Infamous Teapot Dome becomes test of government transformation

EDGERTON, Wyo.-Head 35 miles north from Casper on Wyoming Route 259, past dry, desolate scrubland and plenty of "nodding donkey" oil-pumping rigs, and you arrive at the birthplace of one of America's most notorious scandals. Visitors here encounter no roadside historical markers; nor does the area's signature landmark-a vertical monolith of rock-look as it did during the scandal. (The rock's most distinctive feature, its "spout," crumbled off in a windstorm in 1962.)

The site, of course, is Teapot Dome: the 10,000-acre oil field that 80 years ago embodied governmental corruption. Now, ironically enough, Teapot Dome-or Naval Petroleum Reserve 3, as it is officially known-stands as a little-noticed experiment in reinventing government.

Teapot Dome's tangled history began in 1915 when President Wilson set aside the site's petroleum reserves for the Navy, which was transitioning its fleet from coal to oil. Six years later, President Harding appointed Sen. Albert B. Fall, R-N.M., to serve as secretary of the Interior. Fall shifted control of Teapot Dome and other naval reserves to his department, and promptly began allowing private exploitation of the reserves-including granting a secret, noncompetitive lease to Mammoth Oil, a hastily created entity controlled by petroleum mogul Harry Sinclair.

Carl Magee, Fall's political foe and neighbor in New Mexico, noticed that Fall had made sudden, lavish improvements to his ranch-and Magee apprised Congress. After months of increasing scrutiny, Fall resigned, heightening widespread suspicions of illegality within the Harding administration.

In 1929-after seemingly endless congressional investigations and legal battles-Fall was convicted of accepting a bribe. He served nine months in prison and died penniless in El Paso, Texas, in 1944. Sinclair did quite a bit better. He was cleared of conspiracy charges but jailed for seven months after refusing to answer certain questions in a Senate hearing. After his release, he returned to Sinclair Oil and built it into a petroleum giant that, by 2000, rang up almost $2 billion in annual sales.

Despite its colorful history, Teapot Dome quickly slipped back into obscurity. Beyond routine maintenance, the Navy did nothing with the site until the 1970s, when President Ford-responding to the Arab oil embargo-signed legislation that encouraged oil production on federal properties. Production began under Navy auspices and continued after primary control of Teapot Dome passed to the newly created Department of Energy in 1977.

Though Energy was constrained by tight rules that governed how the reserve's oil could be used-a direct legacy of the 1920s scandal-the department managed to produce as many as 5,000 barrels of oil a day, with the proceeds going directly into the federal Treasury. Because the field is now nearing the end of its productive life, yields have declined. But the site's 666 working wellheads still produced enough oil last year to funnel $7.1 million into federal coffers.

Even so, by the mid-1990s, employees at the reserve read the handwriting on the wall. The proliferation of nuclear-powered vessels and more-efficient engines meant that the Navy no longer had much need for big petroleum reserves. And Energy officials had decided to move toward substantial privatization of energy resources, selling or leasing several of the department's naval oil reserve sites to private companies-this time, following above-board procedures. The biggest deal came in 1998, when Occidental Petroleum bought the government's share of the Elk Hills oil field in California. At $3.65 billion, it ranks as the largest privatization of federal property in history.

But Teapot Dome was too tapped out to attract buyers. The environmental measures a company would have to undertake to close down the field would far outweigh the dwindling income to be mustered from petroleum extraction. So in 1994, Energy transformed Teapot Dome into the Rocky Mountain Oilfield Testing Center-essentially a field laboratory where oil companies and independent inventors could test new ideas for finding and producing petroleum.

"We could have taken a defeatist attitude and said that our future was in the hands of the people in Washington," said Clarke Turner, who heads the Energy Department office in Casper that oversees the testing center. "But we said, `Let's re-engineer ourselves and make ourselves useful."

Turner-who worked at Teapot Dome from 1983 to 1986 and returned in 1994 after a stint with the Army-credits the industry with helping to make the case for the testing center. "The impetus was really bottom up," he said. "It started with a bunch of oil companies and environmental-related people here and within the Rocky Mountain area saying that this makes sense."

