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New Investigative Reports Show Government's Ethical and Management Failures in Dealing with Big Oil - Costing American Taxpayers Billions

“The Congress and the public are justifiably concerned about whether the federal government is getting a fair return for its energy resources as oil and gas company profits have reached record levels.”
- Government Accountability Office, “Oil and Gas Royalties,” 9/3/08

“The single-most serious problem our investigation revealed is a pervasive culture of exclusivity, exempt from the rules that govern all other employees of the Federal Government…We also discovered a culture of substance abuse and promiscuity…”
- Interior Department's Inspector General Earl Devaney, 9/9/2008

“…given high oil and gas prices and the increased interest on the part of oil and gas companies in the nation's oil and gas resources, it is important that we have a royalty collection system going forward that can assure the American public that the government is receiving accurate and timely royalty payments.”
-Government Accountability Office, “Mineral Revenues,” 9/12/2008

This week the Government Accountability Office (GAO) and the Interior Department's Inspector General completed a series of investigative reports highlighting the significant ethical, legal and management failures at the agency charged with managing our nation's public resources and underscoring the high cost to American taxpayers of the government's mismanagement in doing business with Big Oil.

Among the reports' findings:


  • Big Oil's royalty-free leases to drill in the U.S. Gulf of Mexico issued between 1996 and 2000 could cost American taxpayers between $21 billion and $53 billion. [GAO, Oil and Gas Royalties, 9/2008]
  • The amount of money the U.S. government receives from oil and gas companies for production on federal lands is among the lowest in the world. [GAO, Oil and Gas Royalties, 9/2008]
  • As the oil and gas industries reap record high profits, many countries around the world are reevaluating and revising their oil and gas fiscal systems to make them more responsive to market conditions. The last time the Interior Department conducted a comprehensive review of the federal oil and gas fiscal system was more than 25 years ago. [GAO, Oil and Gas Royalties, 9/2008]
  • Since 2002, as oil and gas prices have increased and remained high, the number of oil and gas rigs operating on U.S. lands and waters has more than doubled - compared to just an 18 percent increase elsewhere in the world. [GAO, Oil and Gas Royalties, 9/2008]


  • The Interior Department's Inspector General (IG) released a series of reports detailing a range of illegal and unethical behaviors among employees of the Minerals Management Service (MMS) - an Interior Department agency charged with collecting royalties from oil and gas companies and one of the largest sources of revenue for the federal government after taxes. [DOI IOG, 9/2008]
  • The reports detailed egregious violations of federal procurement regulations including crafting and steering lucrative contracts to former employees engaged in the private sector - actions which clearly put taxpayer dollars at risk. [DOI IOG, Federal Business Solutions Contracts Report, 9/2008]
  • One former MMS employee pled guilty in August 2008 to a felony conflict-of-interest charge punishable by as many as five years in jail and a fine of $250,000.  [New York Times, 9/10/08]
  • At least one employee also allowed oil companies to revise their bids even after the contract had been awarded. The IG estimated that 118 changes made to contracts after the fact cost American taxpayers approximately $4.4 million. [DOI IOG, MMS-Oil Marketing Group -Lakewood, 9/2008]
  • The reports also highlighted a “culture of ethical failure” and a “culture of substance abuse and promiscuity” among MMS employees. Among the unethical practices described by the IG:
    • Accepting gifts, meals, and drinks from oil industry representatives was common practice;
    • Illegal drug use among employees; and
    • Sexual relationships between MMS employees and representatives of oil companies - the very industry with which the agency does business.
  • [DOI IOG, MMS-Oil Marketing Group-Lakewood, 9/2008]
  • The IG found evidence several MMS employees sought to escape the federal procurement and ethics guidelines by having different procurement and ethics guidelines created for their office. [DOI IOG, MMS-Oil Marketing Group-Lakewood, 9/2008]
  • Gregory Smith, the program director of the Royalty In Kind office, a division of MMS, was found to have received $30,000 for promoting a private consulting firm's services to oil and gas companies, received almost $1,000 in gifts from the oil and gas industry, had sexual relationships with two of his employees, and engaged in illegal drug use with at least one of his subordinates.  [DOI IOG, Gregory W. Smith Report, 9/2008]
  • Mr. Smith increased a performance award by $250 for an employee who provided him with cocaine. [DOI IOG, Gregory W. Smith Report, 9/2008]
  • According to the Inspector General, the Department of Justice has declined to prosecute Mr. Smith. [DOI IOG, Gregory W. Smith Report, 9/2008]


  • The Interior Department's Minerals Management Service (MMS) relies on oil and gas companies to self-report data detailing the total production and disposition of oil and gas as well as the royalties due based on that production. [GAO, Mineral Revenues, 9/2008]
  • Among the issues with this faulty self-reporting online system, MMS cannot:
    • Monitor when oil and gas companies make adjustments online to production and royalty data
    • Determine whether or not a royalty report has been submitted and thus cannot be sure they are receiving all of the royalties due. [GAO, Mineral Revenues, 9/2008]
  • The Interior Department cannot be sure the gas and oil production data is being measure accurately because neither the Bureau of Land Management (BLM) nor MMS are fully inspecting leases or metering equipment as required by law. [GAO, Mineral Revenues, 9/2008]
  • Only half of the 2,700 royalty meters measuring oil and gas production in the U.S. Gulf of Mexico were inspected. [GAO, Mineral Revenues, 9/2008]


  • Of an estimated 55,000 onshore and offshore federal leases issued between 1987 and 1996:
    • Only 26 percent of offshore leases have been drilled at all  and 12 percent are producing
    • Six percent of onshore leases - 2,904 of 47,925 leases issued - have been drilled [Draft GAO report]
  • In the National Petroleum Reserve in Alaska (NPR-A), only 30 wells have been drilled and only 411 leases have been issued over the last 9 years [Draft GAO report]