September 17, 2009

Salazar Revamps Royalty In Kind

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On Wednesday, Interior Secretary Ken Salazar announced the end of the Interior Department’s oil and gas royalty collection program. Salazar made his announcement at part one of a two-part testimony before the House Natural Resources Committee. Last week Rep. Nick J. Rahall (D-WV), the chairman of that committee, introduced legislation that would overhaul the existing federal royalty system and create an Interior agency to regulate oil and gas leasing.

Currently, rather than paying in cash for resources extracted from government lands, companies pay federal royalties in comparably valued oil and gas, which the government then sells on the open market. This system, known as Royalty in Kind, is administered by the Minerals Management Service (MMS). Last year, a report compiled by the Interior Department’s inspector general found that MMS collections fell far short of their estimated potential revenue and discovered corruption within the agency.

Back in September 2008, Mother Jones’ Josh Harkinson wrote:

So far the grand prize for depravity goes to former RIK manager Gregory Smith, who pitched the oil companies he regulated to do business with his outside consulting firm, slept with two subordinates, and bought cocaine from another RIK employee while on the job (DOJ, where are you?). Of course, last time I checked, there was also an ongoing GAO investigation, four False Claims Act cases pending against MMS in Oklahoma City, and a DOJ investigation of a Virginia-based MMS employee who allegedly traveled to Atlanta to have sex with someone he’d met in a teen online chat room who he thought was a 13-year-old girl.

Salazar’s announcement to overhaul the collection program is no great surprise given MMS’ sex, drug, and bribe-related scandal last year. At the present moment, US drilling regulations consist of a gap-filled web of EPA, BLM, and MMS legislation. The second part of Rahall’s hearing on his proposal is happening now.

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