Top

news

Stories

 

But soon after Little started working for Bobby Maxwell on the government side of things, the rules of the game began to change. "When oil went RIK, the auditors stopped looking," he says. "The management group in Denver took over and did the contracts, the whole thing. I told Bobby we should be following the taxpayers' oil from start to finish. But every time we'd start pushing real hard, there would be pressure from upper management to get us to back off."

Even before the RIK program took off, Little was appalled by various arrangements MMS had made with leaseholders that seemed to benefit the companies at the expense of the government. Dozens of companies owed the feds millions just in interest on royalties they hadn't gotten around to paying, he discovered — but there was an established policy at the agency that the companies didn't have to pay the interest until MMS formally billed them. If the company didn't submit statements of interest owed, the government would assume that the company was claiming a "hardship" and do the laborious calculations for them, adding to the delay in collections.

When Little contacted company officials and demanded to know why they weren't paying the interest, they chuckled and told him to send them a bill. The gist of the message was: We know your system is broken. Maybe you'll never get around to collecting. Why should we pay?

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.

Royalty-in-kind was supposed to alleviate that problem and other forms of chiseling and fraud. Instead of chasing cash payments for years, the government would get its share in product — barrels of crude, for example, that it could turn around and sell for cash or add to its strategic reserves. But far from being foolproof, RIK actually presented a whole new set of opportunities to cheat. There were issues over how production volume was measured — and even more issues over the types of deductions companies were claiming in connection with the costs of delivering oil and gas to the government.

The companies were prohibited from deducting the "gathering costs" associated with drilling for oil and bringing it to a central collection point, such as an offshore platform. They were allowed to claim certain "transportation costs" involved in getting the government's share to market — by, say, moving the oil from the platform to a refinery onshore. But when Little began to review offshore RIK leases, he identified a range of deductions by multiple companies that he deemed unauthorized and illegal, from subsea gathering costs to capital costs associated with the platform to inflated transportation costs.

Some of the costliest deductions Little found involved twelve leases in the Gulf operated by Shell's exploration division. Although he had difficulty obtaining all the paperwork from RIK managers, he saw enough to suspect that Shell was taking unallowable deductions for gathering costs. He also came across a contract with Shell that had been amended by an MMS employee, an RIK "oil marketing specialist" named Crystal Edler, allowing Shell to increase its transportation deductions for moving the government's oil to shore. If Shell moved the oil through its own pipeline at cost, Little explains, the deduction would have been around $.84 a barrel. Instead, Shell was subcontracting with a third party, Gary-Williams, to move the same oil through the same pipeline — and charging Gary-Williams almost three times as much, which was then being billed to the government.

"By law and by lease terms, they have to move that oil to shore at cost," Little says, "and this was costing the government an extra $10 million a year."

In a phone conference with Edler and other RIK personnel, Little demanded to know why the contract had been altered. Edler said she'd made the change because Shell requested it. Little was dumbfounded.

"They acted like these companies were their clients," he says. "They were totally in awe of these people, with all their money and power."

Maxwell and Little's immediate supervisor, Joel Arnold, supported his efforts to investigate the Shell leases. But the RIK division wasn't cooperative, and then Maxwell was gone. Undeterred, in the fall of 2005 Little fired off an e-mail to Shell questioning subsea "gathering" deductions totaling $3.2 million. Shell agreed to pay back slightly over $1 million and disputed the rest. "I wrote them back and said, 'Since you've admitted those [deductions] are wrong, here's a whole bunch more,'" Little recalls.

Shell executives responded to the letter by requesting a meeting with Lonnie Kimball, who was Arnold's boss and the manager in charge of offshore royalty-compliance efforts. Arnold and Little weren't invited. Shortly after that meeting, Little says, he and Arnold were taken off the Shell inquiry, which Kimball would later characterize as "a desk review and not an audit."

Kimball also formally rescinded Little's e-mail seeking additional payments from Shell. The manager would later tell investigators that the Oklahoma City auditors had "been aggressive in making claims against industry without all of the facts." He also said that "Bobby Maxwell was responsible for this culture."

Little and Arnold responded by filing a False Claims Act lawsuit against Shell, claiming that the company improperly took more than $19 million in deductions on the RIK leases over a four-year period. "Our job was to find the discrepancies and bring the money back into the coffers of the United States," Little says. "If you're being stopped internally, you need to go externally."

« Previous Page
 |
 
1
 
2
 
3
 
4
 
5
 
6
 
7
 
All
 
Next Page »
 
My Voice Nation Help
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?

 
Loading...