US losing out on royalties -- GAO reports failure in collection process
Scandal at federal oil royalty collection agency
We trim two 2008 articles on government favoring resource hoarders and cheating the citizenry. One is from the Los Angeles Times by Staff Writers By Elizabeth Douglass and Richard Simon on September 11, the other from the New York Times, by Jen DeGregorio on September 13.
Douglas/Simon: Federal investigators said that the agency in charge of collecting oil and natural gas royalties was compromised for years by employees who improperly accepted gifts from oil company employees, handed out sweetheart deals, had sex with subordinates and industry contacts, and used illegal drugs.
The reports from the Interior Department's inspector general, Earl E. Devaney, the culmination of several years-long investigations, were the latest to question the cozy relationship between the energy industry and the Minerals Management Service, the Interior Department agency that issues lucrative drilling leases of taxpayer-owned land to energy companies and then collects royalties.
The reports detail a freewheeling "culture of substance abuse and promiscuity" in which employees of the Denver-based Royalty in Kind program considered themselves part of a commercial enterprise that wasn't bound by government ethics rules, Devaney wrote in a letter to Interior Secretary Dirk Kempthorne.
Royalty in Kind employees routinely allowed energy companies to revise their bids for oil or natural gas after the sale had been awarded to the company. Out of 121 amendments reviewed, only three favored the government. The amendments favoring industry were worth about $4.4 million.
Some MMS officials also allegedly steered lucrative agency contracts to a company in which they held a financial interest.
Devaney said that one former employee pleaded guilty to an unspecified criminal charge but that the Justice Department declined to prosecute cases against two high-ranking former employees implicated in the scandal.
Devaney singled out Chevron Corp. as the one major oil company that refused to cooperate with the investigation. The report identifies Chevron, Shell, Gary Williams Energy Corp. and Hess Corp. as providing gifts to Royalty in Kind employees with whom they had a business relationship.
Congress is considering allowing new drilling within 50 miles of a state's coast, if the state approves, and 100 miles offshore regardless -- moves that would give the same troubled Minerals Management Service billions of dollars' worth of additional leases to award and manage.
"I warned publicly that we could not trust the oil companies that want to drill in the waters off our most protected coastlines, nor the federal watchdogs charged with keeping a watchful eye over them," Sen. Bill Nelson (D-Fla.). "Now, we have proof."
The Minerals Management Service takes in more than $8 billion a year in royalty, the US government's largest nontax source of revenue.
DeGregorio: The United States is not earning its fair share of profits from domestic oil and gas production due to flawed tracking practices and an outmoded royalty system, say two federal audit reports.
The Government Accountability Office said in one of the reports that the government could be missing out on as much as $53 billion in revenue due to a royalty relief program granted for leases issued in the Gulf of Mexico between 1996 and 2000.
The GAO documented systemic failings in the collection of oil and gas royalties, including heavy reliance on industry to provide extraction data, "raising uncertainty about the accuracy of oil and gas measurement."
A second report said the United States earns far less than other countries from fuel production on domestic territory: The "government take" for Gulf of Mexico drilling put the United States 93rd lowest among 104 nations. The MMS last year took $9 billion of the $75 billion domestic and foreign companies raked in for fuel extraction.
The findings are especially salient for Louisiana. Congressional legislation in 2006 cleared the way for Louisiana and three other Gulf states to directly profit from oil extraction in the Gulf of Mexico by sharing 37.5 percent of proceeds. Sen. Mary Landrieu, D-La., said the GAO reports make a case for both higher royalty rates on oil and gas production and expanded offshore drilling.
While the global number of offshore fuel rigs outside the United States grew by about 18 percent from about 998 in 2002 to 1,180 during the first four months of 2008, the United States saw its number of rigs skyrocketed by 113 percent from 831 to 1,829 during the same time period.
Landrieu said the GAO reports illustrate the "fallacy" of the argument "that even a slight adjustment in royalty rates would discourage energy production in the Gulf of Mexico."
The tax system and other policies have made the United States among the most profitable countries for the energy industry. The GAO called for an overhaul of the entire royalty system, which has not been evaluated in 25 years. At a time when oil companies are generating record earnings, many nations have implemented "windfall profits charges".
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