Senate Democrats Push for Oil and Gas Royalty Inquiry

By J.R. Pegg

WASHINGTON, DC, February 16, 2007 (ENS) - Senate Democrats on Thursday turned up the heat on the Interior Departmentís oversight of oil and gas royalties. They called for a congressional investigation of a program that allows the federal government to collect royalty payments in the form of oil and gas rather than cash.

The royalty-in-kind program is already under criminal investigation by the U.S. Justice Department and is the subject of an investigation by the Interior Departmentís Office of the Inspector General.

Under the program, Interiorís Minerals Management Service, MMS, collects oil and gas in lieu of royalties and sells the commodities on the open market.


Oil rig in the Gulf of Mexico (Photo courtesy MMS)
The Bush administration wants to double the size of the royalty-in-kind program, which currently collects some $4 billion annually, by 2009. If the program is doubled, it would cover about 80 percent of offshore royalties, mostly from federal leases in the Gulf of Mexico.

That "defies logic," said Senator Ron Wyden, an Oregon Democrat.

Wyden and Senator Jeff Bingaman, a New Mexico Democrat who chairs the Senate Energy Committee, have asked for an investigation by the Government Accountability Office, GAO, the independent investigative arm of Congress.

The Minerals Management Service has been under increased scrutiny by lawmakers because of concerns with the royalty-in-kind program, as well as errors with offshore leases under the Clinton administration that could cost the federal government some $10 billion in lost royalties.


Drilling in the deep waters of the Gulf of Mexico (Photo courtesy Transocean)
Wyden noted that two recent attempts by the GAO to get information on the program failed to assess its status because the Minerals Management Service was unable to provide complete and accurate records.

"They canít find out from MMS something resembling full and accurate data Ö or even the financial nuts and bolts of how the program works," Wyden said during a Senate Energy Committee hearing Thursday on the Interiorís budget. "Why is it so hard?"

"You would think it would not be," responded Interior Secretary Dirk Kempthorne, who said he would wait for the report from the inspector general before taking action to modify the program.

"There is an ongoing investigation there," he told the committee. "We continue to press for those answers."

"I really do hope the department will now make this an urgent priority," Wyden told Kempthorne. "Iím going to get to the bottom of this."


Secretary of the Interior Dirk Kempthorne at his confirmation hearing before the Senate Energy and Natural Resources Committee. May 4, 2006. (Photo courtesy Office of Senator Larry Craig)
The hearing was Kempthorneís first appearance before the committee since his confirmation, and he faced criticism for several parts of the Bush administrationís proposed $10.7 billion budget for the Interior Department in FY 2008.

The budget, for the second year running, includes a provision to sell some $350 million of public land held by the Bureau of Land Management, another agency within the Interior Department.

The spending plan for the U.S. Forest Service budget, which is part of the U.S. Agriculture Department, also contains language to sell off some $800 million of federal forestland. Both provisions were rejected by Congress last year and sparked considerable controversy.

During his confirmation hearing last year, Kempthorne told senators he opposed the concept of selling public lands to reduce the deficit - something Colorado Democratic Senator Ken Salazar reminded him of Thursday.


Colorado Senator Ken Salazar (Photo courtesy Office of the Senator)
"There was a bipartisan push against that," Salazar said. "[It] is the wrong way to go and something I will oppose very strongly."

Administration officials have implied the difference in this yearís provision is that not all the funds are targeted for deficit reduction. Still, Kempthorne appeared to say that land sales provision was not of his doing.

"We did have that discussion and I still believe as I did then," Kempthorne told Salazar. "I donít agree with selling land for the purposes of deficit reduction."

Western senators also took issue with the administrationís plan to cut some $42 million from the payment in lieu of taxes, PILT, program, which provides money to local counties that contain large tracts of federal land.


Oregon Senator Ron Wyden (Photo courtesy Office of the Senator)
Wyden said the cuts could mean some counties will be unable to provide "basic services" and asked Kempthorne if the department had done any analysis on the ramifications of the cuts. "I donít know of an analysis that has been completed on that," Kempthorne replied.

Kempthorne, a former Idaho Republican governor, added that one solution he favors is allowing additional timber harvest from federal lands.

That resonated with Senator Larry Craig, a fellow Idaho Republican, who said "we are scrambling to keep timber dependent school districts alive."

The law that authorizes the U.S. Forest Service to share 25 percent of the gross receipts from timber sales on national forests with rural counties to fund schools expired at the end of last year, but the previous Congress did not act on reauthorization.

timber sale

2004 Timber sale on Oregon's Willamette National Forest (Photo courtesy Cascadia Wildlands Project)
Rural counties have said they will have to begin laying off teachers in March if the law is not reauthorized.

The presidentís FY 2008 budget seeks to extend the law - known as the Secure Rural Schools and Community Self-Determination Act of 2000 - through 2011.

The PILT cut "is a frustration," said Craig, who added that rural counties are also paying the price for the fact that "America has fallen in love with its public lands."

These counties are increasingly having to foot the bill for "life flights and emergencies that result from this love affair," Craig told colleagues.

New Mexico senators took aim at the issue of Indian water rights, urging Kempthorne to make settlements a greater priority.

"Un-adjudicated Indian water rights claims in the western United States pose a serious impediment to effective water management," said Senator Pete Domenici, a New Mexico Republican.

Domenici called the $34 million earmarked in the budget for Indian land and water settlements "not adequate."

He raised concern about the state of settlements involving three New Mexican tribes. The largest of the three is with the Navajo Nation and would require the federal government to spend more than $900 million over 20 years.

"I hear unfortunate messages from the administration that it will not be supportive of these settlements," Bingaman said.


Flyover of the Navajo Reservoir in extreme southwestern Colorado shows low water, affecting water levels along the Colorado River in New Mexico and Arizona. January 2007. (Photo courtesy USBR)
Bingaman questioned if "something of a double standard" was at play, pointing to the Bush administrationís willingness to agree to costly water settlements in California and Arizona.

The administration is trying to take care of 19 pending settlements and has formed a task force to try and expedite the process, Kempthorne said.

In the cases cited by Bingaman, he added, legislation was passed by Congress and "then the funding followed."

"Thatís what we are trying to do here," Bingaman responded. "We are trying to enact legislation but we want your support."

Kempthorne declined to pledge support, but told Bingaman a draft environmental impact statement on the Navajo settlement should be completed by the end of next month.

"We will stay actively involved and dedicated to a resolution," Kempthorne promised.

To find out more about the royalty-in-kind program click here.