Energy Panel to Hear from Interior IG on Royalties

The Senate Energy Committee meets Thursday to examine the Interior Department's much-criticized oil and gas royalty management programs, as Chairman Jeff Bingaman (D-N.M.) continues to mull drafting legislation on the subject.

The committee will receive findings from Interior Inspector General Earl Devaney. Also on tap is an update from the Government Accountability Office and testimony from a top Interior official, Assistant Secretary for Land and Minerals Management Stephen Allred.

Recent IG findings and media reports have questioned Interior's oversight of billions of dollars in royalties from production of oil and gas on federal lands. Devaney in September told a House panel that "short of a crime, anything goes at the highest levels" of Interior.

Royalty relief allows royalty-free production on certain leases when oil and gas prices are low. It stems from mid-1990s legislation aimed at spurring costly deep water Gulf of Mexico production.

Deep water gulf leases signed in 1998 and 1999 were mistakenly written without "price thresholds" that end the royalty waivers when prices are high. Left unchecked, the error could eventually cost the U.S. Treasury an estimated $10 billion in lost royalties.

House legislation scheduled for a Jan. 18 floor vote seeks to correct the problem.

Presently, 45 companies hold leases that permit royalty relief issued during these years. While the problem occurred under the Clinton administration, critics say Interior has been too slow in correcting it. Interior has announced agreements to include price triggers with five of the companies, including Shell and BP.

Interior also stresses that the royalty relief program has helped fuel the major expansion of deep water gulf exploration and production in recent years.

On another issue, Devaney recently criticized Interior's royalty auditing and compliance program. A report last month said Interior's Minerals Management Service lacks a sufficiently robust program for checking the accuracy of company-reported data and noted a decline in the number of audits in recent years (Greenwire, Dec. 7).

MMS has defended its auditing and compliance systems while also vowing to make changes when needed. Last year it created a new "independent panel" to review its audit, compliance and enforcement policies. It also vowed to improve its procedures following December's IG report.

MMS has also touted successes in its programs in the face of the criticism. In response to the IG's December findings, the agency said it "pursues a vigorous audit and compliance review program that generated an annual average of more than $125 million over the last 24 years."

MMS collected a total of $9.9 billion in mineral revenues in fiscal 2005.

New legislation?

Bingaman has been critical of the department and early last year requested a GAO investigation of the adequacy of the royalty accounting and collection process for energy produced on federal and Indian lands. His request also sought review of the royalty relief program.

In a subsequent letter to then-Interior Secretary Gale Norton last year, Bingaman expressed concern over "significant potential losses to the taxpayers."

Bill Wicker, a spokesman for Bingaman, said last week the senator might introduce legislation addressing several royalty issues. Wicker indicated potential legislation would be "quite a bit" broader than addressing only the flawed 1998-1999 leases. But he also said no decisions have been made.

Schedule: The hearing will be held Thursday, Jan. 18, at 9:30 a.m. in 106 Dirksen.

Witnesses: Earl Devaney, inspector general, U.S. Department of Interior; Mark Gaffigan, acting director, Natural Resources and Environment, U.S. Government Accountability Office; and C. Stephen Allred, assistant secretary for Land and Minerals Management, U.S. Department of the Interior.

Copyright 2007 E&E Daily. All Rights Reserved. Visit E&E Daily for a free trial.

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