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Government oil lease blunder hidden 6 years
Houston Chronicle Washington Bureau ^ | 9/14/06 | DAVID IVANOVICH

Posted on 09/26/2006 4:23:43 PM PDT by mtnwmn

WASHINGTON - Interior Department officials realized in 2000 that their offshore lease agreements with oil companies shortchanged American taxpayers, but they covered up their multibillion-dollar mistake for six years, an investigator said Wednesday.

After combing through 11,000 e-mail messages and interviewing 29 current and former Interior Department employees, federal investigators still aren't ready to say who they think told a staffer to omit contract language that would have forced oil companies operating in the deep waters of the Gulf of Mexico to pay billions of dollars in royalty payments as energy prices rose.

"Although we have found massive finger-pointing and blame enough to go around, we do not have the proverbial 'smoking gun,' " Interior Department Inspector General Earl Devaney told a House panel Wednesday.

"However, we do have a costly mistake."

Devaney's office discovered a "flurry of e-mails" back in 2000 as officials at Interior's U.S. Minerals Management Service learned they had failed to include price triggers in leases signed with oil companies in 1998 and 1999.

That was no small misstep. The Government Accountability Office estimates the federal government has already lost some $2 billion in royalty payments and could be out another $8 billion from deep-water leases signed in those two years.

After being notified about the omission, an associate director ultimately chose not to notify the head of the agency, Devaney said.

"Unfortunately, the official who made this particular decision is deceased," Devaney said.

Inspectors interviewed three former MMS directors who ran the agency during the years in question.

All three said they were unaware of the price trigger blunder until it was reported in the New York Times earlier this year.

No criminal evidence

Though he has not completed his investigation, Devaney said he has not found evidence of criminal activity.

"I'm satisfied there isn't anything that would allow us to take this case to a U.S. attorney," Devaney said.

Still, Devaney describes an overall culture at the Interior Department rife with "managerial irresponsibility and a lack of accountability"

"Simply stated, short of a crime, anything goes at the highest levels of the Department of Interior," Devaney said.

Rep. Darrell Issa, R-Calif., chairman of the House subcommittee investigating the issue, said the Interior Department "has breached its fiduciary duty to the American people."

Reacting to Devaney's testimony, Interior Secretary Dirk Kempthorne said, "I take these allegations concerning issues dating back to 1998 very seriously," adding: "I will continue meeting with the inspector general and will review his final report and determine a further course of action."

Deputy Interior Secretary Lynn Scarlett and MMS Director Johnnie Burton are both slated to testify today for the House Government Reform Committee.

113 leases at issue

During the two years at issue, MMS signed 113 deep-water leases lacking price threshold language with 56 oil companies, agency officials say.

MMS officials are currently in talks with about 18 different oil companies, trying to renegotiate leases to add price triggers, MMS officials said.

Among the companies involved in negotiations is BP. Robert Malone, president of Houston-based BP America, told a Senate panel Tuesday: "We are very close to a settlement."

To encourage oil companies to wade out to the deeper waters of the Gulf, lawmakers passed the Deep Water Royalty Relief Act of 1995. The idea was to give producers a pass on royalty payments until they had produced a certain amount of oil and gas or prices reached specific targets. The Interior Department issued an interim rule the following year and then a final rule in 1998.

The interim rule did not include price triggers, but that provision was spelled out in addenda to the lease documents in 1996, 1997 and 2000. But in 1998 and 1999, the department stopped detailing these royalty provisions in leases.

If the triggers had been written into leases for 1998 and 1999, oil companies would have had to begin paying royalties when crude hit $28 a barrel and natural gas passed $3.50 per thousand cubic feet - prices far below current levels.

A staffer responsible for preparing the leases told investigators that MMS's Economics and Leasing Division had instructed him to remove the price threshold language from the agreements, Devaney said.

The inspector general's office then questioned three individuals in that office, all of whom denied issuing those instructions.

One person refused to provide a sworn statement and did not take a polygraph test. Another person provided a statement but refused to submit to a polygraph, while a third individual provided a statement and then passed a lie-detector test, Devaney said.

Omission not caught

Nearly 30 different Interior Department officials were required to sign off on those lease agreement, but no one apparently caught the omission.

The oil companies, however, did notice the change. Chevron officials met with Chris Oynes, MMS' regional director, three times in 1998 and 1999 to discuss the lack of price triggers, according to a subcommittee memo.

Oynes told lawmakers at a previous hearing he did not recall those conversations. Oynes took a polygraph test after the hearing and passed, Devaney noted.

Of the thousands of e-mail messages Devaney's office examined, only 20 pertained to the price trigger problem. And none of those dated prior to 2000, Devaney said.

