Senate Report Suggests Royalty Program Compromised
Two federal energy officials may have fed information on unpaid
oil royalties that they obtained from producers under
confidentiality agreements to a Washington D.C.-based watchdog
group to use as ammunition against the producers in a
"whistle-blower" lawsuit seeking recovery of back royalties in
California. They may also have "steered the Department of Interior
toward a [royalty] policy favorable" to certain parties, according
to a report by an investigator with the General Accounting Office
(GAO) that was released last week.
These were the key findings of GAO's Paul Thompson who --- at
the request of Chairman Frank Murkowski (R-AK) of the Senate Energy
Committee --- was detailed to the committee to conduct a six-month
investigation into reports that two oil policy advisors with the
Department of Energy (DOE) and Department of Interior (DOI) were
paid $383,600 each by the Project on Government Oversight (POGO) in
November 1998 in return for possibly sharing information that led
to POGO's lawsuit to recover back oil royalties. The proceeds
apparently represented the policy advisors' share of a royalty
settlement involving Mobil Oil.
Although "the information does not directly establish" that
either Robert Berman, who serves in DOI's Office of Policy Analysis
(OPA), or Robert Speir, a DOE policy advisor and expert on oil
valuation in California who has since retired, "shared their work
products or related materials with POGO" in return for the
payments, it points strongly in this direction, according to
"Both officials were a) POGO's allies in its campaign against
the [California] oil companies; b) described by [POGO's Danielle
Brian Stockton] as individuals who should have been allowed to join
her and POGO as parties in its qui tam lawsuit; and c) [were] paid
substantial amounts from POGO's lawsuit proceeds." POGO officials
contend the payments, which were made between 1986 and 1996, were
"public service awards" in recognition of Berman's and Speir's
whistle-blower efforts. The report said the payments to the men
thus far represent a drop in the bucket. They "stand to receive
potentially millions of dollars more" under a written agreement
with POGO, the report noted.
The GAO investigator concluded there was a "reasonable concern"
that Berman and Speir used their "positions and information they
gathered" to provide POGO with leverage for its whistle-blower
lawsuit. "To the extent that this concern could inhibit the
willingness of industry and others to share information, it would
limit the [DOI's] ability to administer the oil royalty program and
similar programs in the future."
So far, POGO's lawsuits have been aimed at recovery of back oil
royalties, but the group's Brian-Stockton indicated at a House
subcommittee hearing in May that POGO is turning its attention to
underpaid natural gas royalties, which she said will "dwarf those
of oil royalties."
The House Energy and Mineral Resources Subcommittee passed a
resolution in late June citing three POGO officials for refusing to
answer questions about the payments made to Speir and Berman. Cited
were Keith Rutter, POGO's assistant executive director; Henry M.
Banta, director and former chairman of POGO's board; and
Brian-Stockton, executive director of the group.
The House subcommittee's resolution was the first step in a
contempt of Congress action against the POGO officials. The
resolution now must be acted on by the House Resources Committee,
which expects to take up the issue when it returns from its recess
in September, and the full House before being sent to the
Department of Justice (DOJ), which then would decide whether to
prosecute the POGO officials. The three could face fines of up to
$1,000 and a year in prison. In addition to the House, the
inspector generals of the DOI and DOE are investigating the matter,
but "apparently little has been done" by them so far, said Sen.
While Berman and Speir allegedly were feeding POGO ammunition
for its back royalty lawsuit, the two men also were "substantially
involved in key stages" of developing DOI's new valuation policy
for oil royalties "in ways that served the interests of POGO's
chairman [then Banta] and its executive director [Brian-Stockton],"
according to Thompson's report. Banta retired as POGO's chairman in
1998, at which time he became a D.C. attorney representing the
state of California in its lawsuit to recover back oil royalties.
Interior meanwhile was heavily involved in shaping its new oil
royalty valuation policy, which went into effect this past June.
"Nothing in the information indicates how the [DOI] would have
formulated its royalty policy had the two advisors not been
involved," but "the possibility exists that.....Berman and Speir
were motivated in their actions by the prospect of participating in
or sharing in the proceeds of a POGO qui tam action" against oil
producers, the report said.
"Aside from concerns about the possibility that the [DOI's]
process may have been unduly influenced, this matter also raises
reasonable concerns that the integrity of the royalty program may
have been compromised by the appearance of impropriety generated by
the payments," the 42-page report said.