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INSPECTOR GENERAL REPORT ON GALE NORTON, SHELL SCANDAL – PART 1

PART ONE PAGES 1 TO 7 INCLUSIVE OF 23 PAGES IN TOTAL

OFFICE OF INSPECTOR GENERAL U.S.DEPARTMENT OF THE INTERIOR

Memorandum

To: Secretary Salazar
From: Mary L. Kendall Acting Inspector General
Subject: Report of Investigation – Royal Dutch Shell
Case No. PI-PI-08-0264-I

DEC 09 2010

The Office of Inspector General concluded an investigation based on a complaint that Royal Dutch Shell (Shell) received preferential treatment during the awarding of oil shale Research, Development, and Demonstration (RDD) leases in 2005 and 2006 by the Bureau of Land Management (BLM). Since former Secretary Gale Norton subsequently secured employment with Shell, we expanded our investigation to consider her involvement in the RDD process.

We found that Norton was very interested in the RDD program during her tenure as Secretary, but we did not find evidence to conclusively determine that Norton violated conflict-of-interest laws, either pre- or post-employment with Shell.

We discovered that BLM appeared to give preferential treatment to Shell in two specific issues regarding these leases. We found that two of Shell’s bid proposals included acreage amounts in excess of the allowable amount specified in the Federal Register notice, and that someone in BLM changed the amount to comply with the requirements. BLM did not disqualify Shell’s bids. We also found that Shell submitted three bids, while other prospective bidders were allowed to submit only one bid. Shell was awarded leases on all three bids. No other company received more than one lease.

We did not find evidence that Shell committed any criminal violation, but we did discover that someone in BLM provided Shell with information, which allowed Shell to submit a complete bid document on the same day that the Federal Register notice soliciting applications for leases was published. The next bid that BLM received came in 82 days later.

We provide this report to you for whatever action you deem appropriate. If you have any questions, please do not hesitate to contact me at 202-208-5745.

Office of Inspector General I Washington, DC

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Investigative Report of Royal Dutch Shell

Report Date: December 9, 2010

This report contains information that has been redacted pursuant to 5 U.S.C. §§ 552 (b)(6) and (b)(7)(C) of the Freedom of Information Act. Supporting documentation for this report may be obtained by sending a written request to the OIG Freedom of Information Office.

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SYNOPSIS
The Office of Inspector General (OIG), U.S. Department of the Interior (DOI), initiated this investigation based on allegations that Royal Dutch Shell (Shell) received “insider information,” among other irregularities, during the Bureau of Land Management’s (BLM) 2005-2006 awarding of leases to research and develop oil shale. We issued an interim report on this matter in January 2009 that was referred to the U.S. Office of Government Ethics (OGE) and the U.S. Department of Justice.

Our investigation identified irregularities in the oil shale leasing process that benefited Shell and disadvantaged other applicants. Shell submitted three bids, while other applicants could only submit one bid; Shell received advance information regarding the leases; and someone changed two of Shell’s bids so that they complied with lease requirements.

As a result of our interim report, OGE opined that former DOI Secretary Gale Norton played a significant role in BLM’s oil shale program while Secretary and noted that the former Secretary’s participation in the program should subject her to the “lifetime ban on communicating with the federal government regarding the program.” The investigation further substantiated that on two separate occasions, subsequent to leaving DOI, but prior to being hired as general counsel in Shell’s oil shale division, Norton failed to fully describe her role in the leasing program to DOI ethics officials.

Finally, we found that Norton, subsequent to taking a job with Shell, contacted the Department of Defense, directly, and BLM, indirectly, concerning oil shale issues.

We presented this investigation to the Department of Justice, which declined criminal prosecution.

DETAILS OF INVESTIGATION

We initiated this investigation on April 7, 2008, based on allegations made by a Utah entrepreneur. The entrepreneur said numerous irregularities occurred during the Bureau of Land Management’s (BLM) evaluation of applications for oil shale Research, Development, and Demonstration (RDD) leases on BLM lands in Utah, Wyoming, and Colorado. As a result of these irregularities, the entrepreneur said, Shell received three of the six RDD leases ultimately awarded by BLM, as well as preference rights to thousands of additional valuable oil shale acres.

We initially focused our investigation on the allegations that irregularities occurred in the RDD leasing process and whether or not these irregularities allowed Shell to receive half of the leases.

The entrepreneur alleged that:

• Shell submitted two RDD applications on June 9, 2005, the day the Federal Register notice soliciting applications was published, and the very first day that BLM began accepting applications. The entrepreneur stated that this could not have occurred without Shell having “inside information.” Agent’s Note: We determined that Shell actually

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submitted only one RDD application on June 9, 2005. The other two applications were submitted later.

• Shell submitted a total of three RDD applications, while other companies understood they were only allowed to submit one.

