MMS Oil Royalty Program Ineffective-Govt Inspector Report

WASHINGTON, Dec 07, 2006 (Dow Jones Newswires)

The U.S. Minerals Management Service oil and gas royalty payments compliance program is ineffective and needs to be fundamentally reformed, the Interior Department's Inspector General said in a report leaked Wednesday.

With "inaccurate and incomplete" data and compliance reviews that "do not adequately evaluate company-reported volume and allowance data," the Inspector General said there was a high risk "the MMS may not detect underpaid royalties."

As a result, the MMS cannot determine the true cost and benefits of the royalty program, and has no complete picture just how much oil companies owe the government.

Industry watchdogs, lawmakers and even ex-MMS auditors have accused the MMS of being too cozy with the oil and gas industry, and not collecting hundreds of millions of dollars worth of royalty payments.

The MMS's handling of royalties has come under repeated fire in the past year.

In September, Interior Inspector General Earl Devaney told a House committee that the agency suffers from a culture that "sustains managerial irresponsibility and lack of accountability," following his probe into how the royalty thresholds were omitted from offshore oil and gas leases in 1998-1999. The omission could cost the government several billion dollars. "Short of a crime, anything goes at the highest levels of the DOI," he said.

Also, ex-MMS auditors have filed lawsuits for unpaid royalties and accuse top level officials - including its director - of trying suppress compliance claims.

The Government Accountability Office also recently said it will conduct a probe into the Minerals Management Service's collection of oil and gas royalties.

House Government Reform Committee Chairman Tom Davis, R-Va., and House Energy and Resources Subcommittee Chairman Darrell Issa, R-Calif., said they wanted the GAO to examine the accuracy and effectiveness of the MMS's royalty collection system following "numerous ... alleged deficiencies in MMS management."

MMS Director Johnnie Burton, in a response letter to the Inspector General, said that she agreed that more could be done to raise compliance levels.

In a press release, the MMS said it would act quickly to implement new measures recommended by the Inspector General, including, "strengthened procedures, improved administrative controls and enhanced tracking systems."

"We appreciate the work of the Inspector General's Office," Burton said in the release, "and are now developing a comprehensive plan to address the recommendations made by the OIG."

Critics have noted how federal royalties have dropped in the past few years despite higher commodity prices.

Beth Daley at the Project on Government Oversight said collections from public lands have fallen to an average of $48 million annually in 2002 to 2005, half the average of $115 million collected annually in the 20 years prior.

In the past five years, the number of audits initiated by the MMS has fallen by more than 20%.

Copyright (c) 2006 Dow Jones & Company, Inc.

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