Despite the projected loss of billions of dollars to the federal government, the failure of certain Interior Department employees to include price thresholds in deepwater oil and gas leases in 1998 and 1999 does not rise to the level of criminal activity, the department Inspector General Earl Devaney told a House Government Reform subcommittee Wednesday.

“There isn’t anything that would allow us to take this case to a criminal attorney,” he said during the fourth and final oversight hearing of the Energy and Resources Subcommittee, which for seven months has been investigating the details surrounding the missing lease price thresholds — an oversight by Interior’s Minerals Management Service that is projected to cost the federal government upwards of $10 billion over the life of the leases.

But due to the “egregious loss of revenue to the taxpayer,” Devaney indicated that he may recommend disciplinary action against the employees who were responsible for not putting price thresholds in the 1998 and 1999 leases, as well as those who were aware of the oversight but failed to report it to their superiors.

In testimony before the panel, Devaney presented the preliminary results of his parallel probe into how and why price thresholds were omitted from deepwater oil and gas leases in 1998 and 1999, and what happened once the omission was discovered. “There’s a lot of blame to go around here” in the department’s Solicitor’s Office for the missing thresholds, he noted.

“The person responsible for directing the preparation of the leases said he was told by those in MMS’ Economics and Leasing Divisions to take the price threshold language out of the leases. This individual submitted to a polygraph and passed,” Devaney told the House subcommittee. But some of the employees in the Economics and Leasing Divisions weren’t as willing to be polygraphed, he said.

“One of these individuals provided a sworn statement, submitted to a polygraph and passed. Another individual refused to provide a sworn statement, so was not asked to take a polygraph. [A] third individual provided a sworn statement, but refused to take a polygraph.” There’s “less of a cloud” of suspicion over those willing to give a sworn statement and submit to a polygraph, Devaney said.

“Although we have found massive finger-pointing and blame enough to go around, we do not have a ‘smoking gun.'” he said.

Also passing a polygraph was Chris Oynes, regional director of MMS’ Gulf of Mexico office, who testified in late July that he had “no recollection” of Chevron U.S.A. executives alerting him to the missing price thresholds on at least two occasions in the late 1990s, Devaney noted. He said he didn’t dispute the account of the Chevron executives, saying it would be accepted at face value.

“We found a brief flurry of e-mail discussion in 2000 about the discovery of the omission of price thresholds, and the e-mails document the decision not to advise the director” of MMS at the time about the missing price ceilings, he noted. “Unfortunately, the official [an associate director of MMS] who made this particular decision is deceased. We did not find any e-mail prior to 2000 that touched on this issue,” Devaney said. “I’ve been in this town a long time and it never ceases to amaze me how people get involved in a cover-up.”

The critical price thresholds serve as a benchmark to determine when oil and gas production becomes subject to federal royalties. Without them, producers who negotiated leases in 1998 and 1999 have been able to avoid payment of federal royalties on production up to a specific volume limit. The price caps were included in leases that were negotiated in 1996, 1997 and 2000, but were not in the 1998 and 1999 leases due to an oversight by the MMS. Congress has put pressure on producers to renegotiate these leases with MMS.

Devaney questioned whether Interior would accept any recommendations that his office makes in the wake of this massive blunder. “I have observed one instance after another when the good work of my office has been dynamically disregarded by the department. Simply stated, short of a crime, anything goes at the highest levels of the Department of Interior. Ethics failures on the part of senior department officials — taking the form of appearances of impropriety, favoritism and bias — have been routinely dismissed with a promise [of] ‘not to do it again,'” Devaney said.

“I have watched a number of high-level Interior officials leave the department under the cloud of [Office of Inspector General] investigations into bad judgment and misconduct. Absent criminal charges, however, they are sent off in usual fashion, with a party paying tribute to their good service, wishing them well, to spend more time with their family or seek new opportunities in the private sector.”

Devaney said he has told Interior Secretary Dirk Kempthorne that he plans to write a white paper that will provide a “road map on how we [can] get out of this mess.” He noted that Kempthorne has sent two message to employees since taking office about following proper ethics and instructing all employees to cooperate with Devaney’s probe into the missing lease price thresholds.

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