Bingaman, Rahall Press Interior on Royalty Management

Prominent House and Senate Democrats are pressing Interior Secretary Dirk Kempthorne to respond to "troubling questions" about royalty management they say are raised in a new report by the Interior Department's inspector general.

The report points to "conflicting roles and relationships with the energy industry" at Interior's Minerals Management Service and "systemic communication failures" that stymie federal auditors' royalty collection efforts, according to a letter to Kempthorne sent yesterday from Sen. Jeff Bingaman (D-N.M.) and Rep. Nick Rahall (D-W.Va.). They chair the Senate Energy and Natural Resources Committee and the House Natural Resources Committee, respectively.

MMS collects billions of dollars annually in royalty payments that represent a major source of federal revenues. The agency has been dogged by claims that it does not aggressively seek to ensure industry is fully paying what it owes. Several aspects of the royalty collection process and management have been the subject of various IG inquiries.

The lawmakers ask Kempthorne for an update on plans to respond to IG recommendations for improving management of royalty collections.

"These [recommendations] range from clarifying the guidance provided to auditors, to the possible rescission of an agency policy based on the premise that calculating interest on royalties owed poses a 'hardship' for oil companies," they write.

The IG looked into False Claims Act lawsuits that several MMS auditors filed on their own against oil and gas companies, which was litigation aimed at forcing payment of millions of dollars in royalties. The auditors said they filed the suits because MMS prevented them from collecting the royalties they claimed were owed.

But Rahall and Bingaman's letter says the report "raises a number of troubling questions beyond the initial scope of the investigation, exposing matters that heighten our concerns about the agency's administration of its royalty management program."

According to Rahall's office, the report also cites a "band-aid approach to holding together one of the federal government's largest revenue producing operations."

Rahall, in a statement yesterday, said his committee will look carefully at how MMS royalty collection programs are being run and whether "fundamental changes are needed to ensure the American people are getting a fair share for the disposition of their oil and gas resources."

IG criticizes auditors

Several auditors filed "qui tam" lawsuits against oil and gas companies -- including Shell Oil Co. and Kerr-McGee -- between 2004 and 2006 alleging underpayment of royalties. A redacted version of the report is critical of the lawsuits and MMS alike.

It says the lawsuits were "either based on a lack of knowledge of other MMS efforts to collect royalties and interest or the auditors disagreed" with MMS decisions and guidance to companies.

"During the course of investigating these issues, we found a number of other significant concerns, worthy of separate investigation, including program mismanagement and process failures," the report states.

It also says the auditors did not properly report their suspicions of wrongdoing to the appropriate authorities, including the IG's office, and that they removed and used proprietary, sensitive or confidential business information without authorization. It says the IG presented the auditors "potential misuse of government records" for their lawsuits to the Justice Department, but that DOJ declined to prosecute.

Turning back to MMS actions, the report says that while there is no evidence that MMS "deliberately retaliated" against the auditors, the IG investigators did find numerous human resource errors that, taken together, "created an environment where reprisal could be perceived."

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

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