Drilled, Baby, Drilled: The strange battle to keep Big Oil from cheating

Drilled, Baby, Drilled: The strange battle to keep Big Oil from cheating
Edel Rodriguez

Three years ago this month, outside some drab federal offices in Lakewood, a bespectacled man sporting a white cowboy hat and a bolo tie stood in a teeth-rattling wind before a clump of reporters and bureaucrats and declared his intention to lay down the law.

"We're no longer doing business as usual," he said. "There's a new sheriff in town."

Ken Salazar, Barack Obama's newly minted Secretary of the Interior, delivered his remarks with hardly a shiver or a smile. As far as anyone could tell, he was completely serious.

White hat: In January 2009 Secretary of the Interior Ken Salazar declared an end to "business as usual" at MMS, flanked by ethics czar Tom Strickland (left) and DOI Inspector General Earl Devaney.
Mark Manger
White hat: In January 2009 Secretary of the Interior Ken Salazar declared an end to "business as usual" at MMS, flanked by ethics czar Tom Strickland (left) and DOI Inspector General Earl Devaney.
Reduction in force: Days after auditor Bobby Maxwell's lawsuit against Kerr-McGee was unsealed, he lost his job at MMS.
John Johnston
Reduction in force: Days after auditor Bobby Maxwell's lawsuit against Kerr-McGee was unsealed, he lost his job at MMS.

During his confirmation hearing days earlier, still-Senator Salazar vowed to restore public confidence in the Department of the Interior, a troubled fiefdom that controls one-fifth of the land mass of the United States and a million square miles of ocean known as the Outer Continental Shelf. And he chose to kick off his reform campaign at the Denver Federal Center offices of the Minerals Management Service — the most dysfunctional, ethically challenged and scandal-rocked agency in the entire DOI.

Until a few months before Salazar arrived in Lakewood, few people had ever heard of MMS. Responsible for collecting royalties on oil, gas and mineral leases on federal lands, Indian reservations and offshore waters, MMS was small in size but huge in its impact on federal revenues, bringing in between $10 billion and $20 billion a year. It was an obscure yet extremely important bit of government business.

But in the waning days of the Bush administration, MMS had become the stuff of lurid headlines. A series of reports by Earl Devaney, the department's inspector general, had denounced "a culture of ethical failure" inside the agency — a polite term for the brazen conflicts of interest, corruption, drug use and sexual liaisons uncovered by Devaney's investigators. MMS employees had accepted gifts, booze, meals, trips and, in some cases, sex from executives of oil and gas companies. One high-ranking official had steered lucrative consulting contracts to a former aide, violating procurement rules. A Lakewood supervisor had allegedly pressured employees for blow jobs and cocaine, referring to the toot as "office supplies."

Flanked by Devaney and DOI's new ethics czar, chief of staff Tom Strickland, Salazar unveiled a new code of conduct for MMS employees designed to discourage the cozy graft that had flourished there. But the bad behavior discussed in Devaney's reports was, in fact, only the most visible symptom of a much more tangled story. It's the story of an agency that lost its way, that had come to see itself as a partner of the industry it was supposed to regulate — and that had, on occasion, actively colluded with energy companies to steer tens of millions of dollars into corporate coffers that some of its own auditors insisted was owed to American taxpayers.

One chapter of that long-running saga came to a close two weeks ago in a Denver courtroom, when documents were filed formalizing a $26 million settlement reached among Anadarko Petroleum, the Department of Justice and former MMS auditor Bobby Maxwell. A decade ago, Maxwell discovered questionable deductions taken by oil giant Kerr-McGee (since taken over by Anadarko) in offshore drilling operations, deductions that he believed were costing the government millions in uncollected royalties. When his superiors blocked his investigation, Maxwell filed a lawsuit against Kerr-McGee under the False Claims Act, a federal law that allows private citizens to file fraud claims on behalf of the federal government and sue for triple damages — and keep a percentage of any money collected themselves.

Under the terms of the settlement, Maxwell will receive 30 percent of the settlement, more than $7.5 million; the government recovers more than $16 million, and another $2.5 million goes to attorneys' fees. It's a remarkable victory for a fraud sleuth who refused to give up — but hardly a typical outcome for MMS whistleblowers. Randy Little and Joel Arnold, two auditors who worked with Maxwell, filed another False Claims case alleging shortchanged royalties in offshore leases by Shell, a case that could involve damages of $60 million or more. Yet the case has languished in court for years, was abruptly dismissed by a Texas judge last spring, and is now in the limbo of the appeals process.

Although the government stands to gain the most if Little and Arnold prevail, the Department of Justice declined to intervene in the case — just as it did in Maxwell's fight. In fact, the DOJ recently filed a friend-of-the court brief in the Shell litigation supporting the company's argument that federal auditors shouldn't be allowed to bring such lawsuits.

"Nobody seems to care that this company is ripping off the taxpayer," says Little, who retired from MMS in 2010. "Early on, we told the Department of Justice we didn't want any of the money, that we'd bow out if they'd take the case. All we wanted was to see these issues worked. But they didn't take it. Instead, they filed a brief against us."

Three years after his white-hat performance in Lakewood, Sheriff Salazar has found that reforming federal oversight of energy companies extracting public resources takes more than a new code of ethics. Shortly after the British Petroleum spill in the Gulf of Mexico two years ago, Salazar decided to dissolve MMS and shift its competing, sometimes conflicting missions — collecting royalties, managing energy leases and overseeing offshore environmental protection and worker safety — into three new Interior agencies. The royalty function, formerly a mess within MMS, is now the purview of the Office of Natural Resources Revenue — or ONRR, pronounced "honor."

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5 comments
Payton_vege
Payton_vege

Amazing write-up! This could aid plenty of people find out more about this particular issue. Are you keen to integrate video clips coupled with these? It would absolutely help out. Your conclusion was spot on and thanks to you; I probably won’t have to describe everything to my pals. I can simply direct them here!

Sally Moore
Sally Moore

The federal government is stealing from us daily -- all under the hype of public good and public safety --- Salazer is a puppet for the 'big boy's -- just why he was appointed ... birds of a feather flock together --- they are trying to harness any creative energy this nation has and funnel all the funds to a few ... where have I heard that in political science ... wake up America

BobSchmetzer
BobSchmetzer

Big money draws thieves as much as a cow patty draws flys. When people work at a position of trust and violate that trust , they should be punished.The corporate criminals should be blackballed from doing business as a punishment along with a cash penality. This will always happen and we have to be vigilent and hire enough police and investigators. When corporations support candidates that say they want less regulation, they just don't want to get caught. If a business can't survive without stealing then they just didn't make it. Shut down!

taxbreak
taxbreak

Sounds like the sex happened on Bush's watch. But you make a great point, Mark.

Oil companies should not have to pay royalties for sucking up product from public lands because, hey, that will raise prices at the pump.

Oil companies shouldn't pay taxes on their billions in profits because that will raise prices, too.

Oil company executives shouldn't be required to pay personal income taxes, either, because they'll just jack up prices.

Multinational companies like BP and Royal Dutch Shell should just be allowed to commit fraud and pollute and pillage and do whatever they want. Just so long as we can afford to fill up our tanks, it doesn't matter what it costs us in the long run.

We need more clear thinking like this.

Mark Roberts
Mark Roberts

Call it what it is, an arm of the IRS that makes the price higher at the pump. As far as the sex was Bill Clinton incharge?

 
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