Interior IG blames 'bungling' for royalty collections lapse

In a blistering report on the failure to collect federal royalties from offshore oil and gas leases, the Interior Department's inspector general Wednesday blamed "bureaucratic bungling" and a long-standing culture of managerial irresponsibility and lack of accountability for a major lapse that could cost the Treasury up to $10 billion.

In testimony before the House Government Reform Energy Subcommittee, Earl Devaney said his investigators have yet to find any criminal wrongdoing in their ongoing investigation. But he insisted that the failure of a long train of department officials to enforce a law requiring leaseholders, once they reached certain price thresholds in oil and gas production in the Gulf of Mexico, to start paying royalties in 1998 and 1999 betokened a "dysfunctional process" he said still exists in the department.

Devaney's probe, though not yet completed, has drawn attention from Congress. The subcommittee has been conducting its own inquiry of how the lapse in royalty collections occurred and why -- once it was discovered by department officials in 2000 -- it was covered up and apparently not reported to top managers of the department.

Under a law enacted in 1995 to spur lagging exploration in the Gulf for gas and oil, drillers were excused from paying royalties until they reached certain levels, or thresholds, of volume and pricing for the minerals. In subsequent regulations drawn up by the department in early 1998, the pricing threshold, which had been in effect in leases signed in 1996, 1997 and 2000, was omitted from the royalty requirement.

Energy Subcommittee Chairman Darrell Issa, R-Calif., said this lapse in collections has cost the government $2 billion in foregone royalty revenue and could end up costing $10 billion or more.

Lamenting what he called "an institutional culture and organizational intransigence" in the department, Issa said department officials who took part in the approval process for the offshore leases "failed to ensure that the price threshold policy was implemented."

Devaney said there is "plenty of blame to go around," since the lease-granting process went through multiple layers of officials before leases were finalized, from head-office reviewers to the department's lawyers. "There are too many people signing off on this thing," he said, noting that it was difficult -- after intensive questioning of 29 officials -- to fix responsibility and to hold any individuals accountable.

"I'm satisfied there isn't anything that would allow us to take this to the U.S. attorney," Devaney said, for criminal action. But, he told the panel, there appear to be clear grounds for internal disciplinary action.