• Shell submitted two applications that selected preference right acreage areas that exceeded the maximum amount of 5,120 acres identified in the June 2005 Federal Register notice. As a result, BLM should have disqualified these two applications. Instead, these applications were accepted and selected to receive leases. Someone altered these same two Shell applications to reflect the proper acreage amount.

• By receiving three of the six RDD leases, Shell gained a preference right of up to approximately 15,000 additional BLM acres, thereby giving Shell access to a considerable amount of Federal oil shale with significant potential value.

• After the RDD award process concluded, several DOI officials, including former Secretary Gale Norton, left DOI to work for Shell. The entrepreneur stated that it was not a coincidence that Norton went to work for Shell after overseeing the process through which the company was awarded three of the six RDD leases. We determined that some of the entrepreneur’s allegations were correct, and that BLM actions at least appeared to give Shell preferential treatment. Shell submitted three bids, all of which were successful, while other companies were told by BLM employees that they could only submit one bid. Also, two of Shell’s bids did in fact exceed the maximum acreage amount, and BLM employees changed those amounts so they would comply with the Federal Register notice. We further determined that someone in BLM provided Shell with advance information. We expanded our investigation into allegations that former Secretary Gale Norton had been significantly involved in the oil shale leasing program, and subsequently gained employment
with Shell.

Our investigation includes:

• Secretary Norton’s role in the RDD process, and whether this role rose to the level of personal and substantial participation;

• Secretary Norton’s statements to DOI ethics officials concerning her role in the RDD process and the accuracy and completeness of those statements;
• The timing and nature of Secretary Norton’s employment negotiations with Shell and whether they occurred during the period of her participation in the RDD process; and

• Contacts that the former Secretary may have had with Federal entities concerning oil shale matters after she left DOI, either directly or through third parties.

We discussed each of these issues in our interim report. Pertinent portions of the interim report have been incorporated into this report. We developed additional information since the issuance of the January 2009 interim report that is also included in this report. Former Secretary Norton declined to be interviewed regarding our investigation.

I. Secretary Norton’s Role in the RDD Process

We interviewed Dr. Abraham Haspel, former Assistant Deputy Secretary, DOI, who said Norton viewed oil shale from the “big picture” perspective. According to Haspel, Norton was “pushing

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oil shale big time,” in part because it was what the White House wanted and in part because she felt it had the potential to be a significant energy resource. Haspel explained that Norton and her staff viewed oil shale as a “game changer,” meaning if it could be developed and produced, it would have a significant, positive impact on the Nation’s energy position. “She seized on oil shale as an opportunity” to better the Nation, said Haspel.

We also interviewed Kit Kimball, former Director, Office of External and Intergovernmental Affairs, DOI, who explained that Norton and her staff “didn’t totally trust the BLM.” In addition, Kimball stated that Norton knew Shell was ready to move forward with their oil shale development efforts and felt very strongly that they needed a BLM oil shale leasing program to do so. “She knew Shell wanted to get going,” said Kimball. As a result, Kimball explained, both Norton and David Bernhardt, her counselor, felt they needed to be involved to make sure BLM’s oil shale leasing program moved forward in an appropriate way.

When we interviewed an attorney from the Office of the Solicitor (SOL), DOI, who worked extensively on the RDD program, he noted that DOI Chief of Staff Brian Waidmann had at one time worked for a U.S. senator from Colorado. He also noted that Bernhardt grew up not far from the area of the proposed RDD leases in Colorado, and Norton had at one time served as Colorado’s Attorney General. They were all familiar with oil shale issues and “very interested in this concept.” The SOL attorney stated that Norton, Bernhardt, and Waidmann each wanted to be involved in oil shale matters because they understood the sensitivity of oil shale development in Colorado.

Meetings and Briefings on Oil Shale

We identified 12 instances where Norton attended meetings or was briefed on oil shale in 2005 and 2006.

1. Meeting: March 2, 2005, with the CEO and Vice President of Shell

Attendees Shell: CEO and Vice President
DOI: Secretary Norton, Kit Kimball, Scott Stewart

On March 1, 2005, Stewart, Associate Director, DOI Office of External and Intergovernmental Affairs, sent an email to Steve Hargrave, Chief, Internal Security, Security Services Branch, DOI. Stewart wrote that Norton would be meeting the next day with the CEO of Shell, and a Shell Vice President. Stewart asked if Hargrave could “expedite” the Shell officials “into the building with as little impediment as possible.” When we interviewed Hargrave, he recalled meeting Stewart and the Shell officials at the DOI building entrance on March 2, 2005.

A review of documents obtained from Shell suggests that oil shale was discussed at this meeting. In an email dated May 2, 2005, a Shell employee wrote that “Secretary Gale Norton’s Office called today… [and] stated that previously [Shell CEO] extended an offer to Secretary Norton to visit [Shell’s oil shale research site]. Is the offer still good and if so, the Secretary need [sic] a paper with information on the site in her hands beforehand. The timing for June might be good

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for her.” Later that same day, another Shell employee wrote in an email that the Secretary’s potential visit was “a huge opportunity.”