Sam Fraser, an economist at MMS' Herndon, Va., office, first discovered the problem in 2000 and relayed the information to his superiors, but his report never reached the directors office, Devaney's office said.

TOPICS: Business/Economy; Government
KEYWORDS: clintonlegacy; energy; oil
Investigation says mistake cost taypayers billions of dollars.
1 posted on 09/26/2006 4:23:44 PM PDT by mtnwmn
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To: mtnwmn

The problem happened on Clinton's watch. Guess who will get blamed in the press.

2 posted on 09/26/2006 4:26:50 PM PDT by ModelBreaker
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To: mtnwmn

Can I suggest that this would have only increased the pump price that much more?

3 posted on 09/26/2006 4:29:38 PM PDT by alancarp (ISLAM: Continuously proving that ancient Byzantine emperors must have been right.)
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To: mtnwmn

Another fiasco under Clinton!!!!!!!!

4 posted on 09/26/2006 4:30:42 PM PDT by Angelas
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To: mtnwmn

Well personally I'm glad about the whole thing.After all the oil companies only make 10 cents on a dollar so obviously they need all the taxpayer financial help they can get !!!

5 posted on 09/26/2006 4:30:59 PM PDT by Obie Wan
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To: Angelas
Absolutely, and Bush keeps getting the blame and he has to deal with the problem to boot!
6 posted on 09/26/2006 4:33:37 PM PDT by mtnwmn (mtnwmn)
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To: mtnwmn

Bill Clinton's Interior Department refused to play straight with the American taxpayer, and gave breaks to the oil companies!

Put some ice on that, Bill.

7 posted on 09/26/2006 4:35:48 PM PDT by Recovering_Democrat (I am SO glad to no longer be associated with the party of "dependence on government"!)
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To: ModelBreaker
The problem happened on Clinton's watch. Guess who will get blamed in the press.

And no Republican will bring that up on TV. Not even Tony Snow.

8 posted on 09/26/2006 4:39:10 PM PDT by GoBucks2002
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To: Recovering_Democrat

It'd be hard to find a more fu**ed up federal agency than Interior. They lost billions of dollars in monies they were supposed to look after for American Indians, and wiped out 90 percent of the nation's small coal operators (less than 100,000 tons/year) in the 1970s via their regulatory GS 15 gunsligers. It would be better to ask what the agency has done right.

9 posted on 09/26/2006 4:40:32 PM PDT by Eric in the Ozarks (BTUs are my Beat.)
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To: mtnwmn
So the Feds missed a chance to use the oil companies as a tax collectior. Boo hoo hoo.

Sounds to me like the taxpayers won one.

10 posted on 09/26/2006 4:47:52 PM PDT by Mark was here (How can they be called "Homeless" if their home is a field?.)
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To: mtnwmn
"Unfortunately, the official who made this particular decision is deceased,"

Heart attack in prison? My goodness.

11 posted on 09/26/2006 4:48:07 PM PDT by BIGZ
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To: Angelas
"Another fiasco under Clinton!!!!!!!!"

Aww, come on! How could you expect Bruce Babbitt to worry about oil leases when he was so busy cutting deals with the indians for Clinton.

12 posted on 09/26/2006 4:57:23 PM PDT by mass55th (Courage is being scared to death - but saddling up anyway~~John Wayne)
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To: mtnwmn

After all these years, the Clinton scandals continue to effect this country. It may be decades before this country recovers from the damage his administration's corruption wreaked on this nation. Unless the nation elects a Democrat to the Presidency anytime soon.

13 posted on 09/26/2006 5:07:03 PM PDT by Clintonfatigued (Nihilism is at the heart of Islamic culture)
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To: Alamo-Girl

Clinton Legacy ping

14 posted on 09/26/2006 5:10:21 PM PDT by thoughtomator (Islam delenda est)
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To: mtnwmn

My guess is the lady in charge of the leases inadvertantly left out the price triggers on those leases. The leases were in the computer as standard lease documents. The price triggers differed depending on the location, and may well have simply been forgotten. I know for certain that no one gave an order to leave out the triggers, but the omission should have been caught in the Solicitor's Office during review of each lease.

In 2002, several of the leases hit the trigger point and were sent from MMS offshore to Minerals Revenue Management to collect royalties. At that point, the companies refused, saying no trigger was in their leases requiring any royalty payment.

15 posted on 09/26/2006 5:26:51 PM PDT by MACVSOG68
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To: mtnwmn

Any money the governments don't get is good for the rest of us.

16 posted on 09/26/2006 5:29:46 PM PDT by arthurus (Better to fight them over THERE than over HERE)
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To: thoughtomator

Thanks for the ping!

17 posted on 09/26/2006 9:33:50 PM PDT by Alamo-Girl
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