Top Minerals Management Service (MMS) officials are opting for early retirement to avoid stinging questions by congressional and federal investigators about the agency's oil and natural gas royalty recovery and royalty-in-kind (RIK) programs, said the chairman of the House Natural Resources Committee Wednesday.

"It appears that the administration is using retirement like some perverse witness protection program," said Rep. Nick Rahall (D-WV) during a hearing on his energy reform legislation (HR 2337), which he introduced last week (see Daily GPI, May 18).

"It has...come to the chair's attention that the Minerals Management Service official in charge of the [RIK] program, Greg Smith, has announced [he will take] early retirement effective [May 26]," Rahall noted. Smith's announced retirement comes as the Department of Justice has launched a criminal investigation into the activities of top MMS officials involved in the RIK program, he said. "Now that is rather passing strange."

Smith will be the second ranking MMS official to leave the Interior Department agency. Embattled MMS Director Johnnie Burton announced that she plans to leave the agency at the end of the month (see Daily GPI, May 9). Burton "is a person who apparently never saw an oil or gas royalty payment audit she liked," Rahall noted. Under her reign, the average number of annual audits for royalties fell to 144 from 540, and "left on the wayside were billions in royalty payments owed to the American people.".

The early retirements and resignations "get them out of the spotlight and off the list of in-the-know folks who could provide evidence [that is] damaging" to Interior's handling of the royalty recovery and RIK programs, he said.

"Whenever I call a hearing, the Interior officials whom I am asking to come testify are suddenly gone," Rahall said. They are "building a wall of shame at the Interior Department."

Rep. Stevan Pearce (R-NM) shot back that he was "especially unnerved" by Rahall's characterization of Burton, specially the claim that Burton has been in hiding or is going into hiding. "She's a person who has no criminal investigation ongoing. She's not been indicted," Pearce said. To "malign their reputation without any due cause causes me to blanch with embarrassment."

With respect to Burton, Rahall said he "never impugned any criminality upon her reputation."

Deputy MMS Director Walter Cruickshank said the Bush administration had "serious concerns" with Rahall's legislation, the "Energy Policy Reform and Revitalization Act of 2007," which would limit the RIK program to the sale of oil to the federal government to fill the Strategic Petroleum Reserve. Under the existing RIK program, producers sell both oil and natural gas to the government as payment for royalties.

Contrary to the claims of critics, Cruickshank said the agency's RIK program has been widely used and has produced "significant" revenues for the U.S. Treasury. In fiscal year 2006, he said 72% of Gulf of Mexico royalty oil and 45% of Gulf natural gas were taken in-kind, accounting for $4 billion or almost one-third of mineral receipts.

Cruickshank further told the House committee that the RIK program has generated an estimated $60 million in additional revenue for the federal government over the past two years.

He also defended MMS' current reliance on the less-intensive compliance reviews, rather than audits, to collect back royalties. In fiscal years 2003 through 2005, he noted that for every $1 spent on compliance reviews, the MMS collected $3.27 in royalties. And for every $1 spent on audits, the agency collected only $2.06, Cruickshank said.

Rahall's proposed legislation would require the MMS to perform at least 550 audits of oil and gas leases every fiscal year beginning in 2009. "Mr. Chairman, I would observe that in declaring more audits...you're going to give the government less," Pearce said.

"I'm only going by what the [Interior Department] Inspector General's report said about audits [yielding] more money" for federal taxpayers, Rahall said.

In a letter to Rahall Tuesday, the Independent Association of America, the Interstate Natural Gas Association of America and the Natural Gas Supply Association expressed their opposition to the chairman's legislation, saying it "would be a step backward for American natural gas supply development at just the time when the country needs new natural gas resources the most."

The groups noted that the measure would "repeal or eviscerate" a number of provisions in the Energy Policy Act of 2005 that were designed to enhance gas supply and infrastructure development. In addition, they contend that the Rahall bill "would impose burdensome requirements, redundant surface owner provisions and a complex water plan that would be extremely difficult to implement."

Combined, the bill's provisions "would move significant and much-needed natural gas supplies out-of-reach, while making it more difficult to build new pipeline infrastructure," the producer and pipeline groups said.

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