lands. Midlevel federal officials found the loophole in 2000, but nothing was done to close it or collect the lost revenues until 2006. It has already cost taxpayers more than $1.5 billion, a figure that could rise to $10 billion over the course of the leases.

The Interior Department has been hammered by Congress, but the strongest criticism has come from the department’s inspector general, Earl E.Devaney, whose final report was disclosed by Edmund L. Andrews in The Times on Monday. The report attributed the agency’s failure not so much to ineptitude as to lazy management, ethical lapses and a culture of secrecy that hid mistakes.

Click here to read the entire article

Poor Oversight by the DOI and MMS

A complex regulatory structure coupled with an under-performing oversight body has created a system that incentivizes oil and gas companies to under-pay royalties due to the federal government for the extraction of natural resources from public lands. As a result, these companies gain excessive profits at a cost to the general treasury and the public at large.

In exchange for producing gas and gas products from federal and Indian lands, oil companies pay royalties to the U.S. government based on the gross proceeds of production. The amount of royalties is determined by federal regulations and payment is monitored by the Department Of Interior’s Minerals Management Service (MMS) and its Minerals Revenue Management (MRM) branch. These regulations are technically complex which leads to disputes on interpretation and implementation.

A number of recent events highlight the weakness of MMS and MRM monitoring scheme. For example, this August Burlington Resources agreed to pay the United States $97.5 million to resolve claims that it underpaid royalties owed on natural gas produced from federal and Indian leases. The suit had originally been filed by a whistleblower on behalf of the federal government.

In its 2006 assessments, the Office of Management and Budget (OMB) scored MMS overall as "not performing." Specifically: Strategic Planning at 60%, its Program Management at 66% and its Program Results and Accountability at 32%. In 2007, after firing and replacing MMS Director Johnnie Burton in July, the OMB glossed over the structural problems at MMS with a superficial score of "performing" despite the fact that even in the 2007 edition, OMB rates MMS "Accountability" at 62%--a substandard grade by any system.

In describing ethical lapses and bungling of revenue collection, the Department of Interior’s own Inspector General, Earl Devaney, said "Short of crime, anything goes at the highest levels of the Department of Interior.” In December, 2006 Devaney issued a highly critical audit of MMS’ compliance program.

This long-running record of incompetence has brought increased scrutiny from Congress. Both the House Natural Resources and Senate Energy and Natural Resources Committees have held hearings critical of MMS’s revenue collection and audit policies this year. The Senate Energy Committee has also requested a GAO report on the Royalty in Kind Program.

In response, MMS has pledged to issue a strategic plan detailing how royalty collection and ethical considerations will be improved and pledged to create an independent board to revue compliance issues within MRM. However, given MMS’s abysmal record of implementing these regulations, Congress must remain vigilant in its oversight and protect both our natural resources and the public treasury.

To address the egregious lapses in oversight and lost revenue, Congress should:

• Ensure that MMS vigorously implements its reform plan through on-going requests for briefings with senior officials, hearings and third-party (GAO) evaluations.
• Alter the incentive structure of the current regulatory scheme to minimize a company’s willingness to manipulate reporting information for financial advantage.
• Consider simplifying the MMS regulations to limit a company’s ability to manipulate its reporting data.
• Provide thorough analysis and evaluations of the new independent panel under the Royalty Policy Committee.

About MMS, MRM and Federal Mineral Leases

ABOUT MMS: The Minerals Management Service (MMS), a bureau in the U.S. Department of the Interior, is the Federal agency that manages the nation's natural gas, oil and other mineral resources on the outer continental shelf (OCS). The agency also collects, accounts for and disburses more than $8 billion per year in revenues from Federal offshore mineral leases and from onshore mineral leases on Federal and Indian lands.

MMS’ mission is to manage the ocean energy and mineral resources on the Outer Continental Shelf and Federal and Indian mineral revenues to enhance public and trust benefits, promote responsible use, and realize fair value.

ABOUT MRM: The MMS's Minerals Revenue Management (MRM) is responsible for management of all revenues associated with both federal offshore and onshore mineral leases. The effort is large source of federal non-tax revenues. Operationally based at the Denver Federal Center in Colorado, the Minerals Revenue Management has field offices near principal energy development areas in Texas, Oklahoma and New Mexico.

How federal mineral leases work: Some federal lands are leased to individuals and companies for minerals development. Lease holders competitively bid, initially pay a bonus and subsequently, rent for the right to develop these onshore and offshore lands. If minerals are found, extracted and sold, the federal government is entitled to a certain percentage of, or royalty on, the production.

Using computerized accounting systems, MRM processes approximately the royalties. Nationally, bonuses, rents and royalties from leases amount to several billion dollars each year (+/- $7 billion per annum). Totals fluctuate with market prices, amount of production, and the number of lease sales.

For offshore leases, the Minerals Revenue Management distributes the collected money to U.S. Treasury accounts. In recent years, annual deposits have been nearly $900 million to the Land and Water Conservation Fund and $150 million to the Historic Preservation Fund. The remainder is sent to the U. S. Treasury's General Fund. Additionally, a portion of royalties from certain offshore federal leases, adjacent to seaward boundaries of coastal states, are shared with those states.

Distribution of revenues associated with onshore federal lands is split 50-40-10, with 50 percent of the money going directly to the state within which the specific lease was located. Forty percent is sent to the Reclamation Fund of the U.S. Treasury. This special account finances the Bureau of Reclamation's water projects in 17 western states. The remaining 10 percent goes to the Treasury's General Fund.

Our Mission

At a time of record high gasoline prices and record oil company profits, American taxpayers get stuck with the bill. At the pump, consumers can witness how they fill up the coffers of the oil companies. But there is another, more insidious, way that Big Oil is sticking it to the taxpayers.

While the Big Oil companies are drilling and mining on federal lands, they systematically cheat the federal government by under-paying the royalties owed to the American people.

The Oil Accountability Project was established on behalf of the whistleblowers who are trying to uncover the corruption, collusion and systemic under-reporting of natural resources that the big oil and gas companies extract from public lands.

This site will serve as a clearinghouse for information about the ongoing crisis in the management of the public’s resources.