Thursday, Jan. 18, 2007 | 7:08 a.m.
A federal inspector general is expected to tell a Senate committee today that a high-ranking Interior Department official knew for years that her agency could lose billions from unpaid oil and gas drilling royalties, yet she did nothing about it.
According to a recent story by The New York Times, Johnnie M. Burton, director of the Interior Department's Minerals Management Service, is accused of ignoring a mistake written into 1998 and 1999 leases for companies that drill in the Gulf of Mexico. The error could result in the loss of about $10 billion in federal royalty payments over the next 10 years, the Times reported.
The offshore leases typically offer incentives to deepwater drillers by exempting them from paying royalties regardless of how high oil and gas prices climb. An escape clause is supposed to stop the exemption when oil prices rise above $34 a barrel. But 1,100 leases omitted that clause.
An Interior Department inspector general's report, which is to be presented to the Senate Energy Committee today, says that midlevel Interior Department managers were aware of the omission as early as 2000, but Interior officials did not mention the error or try to fix it until last year. The inspector general says that Burton, as head of the office in charge of managing the leases, knew - or should have known - about the error by 2004. The leases likely would have been easier to renegotiate in 2004, when oil prices were lower. Congress learned of the error last year and called for renegotiation. The companies have refused.
It seems odd that Bush administration officials would ignore an error that was made by the Clinton administration and resulted in billions of dollars of lost federal revenue. But it makes sense when fixing the mistake would have resulted in requiring payments from the oil and gas industry that President Bush has long favored. This is just another example of how this administration hasn't required industry to pay its way or play by the rules.
House Democrats are considering legislation that would prohibit new leases with companies that refuse to renegotiate the old, erroneous ones. If the committee agrees that Interior Department officials knew about the flawed leases and did nothing, they should be punished.
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