Oil-Lease Agency Found Inadequate

By Steven Mufson
Washington Post Staff Writer
Thursday, December 7, 2006

The agency that collects royalties from oil and gas producers lacks the data, coordination and manpower to keep track of companies operating on federal land and in federal waters, a report by the Interior Department's inspector general said.

The report criticized the Minerals Management Service for relying on "compliance reviews," which depend on information provided by the companies, rather than detailed audits, independent information or site visits.

The report said record-keeping was so shoddy that a random selection of five supposedly completed audits found that one had never begun and two were unfinished. "MMS could not accurately count the number of audits and compliance reviews that were completed each fiscal year," the report said.

The agency, which collected $12.8 billion in royalties this year, has been criticized by members of Congress for writing leases in 1998 and 1999 that allowed major oil companies drilling in the Gulf of Mexico to avoid billions of dollars of royalty payments. The MMS is negotiating with companies in an effort to correct that and collect some of the money.

The inspector general's report, written for the Senate Committee on Energy and Natural Resources, also said the MMS had audited only 9 percent of federal properties and 20 percent of companies in the past three years. It said that many of the same high-dollar properties are reviewed "year after year" while many other properties were never reviewed.

The report also noted that the agency had reduced the number of auditor positions by 45, or 15.7 percent, since 2000. During that time, the number of audits fell to 461 in 2004-05, from 595 in 2000-01. The report said that wasn't enough to monitor the 2,600 companies that paid royalties on about 27,800 leases in 2005.

"The biggest problem is that there's a culture at MMS that is careless, undocumented and fails to consider its fiduciary duty to the American people," said Rep. Darrell Issa (R-Calif.), chairman of the House Government Reform Committee's subcommittee on energy and resources.

"The Interior inspector general's report underscores how poorly the Bush administration's Minerals Management Service has been overseeing oil and gas drilling activities on public land," said Rep. Edward J. Markey (D-Mass.).

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