Oil Accountability Project

Windfall Profits Tax Killed By GOP, Give-Aways Continue Unmolested

2008-06-11T13:00:00.000-07:00

Senate Republicans have once again protected their patrons in the oil industry from a windfall profits tax:

The Senate fell nine votes short of the 60 required to proceed to debate on the Democrat-sponsored energy measure, which would have erased $17 billion in tax breaks for oil companies over 10 years and created a levy on "unreasonable" profits collected by the five largest U.S. oil companies. Only six Republicans voted to move ahead.

Of course we'll have another bite at the apple next year, likely with an increased Senate majority and a President Obama, who's already promised to make the petro-kings pay:

I'll make oil companies like Exxon pay a tax on their windfall profits, and we'll use the money to help families pay for their skyrocketing energy costs and other bills.

But for all the sturm und drang about the windfall profits tax, nobody is raising a peep about this $53 billion rip-off:

If oil and natural gas prices stay as high as they've been in recent months, the government could lose as much as $53 billion over the next 25 years in energy royalties because of an adverse court ruling, according to congressional auditors.
The Government Accountability Office said in a report released Thursday that the soaring price of crude oil and natural gas also means the windfall that companies will enjoy from the court ruling also could increase by billions of dollars.

In October 2007, a federal court ruled in a claim originally filed by Kerr McGee Corp. that the government cannot require companies that are exempt from paying royalties on oil and gas taken from federal land and waters to pay them if market prices reach a certain level.

And how did we get ourselves in such a ridiculous situation?

The case is based on a claim filed by Kerr-McGee, which was purchased by Anadarko Petroleum Corp., in 2006.
Anadarko had argued successfully that the Interior Department's Minerals Management Service had overstepped its authority when it imposed royalties on oil and gas taken from deep waters of the Gulf of Mexico under a royalty relief program enacted by Congress in 1995.

Congress at the time provided the royalty break for deepwater exploration to encourage energy development in those areas. The Interior Department contends it had the authority to lift that royalty relief once prices reached a certain level -- prices that are far below what crude oil and natural gas is now costing.

I'd like to see some legislative action to stop giving away publicly owned petroleum to the oil profiteers for free. How 'bout you?

The Oil Companies Should Pick Up the Tab, Not the Public

2008-04-28T13:03:00.000-07:00

Markos rips into Clinton today for supporting McCain's idea of a "Summer Gas Tax Holiday":

Honestly, why take the 18 cents out of the federal budget? Why not take it out of the oil company profits? The $10 billion in revenue the federal government would lose, at a time when our roads are crumbling and bridges literally collapsing, is only a quarter of Exxon Mobil's annual profits...
And that's just Exxon Mobile, excluding every other Big Oil company. Add them all up, and $10 billion would be but a blip in their balance sheet. So why do McCain and Clinton want to penalize the federal government at a time of record oil profits?

One thing that Markos and almost every commenter is missing, is that the oil companies already owe the U.S. taxpayers more than $10 billion in uncollected royalties for petroleum removed from public lands.

And when you realize that some estimates put the figure at $31 billion it really makes you wonder, why don't we have a $0.36/gallon gas tax break and let the oil companies pay for it out of the money they already owe the taxpayers?

Presidential Campaign Oil Wrestling

2008-03-31T13:04:00.000-07:00

Last week, the Obama campaign released a new TV spot for the Pennsylvania market slamming the oil companies' high prices and big profits. In the ad he touts his policy prescription: a windfall profits tax.

The Clinton campaign predictably fired back with charges that Obama "did so" take plenty of money from the oil industry. You can see a quick sound bite of Hillary bashing Obama's energy vote bill here.

Hillary Rodham Clinton's campaign was quick to send out an e-mail accusing Mr. Obama of making false statements in his ad, saying he has received more than $160,000 from the oil and gas companies. Phil Singer, deputy communications director for Mrs. Clinton, put out this statement: "It's unfortunate that Senator Obama is using false advertising to explain why he can be trusted to do something about energy prices. Senator Obama says he doesn't take campaign contributions from oil companies, but the reality is that Exxon Mobil, Shell and others are among his donors. I wonder if they'll fix the ad."

