Salazar Formally Orders MMS Break-Up

WASHINGTON (Dow Jones Newswires), May 19, 2010

U.S. Interior Secretary Ken Salazar on Wednesday formally ordered the break-up of the Minerals Management Service and said he was mulling whether the agency should continue to derive part of its funding from fees on oil and gas companies.

At a news conference Wednesday, Salazar announced new details of are organization that he said was aimed at ending the "conflicting missions" of the MMS, a federal agency within the Interior Department. The agency is responsible both for regulating the safety of offshore oil and gas operations, as well as collecting royalties from companies that produce petroleum in federal waters.

Under the reorganization, the MMS will see its major functions split into three different bureaus, all within the Department of Interior.

One--to be called the Bureau of Ocean Energy Management--will have responsibility for determining which areas of the outer continental shelf will be open to oil and gas production. Another--to be called the Bureau of Safety and Environmental Enforcement--will be charged with enforcing safety and environmental standards. Both bureaus will report to Wilma Lewis, assistant secretary for land and mineral management.

A third office--called the Office of Natural Resources Revenue--will have responsibility for collecting royalties. That office will report
to Rhea Suh, assistant secretary of Interior for policy, management and budget.

Salazar's announcement didn't address how the government will fund the activities of what is now the MMS, an agency of roughly 1,700 employees that was created by then-Interior Secretary James Watt in 1982. Of MMS's fiscal 2010 budget of $342 million, nearly half comes from the oil industry in the form of fees and rental receipts, known as "offsetting collections." Salazar said he and his aides will be studying the funding question in the coming weeks.

Salazar announced last week that he would split the royalty collection functions of MMS from its safety and enforcement arm, but hadn't outlined details of the plan until Wednesday. His move comes in the wake of the April 20 explosion of the Deepwater Horizon oil rig in the Gulf of Mexico that killed 11 workers and has caused thousands of barrels of oil to gush into the Gulf. A report earlier this month in The Wall Street Journal described how the MMS in recent years has gradually ceded much of the job of crafting safety standards to the oil and gas industry, in some cases flagging safety concerns but then failing to follow up on them.

The MMS collects as much as $13 billion a year in royalties from energy companies, making it the second only to the Internal Revenue Service in some years as a source of revenue for the federal treasury. Government watchdogs have said the agency's dual missions--to collect royalties and enforce safety and environmental regulations--are at odds, and some have said that it reliance on fees levied on the industry compromises its independence.

Salazar indicated in his remarks that the reorganization is at least partly aimed at addressing perceived conflicts of interest.

"It's important we have a government that avoids even the perception of potential conflicts," he said.

Salazar's aides say he has the legal authority to carry out the restructuring on his own, since the agency was created by Watt rather
than Congress. But as a practical matter, his move is likely to require the blessing of members of Congress who control his Department's budget.

In a written statement Wednesday, the chairman of the House Natural Resources Committee, Rep. Nick Rahall (D., W. Va.) called Salzar's plan "bold" but stopped short of an endorsement. "The devil is in the details, and that is part of what we will be examining" when Salazar testifies before the committee next week, Rahall said.

Although Salazar praised Liz Birnbaum, currently MMS's director, he didn't address what her new duties would be, saying only that "we'll see how she fits into" the new structure. Birnbaum, who is a political appointee, was testifying at a congressional hearing Wednesday on the Deepwater Horizon accident and didn't attend Salazar's press conference.

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