Duke of Oil

Crude rebuke: Bobby Maxwell helped collect $500 million in oil royalties for the government but says more is owed.
John Johnston

For 28 years, Bobby Maxwell crunched big numbers for the government. He wielded a calculator with patience and determination for the Minerals Management Service, a branch of the Department of the Interior responsible for collecting royalties on oil, gas and mineral leases on federal lands, Indian reservations and offshore waters.

When energy companies paid royalties that the MMS considered less than fair value for the resource, Maxwell and his team of professional auditors went to work. He estimates that his group recovered $500 million in monies owed to the government -- a quarter of the $2 billion in delinquent royalties MMS has collected since it was created.

Six months ago, the MMS fired Maxwell. His bosses called it a reorganization. But to Maxwell, it just didn't add up. Not unless you factor in a little matter of $12 million that he believes is owed to the government by oil-and-gas giant Kerr-McGee, a claim the government declined to pursue, and that Maxwell is now fighting on his own in Denver's federal court.

"I had some fear about doing this," Maxwell says, "but it was the moral thing to do."

Through mediation, Maxwell recently reached a settlement over his termination. He declines to discuss the terms, but acknowledges that he received a favorable compensation package from Uncle Sam. "It puts me in a good position," he says. "I can retire and not have to worry about working again."

Getting his job back was not an option. "They'd rather reinstate Jeffrey Dahmer," says his attorney, Richard LaFond. "This was a one-person reduction in force. It has politics written all over it."

With oil prices at record highs and offshore drilling increasing sharply, the MMS is pulling in more cash and "royalty in kind" payments of crude oil than ever before. Nearly a third of domestic oil production and a fourth of domestic gas comes from leases administered by MMS, with companies typically paying royalties of one-sixth to one-eighth of the total market value. The agency disbursed $9.3 billion in revenues in fiscal year 2004 and expects to collect $10.8 billion in 2006; the money goes to federal and state treasuries, Indian tribes, conservation and historic-preservation funds and other uses. But under the Bush administration, Maxwell says, the MMS is doing fewer full-scale audits of its lessees.

"It's the trend of this administration not to do audits of the oil companies," he says. "Government is doing less, so the companies can do more -- more cooking of the books."

Maxwell began his federal career with a stint in the Army, followed by work as an auditor for the Department of Energy in Dallas. While there, he became embroiled in a crude-oil pricing dispute with Exxon; the case dragged on for fifteen years and ultimately resulted in a billion-dollar payoff distributed to state governments.

Soon after, Maxwell joined the MMS, which had been created in 1980 to address chronic poor monitoring of royalties from the nation's mineral resources. "In the early days, we'd meet in a cafeteria and pick oil companies to audit out of a phone book," he recalls. "We had no office and no strategy."

Maxwell moved up to management positions in Texas and Oklahoma. A soft-spoken Tennesseean, he won numerous performance awards but occasionally locked horns with senior officials over royalty disputes that they didn't seem to have the stomach to pursue. In one memorable case in the mid-1990s, Maxwell was expressly ordered to drop an investigation into $20 million in unpaid royalties; that same day, an attorney for the company in question told him the company had agreed to cough up the money. His director quickly reversed course, Maxwell remembers, telling him, "I guess we'd better take the money if the company wants to pay."

In 2002, during the course of an audit of Kerr-McGee's federal royalty payments, Maxwell became convinced that the company was selling its federal oil to Texon at less than fair-market value in exchange for marketing services. Kerr-McGee officials denied any wrongdoing. Initially encouraged in his inquiry by a senior official, Maxwell says he was later told that higher-ups "would be very upset" with him if he went after the additional royalties he believed were owed.

"It seemed to be a sensitive area," he says now. "It was like we were getting squashed down."

Maxwell moved on to other projects. He retired from the MMS in 2003, only to be rehired four months later as an acting program manager in the agency's Lakewood office. But the Kerr-McGee matter, which involved several years of royalty payments, still rankled him. He decided to file a qui tam lawsuit against Kerr-McGee in federal court; an obscure federal statute allows private citizens to file fraud claims on behalf of the federal government and keep a percentage of any money collected. (Since the government declined to join in the litigation, Maxwell could collect up to 30 percent of possible triple damages -- or more than $10 million -- if he prevails in the case.)

Maxwell recused himself from any MMS dealings involving Kerr-McGee. His lawsuit was sealed for several months; it was unsealed last January, and Kerr-McGee attorneys received a copy of the complaint. Days later, Maxwell was told his position was being eliminated.

He says he offered to transfer to Houston at his own expense as part of an office restructuring, but was refused: "They made an example out of me."

The MMS has denied retaliating against Maxwell. Spokesman Pat Etchart says that while the agency may have fewer auditors than it did a decade ago, the change is due to a number of factors, including overall staffing cutbacks and more monitoring duties being assumed by individual states and Indian tribes. "We can always use more resources, but we're focusing on getting more funding to the states," he says. "It's a matter of being more efficient."

These days, the agency is also taking more of its payments in RIK, or royalties in kind -- actual crude oil or natural gas shipments, which are added to strategic reserves or sold to other companies. The RIK program has been sharply criticized by environmental groups because of various exemptions involved for oil companies drilling offshore, and the General Accounting Office found that some pilot programs were money-losers. But Etchart says the program allows for prompter royalty collections and less overall wrangling. "There's no debate about the proper price," he notes.

Maxwell says that royalties in kind are a good idea -- in theory. "If we have the expertise to market it and get a fair price, that's probably a better way to go," he says. "You don't have to worry about issues like the Kerr-McGee case."

Thanks to his settlement with the government, Maxwell can now devote his attention to Kerr-McGee. It's not often that one man is in the position of taking on Big Oil, but a qui tam action filed by a former oil-and-gas employee in the 1990s resulted in a $400 million settlement. That, too, was a case that MMS auditors had been specifically instructed to let go.

Maxwell no longer has the agency to tell him what not to do. "We're moving forward," he says. "We're getting ready to start depositions. They've given us 30,000 documents so far. Fortunately, I have time to work on it now."

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