Another Hearing to Examine Interior's Royalty Program

The House Natural Resources Committee turns this week to problems with the Interior Department's management of royalties from energy production on federal and Indian lands.

The committee is scheduled to hold a hearing Wednesday entitled "Royalties at Risk." The department's oversight of billions of dollars in oil and gas royalties has been called into question by press reports, lawsuits and the department's inspector general.

Interior's inspector general has said the department needs a stronger system to ensure energy companies pay their full amount of royalties. Inspector General Earl Devaney, in a report last year, said Interior's Minerals Management Service does too little to verify company-reported data, among other findings.

And several MMS auditors have sued energy companies on their own to force payments of royalties, claiming the department failed to address underpayments. In January, a federal jury in Denver found the Kerr-McGee Corp. had underpaid the government by $7.56 million (Greenwire, Jan. 24). The company was purchased last year by Anadarko Petroleum Corp.

The verdict was the result of False Claims Act litigation filed by former high-level MMS auditor Bobby Maxwell. Maxwell is scheduled to be a witness at the hearing this week.

In response to the January verdict, MMS officials said the agency "maintains its original position that Kerr-McGee paid the royalties it owed to the U.S. government." MMS did not intervene in the case.

MMS collected roughly $10 billion in oil and gas royalties in fiscal 2006.

A separate royalty issue related to the "royalty relief" program has also generated major press and congressional scrutiny. MMS has come under fire for its handling of flawed late 1990s offshore leases that allow royalty waivers regardless of energy prices.

But a Democratic committee aide said the Wednesday hearing is meant to shine greater light on royalty collection and enforcement, not the royalty relief issue.

"This is really aimed at the much more pernicious or widespread problem, which is underpayments and the failure to collect what the department should be in terms of the development of these public resources," the aide said.

Interior officials counter that they aggressively seek to ensure full payment from energy producers. MMS's audit and compliance review program has brought in an annual average of more than $125 million over the past 24 years, MMS said last year.

Also, Interior announced formation of a new independent panel last year to review royalty collection, audit, enforcement and other related issues. Interior last week announced that the panel will be headed by two former senators, Nebraska's Bob Kerry and Utah's Jake Garn.

Schedule: The hearing will be held Wednesday, March 28, at 11 a.m. in 1324 Longworth.

Witnesses: Stephen Allred, assistant secretary, Department of the Interior; Mark Gaffigan, acting director, Government Accountability Office; Bobby Maxwell, former auditor, Minerals Management Service; Kevin Gambrell, Indian Land Working Group; Ryan Alexander, president, Taxpayers for Common Sense; Dennis Roller, royalty audit section manager, North Dakota State Auditors Office; A. David Lester, executive director, Council of Energy Resource Tribes; Michael Geesey, director, Wyoming Department of Audit; and Pamela Bucy of the University of Alabama's School of Law.

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

For More Information on the Offshore Rig Fleet:
RigLogix can provide the information that you need about the offshore rig fleet, whether you need utilization and industry trends or detailed reports on future rig contracts. Subscribing to RigLogix will allow you to access dozens of prebuilt reports and build your own custom reports using hundreds of available data columns. For more information about a RigLogix subscription, visit