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Senate Report Suggests Royalty Program Compromised

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 Thompson's report.

"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. Murkowski.

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.

Susan Parker

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