Jan. 12, 2007 – 8:44 p.m.
A much-anticipated report to Congress will allege that Interior Department officials covered up a problem with oil and gas leases after it was discovered in 2000, according to congressional aides.
The Interior Department inspector general (IG) also has been investigating whether Johnnie Burton, head of the agency that collects royalties, might have been told about the problem earlier than she said in congressional testimony last fall.
“I had to provide them [IG investigators] with her testimony because there were questions about its veracity on the issue of when she found out about the flawed leases,” said Larry Brady, Republican staff director for a House subcommittee that has been investigating the issue.
In September, Burton testified before the House Government Reform Committee that she had learned of the problem in 2006. However, the Interior Department issued a statement late Jan. 12 acknowledging that Burton had actually learned of the issue in late 2005 — but did not realize its “significance” until 2006, the department said. Interior officials have not seen the IG report.
Earl E. Devaney, the Interior Department’s inspector general, is scheduled to present his findings Jan. 18 to the Senate Energy and Natural Resources Committee.
The report is likely to intensify the debate about the Gulf leases, just as the House prepares to take up legislation aimed at recouping lost royalties and stripping oil and gas companies of other tax incentives. The bill (HR 6) would shift $13 billion into a fund to promote energy efficiency and development of alternative and renewable energy sources.
The leases, awarded in the late 1990s, could cost the Treasury as much as $10 billion in royalty payments at a time when oil and gas companies have been reaping record profits, according to government estimates. The Minerals Management Service (MMS) left out of the leases standard language triggering royalty payments when gas and oil prices rose above a threshold.
In testimony before the House Government Reform Committee last fall, Devaney suggested that the Interior Department suffered from a culture of “managerial irresponsibility.”
At that time, Devaney said he found no evidence that the leases were intentionally manipulated to benefit the oil companies, although he had yet to determine exactly who was involved, and when and whether the mistake was intentionally hidden upon discovery.
“I think the IG is going to say without question that there was a cover-up,” Brady said.
Brady also said there was considerable skepticism within the inspector general’s office about Burton’s testimony to the Government Reform Committee, now the Oversight and Government Reform Committee.
The leases in question are among many that MMS offered with royalty relief to spur production in the Gulf when prices were depressed in the late 1990s. The agency failed to include in more than 1,000 leases issued during the Clinton administration in 1998 and 1999 a clause requiring companies to pay royalties if prices rose in the future.
MMS officials discovered the problem in 2000 and issued no new leases without the price triggers. However, existing leases were not changed.
The faulty leases came to light last year as gasoline prices soared above $3 a gallon while oil companies reported record profits. The revelations sparked bipartisan outrage and several investigations, which have raised broader questions about the way MMS manages oil and gas leasing and royalty collections.
Devaney issued a report last month that identified various problems with the reliability of auditing and compliance procedures MMS uses to ensure that royalties are properly collected. He is working on a third investigation of allegations by current and former government auditors that MMS officials actively discouraged them from pursuing companies that were underpaying royalties.
The auditors have filed several lawsuits against oil companies to collect royalties on behalf of the federal government under the False Claims Act, which allows them to keep a share of any court-ordered damages.
Devaney also is working with the Justice Department on a separate criminal investigation involving the “royalty in kind” program, which allows companies to give the government oil in lieu of royalty payments.
The committee also will hear from Mark Gaffigan, acting director for Natural Resources and Environment at the Government Accountability Office, and C. Stephen Allred, assistant Interior secretary for Land and Minerals Management.
Sources familiar with the probe speculated that the report’s findings would put new pressure on the agency and could hasten Burton’s departure, already the subject of speculation in recent weeks.
John Northington, a lobbyist who represents Exxon Mobil Corp. and other clients, said Burton may be on the way out, but he doubted political pressure stemming from the royalties controversy to be the cause.
He noted that Burton has been in her post for several years and accomplished what is likely to be the biggest task at hand, a new five-year plan for offshore drilling.
“I think it’s probably time to go do something else and enjoy your family,” he said. The fact that MMS is going to be “in the cross hairs” with the new Democratic Congress, he added, is just an “added incentive” to get out sooner than later.