The center's mission, simply put, is to "bridge the gap between good ideas and the application of those ideas," says Sandy Andrew, who handles marketing and business development for the facility. One could describe it as a mini-National Laboratory for petroleum technology-or perhaps a big sandbox for creative petroleum engineers.

Since it was established, the center has participated in more than 110 major projects-testing drilling systems, environmental cleanup techniques, motor efficiency, and metallurgical breakthroughs. Typically, 10 to 12 experiments are going on at any given time. One project even looked at whether wastewater from oil drilling could be used to increase production of shrimp and tilapia at aquaculture farms.

Although perhaps a third of the center's customers are big corporations, smaller start-ups compose the center's largest constituency. "The big companies have an easier time getting into the field to test things," Turner says. "We like to work with the smaller companies, especially those that were started in a garage. That's where some of the bigger breakthroughs come from."

The testing center was a godsend for Leland Traylor, president and CEO of Pumping Solutions, a five-employee, maverick start-up based in Albuquerque, N.M. Traylor had designed a new-generation pumping system for low-yielding oil wells, known as "stripper" wells. But he needed to test the system in real-life situations, and doing so at the center made much more sense than trying to entice a private owner into lending a field.

The center approved Traylor's project quickly. After running nearly a dozen tests here at Teapot Dome, Traylor said, he's having a much easier time getting his foot in the door with potential customers.

Today, the center employs about 20 people and has a budget of $3 million-up from the modest $240,000 it began with in 1994, but still a pretty low price tag for a federal program.

The entrepreneurial spirit runs deep at the center-which suits Wyoming, a state that is more suspicious of the federal government than perhaps any other state. Center officials take pride in being more business-oriented than bureaucratic. About three years ago, the center re-engineered its operations, slashing several layers of management, instituting measurable goals, and streamlining procurement authority. It also likes to undertake projects that are geared toward getting products to market quickly.

"People in this state are hesitant to work with the government, but we show them that there's nothing to worry about," Turner said. "Because we're in the oil business, we understand the problems that operators are having; but because we're the government, they don't see us as trying to make a buck off them." Being small helps, Turner added. "The bigger you get," he said, "the more bureaucratic you have to become."

The center's main legislative wish is to get out from under some of its financial restrictions. Last year, Houston-based Omega Oil sought to form a partnership with the Energy Department to test a technology for reducing the cost and footprint of drilling rigs by feeding dozens of horizontal pipes into a central shaft. Omega's technique could have cut the number of wells on an 8,500-acre parcel from 220 to just one-thus, the company argues, lessening the environmental impact of drilling.

But even though Omega was prepared to invest $27 million of its own capital to pay for a test at Teapot Dome, the company wanted to recoup some of its costs by selling a fraction of the oil it pumped there. That, however, would have violated congressional budget-scoring rules: Any incremental oil reserves that Omega kept from the test would have to be counted as costs on the federal government's books.

"The budget-scoring rules were not developed to handle a situation where the government could make money with no investment," Turner said. An effort to lobby Congress failed, so Omega pulled out. The company is now seeking an alternative testing facility.

Two factors make such legislative changes unlikely, however. One is the center's diminutive size and remote location. "Being located in Wyoming and being such a small organization, it's really hard to get the word out," Turner said. Numerous interviews with politicos and oil-industry officials in Wyoming suggest that few people know much about the center. And seeking help for a federal program is not the easiest assignment in this staunchly conservative state.

The second obstacle is the continuing stigma of the Teapot Dome scandal. "Even though it happened 80 years ago, the scandal still has legs for politicians here because of the symbolism involved," said University of Wyoming historian Phil Roberts.

How long that stigma lasts is anybody's guess. "For people 35 and over, when I mention Teapot Dome, the scandal is the first thing that comes to their mind," Turner said. "For people younger than that, they say, `What's Teapot Dome?' "

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