Obama's team quickly fired back with more of the "he said, she said":

Mr. Singer shouldn't hold his breath. Bill Burton, press secretary for the Obama campaign, reaffirmed the ad's message, saying "Senator Obama is the only candidate in the race who doesn't accept campaign contributions from special interests PACs and Washington lobbyists, and that includes oil companies and oil lobbyists." "The energy bill that Senator Clinton has already been criticized for misrepresenting -- one that Clinton supporters Representatives Murtha and Kanjorski also backed -- actually raised taxes on oil companies and made the largest investment in renewable energy in our nation's history," said Mr. Burton in a statement. "Instead of continuing with the negative and misleading tactics that voters everywhere are rejecting, Senator Clinton should get behind the Obama plan to ease the burden of rising gas prices on working families."

IMO, Obama's windfall profits tax idea is the definition of empty pandering. It didn't work for Jimmy Carter and there's no reason to believe it will work now. Sadly, all this finger pointing is ignoring a very obvious way to get more money out of the oil companies, money that they already owe the federal government. As I've been posting in this series, the Department of Interior has failed to collect more than $10 billion in revenues for petroleum removed from public lands. When will one of the candidates step up and promise to collect this outstanding debt?

"Going After" the Oil Companies

2008-02-29T08:25:00.000-08:00

Earlier this week the Wall Street Journal reported that House and Senate Democrats were "going after" U.S. petroleum companies.

As early as today, the House of Representatives is expected to approve a measure that would eliminate roughly $18 billion in tax incentives for oil and gas companies, and use the savings to fund tax credits and other incentives for renewable energy.

It isn't expected to become law, but it is one of several recent attempts by Democrats to keep President Bush and Republicans on the defensive.The measure comes as high energy prices put increased pressure on consumers. ...

Senate Democrats also held a hearing yesterday to put new pressure on the administration to take a tougher line against the industry in a dispute over royalties for leases issued in the late 1990s. Assistant Secretary of the Interior Stephen Allred told a Senate Appropriations subcommittee that as much as $31 billion is at stake in the dispute, which centers on leases issued to oil and gas companies for the right to drill in the Gulf of Mexico from 1996 to 2000.

The House bill, though facing an uncertain future in the Senate and an almost certain veto from President Bush, is pretty good. From another WSJ piece:

The House of Representatives voted to repeal $18 billion of tax breaks for oil and gas producers, and to use the savings to finance tax incentives for wind-power projects, solar panels and more energy-efficient cars. ...

Under the bill, Congress would extend through 2011 tax credits for newly built wind farms and other facilities that generate power from renewable sources such as landfills. The government estimates the cost at $6.6 billion over 10 years, making it the single most expensive tax break in the legislation. Congress would also extend, through 2016, the tax credit of 30% that companies may claim for investments in solar products and so-called fuel cells. Fuel cells convert fuel into electrical energy without any combustion, thereby minimizing pollution.

Consumers would gain new tax breaks for buying plug-in hybrid cars.

Oil and gas companies would lose some $13.6 billion in tax breaks granted in 2004 for domestically produced goods. Exxon Mobil Corp., Chevron Corp., ConocoPhillips, Royal Dutch Shell PLC and BP PLC would lose the tax breaks entirely. The deduction would be frozen at 6% for smaller oil and gas companies. That deduction had been scheduled to jump to 9% in 2010.

Oil companies would also lose another $4.1 billion under provisions that provide less-favorable tax treatment for certain kinds of foreign income.

And how is the Senate "going after" the oil companies? Well, aside from the fact that very similar legislation failed BY ONE VOTE last year, Senator Feinstein is trying to get them to pay for petroleum they've already taken from public lands -- $31 billion worth:

A U.S. Interior Department official said today that the government may have a hard time collecting as much as $31 billion in royalty payments for leases issued in the late 1990s unless a court decision that rejected the government's right to the payments is reversed.

The warning from Assistant Secretary Stephen Allred came at a hearing aimed at keeping visibility on disputed royalty payments for deepwater drilling. Sen. Dianne Feinstein, D-Calif., has been pressing oil companies to make the payments, and promised to try again with legislation that would ban oil companies from participating in sales of new leases unless they pay royalties on a set of leases issued in 1998 and 1999.

