"Get your facts first, and then you can distort them as much as you please." (Mark Twain)
Monday, January 23, 2006
At a time when energy prices and industry profits are soaring, the federal government collected little more money last year than it did five years ago from the companies that extracted more than $60 billion in oil and gas from publicly owned lands and coastal waters.
If royalty payments in fiscal 2005 for natural gas had risen in step with market prices, the government would have received about $700 million more than it actually did, a three-month investigation by The New York Times has found.
But an often byzantine set of federal regulations, largely shaped and fiercely defended by the energy industry itself, allowed companies producing natural gas to provide the Interior Department with much lower sale prices - the crucial determinant for calculating government royalties - than they reported to their shareholders.
As a result, the nation's taxpayers, collectively, the biggest owner of American oil and gas reserves, have missed much of the recent energy bonanza.
Let's be clear about this. The natural gas in question came from leaseholds on federal lands - if you are an American taxpayer, this is your money, stolen from your pocket and turned over to shareholders. It's theft, pure and simple. And, as you might expect, the scene of this crime has the Vice President's fingerprints all over it:
The industry-friendly stance was intentional. Mr. Bush and top White House officials also placed a top priority on promoting domestic energy production. Vice President Dick Cheney's energy task force called for giving lucrative new incentives to companies that drill in the Gulf of Mexico and other high-risk areas.
The Bush administration also took a much more relaxed approach to auditing and fraud prevention. In 2003, the Interior Department's inspector general declared that the auditing process was "ineffective" and "lacked accountability" and that many of the auditors were unqualified.
In one instance, inspectors discovered that auditors had lost the working papers for an important audit and tried to cover up their blunder by creating and back-dating false documents. Rather than punish anybody, the inspector general recounted, the minerals service gave the employee who produced the new documents a financial bonus for "creativity."
As is also typical with this bunch of third-rate crooks, there has been hell to pay for anyone who tried to put a stop to it:
The Interior Department also fired two of its most aggressive and successful auditors. One of them was Bobby L. Maxwell, a veteran auditor who had recovered hundreds of millions of dollars in underpayments over a 22-year career and received an award for meritorious service in 2003 from Interior Secretary Gale A. Norton.
Mr. Maxwell was fired in early 2005 after clashing with superiors over his belief that Kerr-McGee had shortchanged the government $12 million. Mr. Maxwell charged that he had been wrongfully fired, and the government paid him an undisclosed amount of money to settle out of court.
Mr. Maxwell is now pursuing Kerr-McGee, which has denied any guilt, with his own lawsuit under the False Claims Act, which allows private citizens who prove fraud to collect some of the money they help recover.
Patrick Etchart, a spokesman for the Minerals Management Service in Denver, said that Mr. Maxwell lost his job because of a reorganization and that he had declined an offer to move to a different city.
But lawmakers who wrestled with the government over previous royalty scandals are dubious.
Of course, no federal government malfeasance is complete unless the Indians get screwed, too:
The agency's strategy has drawn protests, however, from many states, which are entitled to a share of federal royalties, and from some of the Interior Department's most aggressive auditors.
One of those auditors was Kevin Gambrell, director of the Federal Indian Minerals Office in Farmington, N.M. Mr. Gambrell fought with his superiors over many issues, one of which was their demand that he do fewer audits and simply monitor posted prices of companies in the same area.
"Where the M.M.S. approach falls short is that there are so many different types of deductions you can take in getting gas and oil to the market, and there are so many premiums and bonuses in the contracts," Mr. Gambrell said in a recent interview. "You have to take a detailed look at the contracts to know what's going on."
The Interior Department forced Mr. Gambrell out in 2003, charging that he had improperly destroyed office documents. Mr. Gambrell sued for wrongful termination, arguing that he had discarded only copies of documents. He also presented evidence that his office had recovered eight times as much money as offices that used the administration's preferred approach.
The government settled his case in 2004 by clearing him of any wrongdoing and paying him an undisclosed amount of money.
It's not easy to "take a detailed look at the contracts" when the law is drafted specifically to interfere:
The federal government does not require companies to divulge the amount of royalties they pay or what they tell the government about sale prices. And unlike Burlington Resources [which has disclosed potential underpayments of about $76 million], Exxon and most other major oil companies refused to disclose the information when asked.
"It's not required information," said Mr. Davis of Exxon, echoing responses from Chevron, Royal Dutch/Shell and other big producers. "We're not going to publish it."
Stealing from the taxpayers - it's not just a good idea; it's the law.
Update: Corrected a serious error - the sum in question is $700 million, not $700 billion. By bizarre coincidence, this happens to be the same error that tristero made at Hullabaloo. I saw the correction there shortly after posting my own entry on this subject, but didn't notice that I had done the same thing until just now. At least it's nice to know that I can make my own mistakes without plagiarizing them, no?