Since its creation fifteen months ago, ONRR has beefed up its audit staff and implemented new software and data-mining procedures to target royalty-reporting problems. Its director, Greg Gould, has also vowed to pursue stiffer civil penalties against companies caught misreporting production or the royalties they owe.

"We're letting the companies know that we're serious," Gould says. "If they chronically misreport, it's going to be a very large penalty."

Gould believes the rebranded organization has emerged from its controversies as "a world-class revenue-collection agency," but he's cautious about predicting a dramatic uptick in revenue. "While we've made a lot of progress over the years, there's still a lot to be done," he says.

Drilling into the data: ONRR director Greg Gould says his agency is pursuing hefty civil penalties against energy companies that misreport royalties.
Drilling into the data: ONRR director Greg Gould says his agency is pursuing hefty civil penalties against energy companies that misreport royalties.

One thing that the agency hasn't done is put to rest the skepticism of its whistleblowers. They claim that schemes similar to the royalty-avoidance techniques at issue in the False Claim Act lawsuits are still being used by major oil companies in the Gulf of Mexico, resulting in tens of millions in lost revenues.

"I don't think a lot has changed," says Little. "Shell isn't the only company doing this. We turned in several other companies to the inspector general. We gave them our files. We had to force them to take them. And they still have not done one thing. They have not pursued any of those companies."

*****

The way Bobby Maxwell tells it, the early days at MMS were never dull. The organization was created in 1982 by James Watt, the former head of the Denver-based Mountain States Legal Foundation who became Ronald Reagan's Secretary of the Interior, with the aim of ensuring "that all oil and gas originated on the public lands and on the Outer Continental Shelf are properly accounted for." It was a grand and somewhat confusing mission, requiring MMS to promote energy development and regulate it at the same time, making sure the government got its fair share of the massive revenues involved.

Initially, it was a seat-of-the-pants operation, long on enthusiasm and short on planning. Maxwell and other pencil-pushers would meet in a cafeteria in Houston and pick oil companies to audit out of a phone book. "We had no office and no strategy," he says.

A soft-spoken Tennessean, Maxwell had come to the agency after service in the Army and work as an auditor for the Department of Energy. He soon distinguished himself as a stubborn, aggressive campaigner who relished the battle of wits with the sophisticated financial wizards at the oil companies. The federal regulations concerning the valuation of oil, gas, coal and other resources had many gray areas, and Maxwell frequently locked horns with energy companies over issues that couldn't be considered outright fraud — but inhabited, perhaps, the same zip code. An Arco executive once told him, "It's my job to maximize profits, and it's your job to catch me if I go too far."

Some of his bosses, Maxwell knew, weren't as keen to pursue possible fraud as he was. At one point he'd developed a compelling case involving a company's underpayment of $20 million in royalties, only to be ordered to drop the investigation. The same day the order came down, though, Maxwell learned from the company's attorney that its management had agreed to cough up the disputed amount. His director quickly reversed course, Maxwell remembers, telling him, "I guess we'd better take the money if the company wants to pay."

By the late 1990s, Maxwell was in charge of an audit team in the Oklahoma City office of MMS, focused on huge offshore drilling operations. It was one of the most productive teams in the entire agency, detecting numerous instances of royalty misreporting by the companies and recovering millions of dollars every year. Maxwell estimates that over the 23 years he worked for MMS, his teams recovered half a billion dollars owed to the government.

"Bobby took pride that his office was the largest collector of funds in MMS," says Little. "The Houston office was probably three times as big, but it probably didn't collect a third as much. We worked hard. We didn't overstep our boundaries. We just went after stuff where there was a flagrant error."

Yet the team's ability to expose flagrant error changed considerably after the 2000 presidential election. George W. Bush had promised to make government more "business-friendly," and that agenda was pursued with a vengeance within MMS. The compliance staff was slashed by more than 10 percent in the next few years, and the amount of money collected from audits of companies declined even more dramatically — from a $176 million annual average in the 1990s to $46 million in the years 2002 through 2005, even as the price of oil and gas was skyrocketing ("Fighting Mad," November 16, 2006).

"They were consciously quitting doing detailed audits," Maxwell says. "You had a really easy job because you didn't have to do anything. It sounds unbelievable, but I lived it."

The official explanation for the decline in audit recoveries was that MMS had embarked on a new program, called "royalty-in-kind" or RIK, that required the energy companies to pay the government's royalty share in product rather than cash. This was supposed to resolve many of the conflicts with industry over the valuation of oil and gas and allow the government to get compensated more quickly and accurately. "The goal is to reduce friction," states the 2003 MMS annual report. RIK had been launched as a pilot program in the Clinton era, but under Bush, it quickly became the standard arrangement for most oil leases. Since the government was getting barrels of oil, not royalty checks, there was less need for full-blown audits — or so the rationale went.

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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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