That's not even mentioning the $10 billion the oil companies are shorting the American taxpayer because they're still paying royalties for the oil they take from public lands at a rate of $36/barrel. It's all pretty unbelievable to me, but I'm glad that our Democratic Represenatives and Senators are trying to do something about the endless boondoggles and ripoffs the Bush administration and oil companies have colluded to perpetrate against the American taxpayer. Next question -- why aren't we hearing more about this from the Democratic presidential candidates?

I've got a theory on that, and I'll be posting about it next week.

In the meantime -- remember that one vote that prevented the legislation to redirect oil company tax breaks to renewable energy from passing in the Senate last year? Well it belonged to John McCain who didn't even bother to vote, choosing instead to kill the bill quietly and without getting his fingerprints on it.

A New Fox in the Henhouse

2008-02-04T12:57:00.000-08:00

Big Oil advocate and Baker Botts attorney, Gregory Copeland has just been nominated to serve as General Counsel for the Department of Energy. A brief look at his bio on the Baker Botts web site confirms that he has spent his career defending the interests of Big Oil. You'll note his representation of Marathon Oil in multiple cases.

It's ironic that, having defended Marathon against charges that they systematically underpaid royalties owed to the Department of Interior/Minerals Management Service (MMS), he is now seen fit by George Bush to perform "public service".

Iowa Congressman Bruce Braley spoke out about the cozy connections between the oil companies and those government officials who are supposed to enforce the laws and ensure oil companies pay for drilling on public lands:

“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.”

Not to mention that the "cost" our government charges the oil companies for oil taken from public lands is far from the true cost of that oil, as Darksyde wrote on DailyKos:

What is the true cost of a barrel of oil or a tank of gas for US consumers? Difficult to say. But any holistic number would have to partially factor in the damage done to local and regional water tables from refineries and storage facilities, the gigatons of greenhouse gases and other pollutants released, and the hundreds of billions of tax payer dollars and thousands of lives spent in Iraq and elsewhere in the Middle East to secure cheap oil. Adding insult to injury, consider the lavish tax breaks and sweetheart subsidies the oil industry and Exxon specifically have received from the Bush-Cheney administration courtesy of We the People.

When the U.S. Government prices oil for sale it's already dramatically undervalued, making the systemic failure to collect what the oil companies owe doubly bad. Bringing another big oil company lawyer to the table -- to represent "We the People" of all things -- is certainly not going to tip the scales to the side of justice.

And in case you forgot, Copeland's firm, Baker Botts, are the people who represented Bush in Bush v Gore, the case that stole the Presidency from the American people.

Shell's Profits Called "Obscene", Shell Exec Promises to Do Better

2008-01-31T11:59:00.000-08:00

The Guardian (UK) reports on the record profits the oil companies are making. Nevertheless, Shell's CEO is promising investors he's working on plans to keep increasing their slice of the pie. Too much is never enough.

Shell was today accused of making "obscene" profits at a time when pensioners, motorists and industry are struggling with higher energy prices when it unveiled annual earnings of $27.6bn.

The oil major has made British corporate history with the record figures, which are equivalent to more than ($3 an hour) and come at the end of a three month period when crude prices have averaged over $90 a barrel.

Jeroen van der Veer, chief executive of Royal Dutch Shell, described the performance as "satisfactory" and admitted that overall production for the year had actually dropped 2%.

He said the company had benefited from launching new oil and gas projects but had suffered in the last quarter from weak refining margins.

"We are proceeding with the rejuvenation of our portfolio with investment in new legacy assets and through disposals. The execution of our strategy is on track."

But Tony Woodley, joint general secretary of Unite the union, Britain's largest trade union said a windfall tax should be imposed on "greedy" companies such as Shell whose profits are more than four times higher than retailer, Tesco.

"Shell shareholders are doing very nicely whilst the rest of us, the stakeholders, are paying the price and struggling," said Mr. Woodley. "Record profits of over thirteen and a half billion pounds at Shell and cumulative oil industry profits in excess of fifty billion in the last three years are, quite frankly, obscene. It is time the government acted."

Where Do Oil Company Profits Go?

2008-01-23T11:10:00.000-08:00

Raw Story reports on the surging profits enjoyed by oil companies even as the economy slides into recession.

