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Interior Department Appeared To Give Shell Preferential Treatment -Report

DECEMBER 10, 2010

By Stephen Power and Siobhan Hughes

WASHINGTON (Dow Jones)–The federal agency that controls oil and natural gas production on U.S.-owned land “appeared to give preferential treatment” to Royal Dutch Shell PLC when the company was pursuing leases to drill on tracts of government-owned land in the western U.S. in 2005 and 2006, the acting inspector general of the Interior Department said in a report Friday.

The preferential treatment helped Shell obtain the leases and “disadvantaged” the company’s competitors, according to the acting inspector general’s report. But investigators say they found no evidence that Shell broke the law, and “no conclusive evidence” that then-Interior Secretary Gale Norton–who accepted a job with Shell several months after leaving her government post–broke federal conflict-of-interest laws.

Shell did not immediately respond to a request for comment. The Interior Department’s inspector general’s office had referred the matter to the Justice Department, which declined criminal prosecution, the report said. A Justice Department spokeswoman declined to comment. Interior spokespeople did not immediately respond to a request for comment. Norton, contacted through Shell, did not respond to a request for comment.

The findings appear to mark the end of a multi-year investigation by the inspector general’s office into Norton, who was interior secretary from 2001 until 2006 under then-President George W. Bush and a champion of expanding domestic production of petroleum.

In early 2006, Ms. Norton’s department awarded several tracts of federal land to Shell for shale exploration in the western U.S. Later that year, Ms. Norton joined Shell as an attorney specializing in unconventional oils. Two years later, the inspector general of the Interior Department opened an investigation into the lease sales, prompted by a complaint from a Utah entrepreneur who alleged several irregularities in the way the sale was handled by the U.S. Bureau of Land Management and that Norton’s hiring by Shell after the sale was not coincidental.

The entrepreneur wasn’t identified in the report, but the acting inspector general found that some of the entrepreneur’s allegations were correct. In a report published Friday, the acting inspector general, Mary Kendall, said Shell benefited from several “irregularities” in the way the leases were awarded. The company submitted three bids, all of which were successful, while other companies were told by employees of the U.S. Bureau of Land Management that they could only submit one bid, Kendall’s report said.

Also, two of Shell’s bids exceeded the maximum acreage amount allowed under the rules governing the lease sale. Nevertheless, BLM employees “changed those amounts so they would comply with” the rules, according to the report.

The BLM employees were not identified by name. The acting inspector general’s office did not respond to a request for comment.

The report also says that an unidentified BLM official provided Shell with “advance information” that allowed the company to submit a complete bid document to the agency on the same day that the agency published a notice soliciting application for the leases. Shell ultimately won three of six leases, giving the company access to “a considerable amount of federal oil shale with significant potential value,” the report said.

Norton attended meetings or was briefed on oil shale in 12 instances in 2005 and 2006, the report found. In one instance, two weeks after a briefing with Norton, a BLM senior advisor circulated a draft notice soliciting applications for shale leases and told employees to respond quickly as “the secretary wants this out as quickly as possible,” the report found.

The U.S. Office of Government Ethics ultimately concluded that Norton had “played a significant role” in the oil-shale program while secretary and said that her “participation in the program should subject her to the lifetime ban on communicating with the federal government regarding the program,” the report said.

The report also said that on two separate occasions after she had left the Interior Department, Norton “failed to fully describe her role in the leasing program to DOI ethics officials.” One Interior ethics official wrote Norton in an email that “the permanent ban might not apply based on your description of how you were involved in this issue while Secretary,” according to the report. The ethics official also asked Norton follow-up questions, but Norton “never responded,” the report said.

-By Stephen Power and Siobhan Hughes; (202) 862-6654; [email protected]


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