2. Meeting: March 30, 2005, with Executive Director of Exploration and Production in London

Attendees
Shell: Executive Director of Exploration and Production, Royal Dutch Shell
DOI: Secretary Norton

A review of Secretary Norton’s calendar and our interview of Johnnie Burton, former Director, Minerals Management Service (MMS), DOI, disclosed that on March 30, 2005, Secretary Norton attended a conference in London. The Executive Director of Exploration and Production, Royal Dutch Shell, also attended.

The review of Shell emails disclosed that on March 31, 2005, the Executive Director of Exploration and Production, Royal Dutch Shell, advised several Shell employees that “[at] dinner last night [he] had the chance of prolonged conversation with Gale Norton … and [he] raised ICP [Shell’s In-Situ Conversion Process, which is Shell’s primary oil shale development technique].”

He wrote:

She was already a little aware that we had some plans there in Colorado and was interested – and given her role, and the fact that she is a long time Colorado resident, and given the imminent watershed decision we have to make, I gently probed her view as to the feasibility of being able to proceed in due course with larger scale projects (i.e. needing power generation, upgrading, multiple wells etc [sic]). I tried to give a flavour [sic] of some
of the challenges. I found her most constructive and helpful – and generally pretty positive – and would think she could be a formidable ally for us if we can get her really behind this project. I promised to follow up with a letter to her enclosing some additional information.

Two weeks later, on April 15, 2005, the CEO, Unconventional Resources (UR) of Shell, sent an email to various Shell employees in which he wrote:
A while back, [the Executive Director of Exploration and Production, Royal Dutch Shell,] had a chance meeting with Sec. Norton at some dinner in Europe, I believe. He chatted about SURE [Shell Exploration and Production Company Unconventional Resource Energy] and the ICP technology a bit. There will be a major decision made on SURE in July relative to the extent of further expenditures on the technology in Colorado. [He] would, personally, like to get a sense of the Secretary’s … appetite for and support of the initiatives in the oil shale sector. Accordingly, he would like to meet with her sometime in the next two months … Early next week I will draft a note for [him] to the Sec. (for his review) as a follow up to the dinner. In that note he will express a desire to further discuss Shell’s oil shale efforts.

On June 23, 2005, the Office of the Executive Secretariat, which administers the Secretary’s incoming and outgoing correspondence, received a document addressed to Secretary Norton

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from [the Executive Director of Exploration and Production, Royal Dutch Shell]. The document was a copy of the April 12, 2005 testimony that [the CEO, UR,] provided to the Senate Energy and Natural Resources Committee regarding oil shale. The copy contained a handwritten note stating, “Dear Secretary Norton, I have highlighted the parts of the testimony which I thought would most interest you. [Executive Director of Exploration and Production, Royal Dutch Shell]”. One section highlighted by the Shell Executive Director of Exploration and Production
stated:

Key to the early development of oil shale technology is early access to appropriate Federal oil shale deposits to allow for pilot field tests to be carried out. The leasing of tracts of federal land to encourage research and development is an essential next step.

He continued to mark sections of the testimony related to Shell’s technology and oil shale interest, including a paragraph on the recommendations directed to DOI. The paragraph marked
for the Secretary’s attention stated:

Shell believes that the Secretary of the Interior should develop a commercial oil shale leasing program on an expedited basis. We support the BLM’s proposed R&D leasing program as a small but important first step in the right direction. BLM should be urged to finalize and implement that program on an expedited basis.

Emails obtained from Shell indicate that the company did initiate the process to schedule a meeting between the Executive Director of Exploration and Production, Royal Dutch Shell, and Secretary Norton, but we could not determine if the meeting occurred.

3. Meeting: April 13, 2005, with DOI Staff
Attendees
DOI: Secretary Norton, David Bernhardt, Kathleen Clarke, Chad Calvert, Brian Waidmann, Abraham Haspel, SOL attorney, and a BLM senior advisor

On April 13, 2005, less than 2 months before BLM issued the Federal Register notice soliciting RDD applications, Norton attended a 1-hour briefing at DOI on oil shale.

The BLM senior advisor said he led this April 13, 2005 briefing and prepared the documents used during the briefing.

The SOL attorney said the April 13, 2005 briefing was one of only two or three meetings he had with the Secretary. He said that during the previous meetings, she was “very professional and very friendly,” but that he was particularly impressed during this meeting because Norton “took lots of notes” and seemed to “feel a responsibility for resolving the issues that were holding up the process.” According to the SOL attorney, the Secretary also asked good questions.

The BLM senior advisor told us that during this briefing, Norton asked him how much energy had to be used to produce oil shale in relation to the energy available from the finished product. He recalled he told Norton he did not know the answer to her question but would research it.

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