Unlike oil companies, who take a percentage of pump prices, government gas taxes are fixed so the government does not profit from rising prices, Krullwich reports. Gas taxes make up about a quarter of that extra dollar spent for a gallon of gas, he says. The rest is split among refineries, tankers, pipelines, traders and others who get oil to consumers.

The record prices of 2007, though, were not accompanied by fears of a US recession that are currently reverberating through the global economy. Those fears triggered a drop in oil prices Tuesday to $89.85 a barrel, the lowest it has been for more than a month.

They also feature an enlightening video from ABC News:

Companies expecting record profits, but recession fears cause decrease in oil prices

In an animated Web video that plays a bit like "School House Rock" without the catchy theme song, ABC News explains where the extra money Americans are putting into their gas tanks actually goes.

"Compared to three years ago, Americans are now paying an extra dollar for every gallon of gas, and if you're wondering where those extra dollars go, well for every dollar you pay, about half goes to the oil company that pumped the oil," reports correspondent Robert Krulwich. Accompanying animation shows a suit-wearing, suspicious looking "oil company guy" tearing away half of a dollar bill.

The short feature is indicative of Krulwich's style; he's been called "the man who simplifies without being simple," by New York magazine.

Hillary Takes the Pledge?

2008-01-08T11:07:00.000-08:00

Sen. Clinton spoke out about the stranglehold that the oil companies have us locked in. It's reasonable to conclude that if they collude on prices that they also collude on whether or not to avoid paying their fair royalties on petroleum taken off public lands.

Here is a transcript of Senator Clinton's comments on the video:

I’ll tell you what. In my inaugural speech, I’m going to serve notice on the oil companies and on the oil producing countries: that we are not going to be taken advantage of any longer, that we are going to once again be in charge of our future.

And I can tell you what’ll happen.

You know, the oil producing countries and the oil companies will have a conversation. They have a cartel in case you haven’t noticed.

And they’ll drop the price of oil because they figure they’ve done it before, they’ll do it again. They’ll take the political heat off. Everybody will say “Oh, great, did you see how much the gas price has fallen? Oh, we don’t have to worry about this anymore.”

It’s like the old story about how to boil a frog. You drop a frog in boiling water, it jumps right out. You drop it in cold water, you turn the heat up – you’ve got a boiled frog before too long. We have been the boiled frog in this story, for decades.

Well, not on my watch. We are going to get out of that pan and we’re going to be back in charge. And we’re going to show the world what we can do when we put our minds to it.

Rep. Markey Blasts New Give Aways from the MMService

2008-01-02T09:14:00.000-08:00

The Houston Chronicle reported on this over the holiday:

A rule change proposed by the U.S. Interior Department could cost taxpayers $10 billion in lost royalty payments from oil and natural gas companies, a lawmaker says.

"The Bush administration couldn't leave town for the holidays without giving one last taxpayer-funded gift to Big Oil," Rep. Edward Markey, D-Mass., said Friday in a statement. The total loss in revenue would be over 26 years, according to the statement.

The Minerals Management Service, which oversees royalty payments for the Interior Department, issued a proposed rule Friday that it said would conform payments for leases in the Outer Continental Shelf to a 2004 federal court ruling.

The court found leases couldn't be excluded from royalty relief if they were part of a field that was producing before the 1995 act went into effect. That legislation offered relief from royalty payments for companies drilling in deep waters of the Gulf of Mexico in an effort to spur development.

The rule is open for public comment until Feb. 19.

The rule change is unrelated to an Oct. 30 court ruling the department lost to Kerr-McGee, a subsidiary of Anadarko Petroleum Corp.

Iowa Congressman Bruce Braley Speaks Out on Oil Accountability

2007-12-19T09:27:00.000-08:00

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?

2007-12-18T07:40:00.000-08:00

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

2007-12-13T07:38:00.000-08:00

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

2007-12-12T07:44:00.000-08:00

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"

2007-12-12T07:37:00.000-08:00

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"

2007-12-12T07:29:00.000-08:00

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

2007-12-11T15:12:00.000-08:00

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"

2007-12-11T14:48:00.000-08:00

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.

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"The Royalty Mess"

2007-12-11T14:38:00.000-08:00

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.

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Poor Oversight by the DOI and MMS

2007-12-11T13:40:00.000-08:00

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

2007-12-11T12:29:00.000-08:00

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

2007-12-07T12:37:00.000-08:00

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.