September 15, 2006
Interior Near 2 New Pacts in Oil Leases
By EDMUND L. ANDREWS
WASHINGTON, Sept. 14 — The Interior Department, struggling to prevent the government from losing billions of dollars in royalties for oil and gas produced in publicly owned waters, said Thursday that it was close to agreement with 2 of the 56 companies that hold lucrative drilling leases in the Gulf of Mexico.
The two companies, Royal Dutch Shell and BP-Amoco, are among the biggest producers along the outer continental shelf.
But even as Republican and Democratic lawmakers expressed outrage that the government could lose more than $10 billion over the next decade, the Bush administration said it flatly opposed House bills that would pressure oil companies into renegotiating flawed leases that the government signed in the late 1990’s.
The 56 companies hold leases that allow them to extract billions of dollars in oil and gas from the Gulf of Mexico without paying any royalties, regardless of how high energy prices or the industry’s profits might climb.
Of those 56 companies, Interior officials told lawmakers on Thursday, 20 have responded in some way to pleas from the administration to voluntarily give up the incentives in times of high prices. But only 10 companies, including Chevron and Exxon Mobil, have actually begun negotiating and only 2 are near a pact.
At a rancorous House hearing, administration officials insisted they had to respect the “sanctity of contracts’’ and should not do anything to force companies into a renegotiation.
“The administration believes that the federal government must be a reliable business partner and must honor its contractual obligations, even when, in retrospect, the terms of those contracts appear unfavorable,’’ said Lynn Scarlett, deputy secretary of the Interior, at a hearing of the House Committee on Government Reform.
Ms. Scarlett opposed a bill that the House passed last May. That legislation would give the Interior Department more bargaining power by prohibiting the government from giving additional leases to companies that refuse to trim back benefits.
She also opposed an alternative bill, sponsored by House Republicans, that would impose a stiff “conservation fee’’ on companies that refuse to give up some of the incentives.
That prompted a furious attack from Democratic lawmakers, who argued that the House bill would do nothing to breach valid contracts and simply gave the government more bargaining power with the oil companies.
“From the taxpayers’ point of view, I think it is irresponsible to refuse to support additional leverage that would encourage these companies to come to table,’’ said Representative Edward J. Markey, Democrat of Massachusetts and a co-author of the House bill.
“What you’re telling us is that, right now, you’ve got only 20 percent of the oil companies renegotiating their leases,’’ Mr. Markey continued. “One out of five isn’t bad in some areas, but when you’re talking about potentially billions of dollars in taxpayer dollars, one in five isn’t very high.”
In what has now become a major scandal, the Interior Department inadvertently signed 1,100 drilling leases in the late 1990’s that offered lucrative incentives to deepwater drillers, regardless of how high energy prices might climb.
Officials then covered up the mistake for nearly six years. In that time, the prices for oil and gas soared and the magnitude of the potential loss to taxpayers escalated to more than $10 billion.
But Interior officials are under fire for more than just the botched leases and the cover-up that followed. On Wednesday, the Interior Department’s independent investigator for examining possible misconduct scathingly accused senior officials of repeatedly tolerating cronyism, ethical violations and cover-ups of incompetence.
“Simply stated, short of crime, anything goes at the highest levels of the Department of the Interior,” Earl E. Devaney, the Interior Department’s inspector general, charged at a subcommittee hearing of the House Government Reform Committee.
Mr. Devaney said the problems had preceded the Bush administration, but he bluntly criticized Mr. Bush’s first Secretary of the Interior, Gale A. Norton, of perpetuating a culture of “denial, defense of the indefensible and delay.”
On Thursday, Ms. Scarlett told lawmakers that “the department disagrees” with Mr. Devaney’s critique and said he had made “broad and serious, yet vague allegations.”
Ms. Scarlett said that the Bush administration had corrected scores of “material weaknesses” that it had inherited from the Clinton era; that its ethics office had “grown in stature” and that Dirk Kempthorne, who took over as Secretary of the Interior in May, had imposed a new emphasis on ethics as soon as he arrived.
But few lawmakers seemed convinced. Representative Darrell Issa, a California Republican who has held four hearings on the leasing disaster, complained that Interior Department had done little or nothing to improve the solicitor’s office, which gave final approval to the leases but provided almost no documentation to explain why crucial restrictions were missing.
“There are no e-mails, nothing in writing, no paper trail,” Mr. Issa said.
Democrats were far harsher. “This looks like an agency that has been captured by the industry it is supposed to oversee, with American taxpayers picking up the bill,” said Representative Henry A. Waxman, Democrat of California.
Representative Carolyn B. Maloney, Democrat of New York, noted that the Interior Department was recovering less than $50 million a year on average as a result of auditing and enforcement of oil and gas leases. By contrast, she said, the government recovered about $176 million a year from 1989 through 1998.
“We’re missing billions and billions of dollars owed to American taxpayers,” Ms. Maloney said. “It is inexcusable.” |
