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U.S. Ending Oil-Royalty Program After Sex and Drugs Scandal Involving Shell

New York Times

Published: September 16, 2009

WASHINGTON — The Interior Department is ending the oil and gas royalty program that ignited a major scandal last year when it was revealed that federal employees had engaged in corruption, drug use and sexual misconduct with industry officials.

Mark Wilson/Getty Images

Interior Secretary Ken Salazar, shown here on Monday, said on Wednesday that his department is to phase out an oil and gas royalty program that ignited a major corruption scandal last year.

The Interior secretary, Ken Salazar, told a House committee on Wednesday morning that he was phasing out the royalty-in-kind program administered by the agency’s Minerals Management Service. The program allows oil companies to pay the government in oil and gas rather than in cash for the right to drill on federal lands. Recent audits have shown that the government failed to collect tens of millions of dollars in royalties owed under the program.

“Clearly, the department’s energy leasing and royalty programs have not been working as they should, and the American people have not been receiving the full benefits from these valuable assets,” Mr. Salazar said in testimony before the House Natural Resources Committee. “After a thorough review of the controversial royalty in kind program, I am today announcing a phased-in termination of the program and an orderly transition over time to a more transparent and accountable royalty collection program.”

According to the Government Accountability Office, the Minerals Management Service has done a poor job of tracking drilling revenue and assuring that compensation is paid to the government.

A G.A.O. report issued this week found that the royalty-in-kind program had failed to collect at least $21 million in fees last year. A separate report found that oil companies may have misreported drilling revenue and underpaid $160 million in royalties in 2006 and 2007.

Jack N. Gerard, president of the American Petroleum Institute, criticized the decision to kill the program.

“Terminating this straightforward method of handling royalty payments runs the risk of raising administrative costs and adding additional layers of paperwork required to determine the value of oil and gas production,” Mr. Gerard said in a statement.

Interior Department investigators charged last year that the Minerals Management Service was riddled with conflicts of interest, unprofessional behavior and ethical breaches.

The report from the department’s inspector general said officials in the royalty program had accepted gifts from energy companies whose value exceeded limits set by ethics rules — including golf, ski and paintball outings; meals and drinks; and tickets to concerts and sports events.

The investigation also concluded that several officials “frequently consumed alcohol at industry functions, had used cocaine and marijuana and had sexual relationships with oil and gas company representatives.”

Mr. Salazar announced on taking office in January that he would enforce strict new codes of ethics, and one of his first trips as secretary was to the Denver headquarters of the Minerals Management Service to emphasize the new policy.

NYT ARTICLE

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