[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]
PART TWO: INTERIOR DEPARTMENT: A CULTURE OF MANAGEMENT IRRESPONSIBILITY
AND LACK OF ACCOUNTABILITY?
=======================================================================
HEARING
before the
COMMITTEE ON
GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
SECOND SESSION
__________
SEPTEMBER 14, 2006
__________
Serial No. 109-183
__________
Printed for the use of the Committee on Government Reform
Available via the World Wide Web: http://www.gpoaccess.gov/congress/
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http://www.house.gov/reform
______
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COMMITTEE ON GOVERNMENT REFORM
TOM DAVIS, Virginia, Chairman
CHRISTOPHER SHAYS, Connecticut HENRY A. WAXMAN, California
DAN BURTON, Indiana TOM LANTOS, California
ILEANA ROS-LEHTINEN, Florida MAJOR R. OWENS, New York
JOHN M. McHUGH, New York EDOLPHUS TOWNS, New York
JOHN L. MICA, Florida PAUL E. KANJORSKI, Pennsylvania
GIL GUTKNECHT, Minnesota CAROLYN B. MALONEY, New York
MARK E. SOUDER, Indiana ELIJAH E. CUMMINGS, Maryland
STEVEN C. LaTOURETTE, Ohio DENNIS J. KUCINICH, Ohio
TODD RUSSELL PLATTS, Pennsylvania DANNY K. DAVIS, Illinois
CHRIS CANNON, Utah WM. LACY CLAY, Missouri
JOHN J. DUNCAN, Jr., Tennessee DIANE E. WATSON, California
CANDICE S. MILLER, Michigan STEPHEN F. LYNCH, Massachusetts
MICHAEL R. TURNER, Ohio CHRIS VAN HOLLEN, Maryland
DARRELL E. ISSA, California LINDA T. SANCHEZ, California
JON C. PORTER, Nevada C.A. DUTCH RUPPERSBERGER, Maryland
KENNY MARCHANT, Texas BRIAN HIGGINS, New York
LYNN A. WESTMORELAND, Georgia ELEANOR HOLMES NORTON, District of
PATRICK T. McHENRY, North Carolina Columbia
CHARLES W. DENT, Pennsylvania ------
VIRGINIA FOXX, North Carolina BERNARD SANDERS, Vermont
JEAN SCHMIDT, Ohio (Independent)
BRIAN P. BILBRAY, California
David Marin, Staff Director
Lawrence Halloran, Deputy Staff Director
Benjamin Chance, Clerk
Michael Galindo, Clerk
Phil Barnett, Minority Chief of Staff/Chief Counsel
C O N T E N T S
----------
Page
Hearing held on September 14, 2006............................... 1
Statement of:
Scarlett, P. Lynn, Deputy Secretary, U.S. Department of the
Interior, accompanied by Johnnie Burton, Director, Minerals
Materials Management Service, U.S. Department of the
Interior................................................... 43
Letters, statements, etc., submitted for the record by:
Cummings, Hon. Elijah E., a Representative in Congress from
the State of Maryland, prepared statement of............... 37
Davis, Chairman Tom, a Representative in Congress from the
State of Virginia:
Prepared statement of.................................... 3
Prepared statement of POGO............................... 10
Issa, Hon. Darrell E., a Representative in Congress from the
State of California, prepared statement of................. 33
Maloney, Hon. Carolyn B., a Representative in Congress from
the State of New York, prepared statement of............... 18
Markey, Hon. Edward J., a Representative in Congress from the
State of Massachusetts, prepared statement of.............. 41
Scarlett, P. Lynn, Deputy Secretary, U.S. Department of the
Interior, prepared statement of............................ 47
Waxman, Hon. Henry A., a Representative in Congress from the
State of California, prepared statement of................. 7
PART TWO: INTERIOR DEPARTMENT: A CULTURE OF MANAGEMENT IRRESPONSIBILITY
AND LACK OF ACCOUNTABILITY?
----------
THURSDAY, SEPTEMBER 14, 2006,
House of Representatives,
Committee on Government Reform,
Washington, DC.
The committee met, pursuant to notice, at 10:30 a.m. in
room 2154, Rayburn House Office Building, Hon. Tom Davis
(chairman of the committee) presiding.
Present: Representatives Tom Davis, Waxman, Cummings, Davis
of Illinois, Duncan, Gutknecht, Bilbray, Mica, Issa, Kucinich,
Maloney, Norton, and Watson.
Also present: Representative Markey.
Staff present: David Marin, staff director; Larry Halloran,
deputy staff director; Keith Ausbrook, chief counsel; Anne
Marie Turner and Thomas Alexander, counsels; Michael Galindo
and Benjamin Chance, clerks; Leneal Scott, computer systems
manager; Larry Brady, subcommittee staff director; Phil
Barnett, minority staff director/chief counsel; Karen
Lightfoot, minority communications director/senior policy
advisor; Alexandra Teitz, minority counsel; Shaun Garrison,
minority professional staff member; Earley Green, minority
chief clerk; and Jean Gosa, minority assistant clerk.
Chairman Tom Davis. Good morning.
Yesterday, our Subcommittee on Energy and Resources held
its fourth hearing on natural gas royalties for the Federal
offshore leases. Inspector General Earl Devaney discussed why
price thresholds were omitted from deepwater leases in 1998 and
1999. Mr. Devaney also cited numerous times during his 7-year
tenure at the Department of examples of waste, fraud and abuses
uncovered by the Office of the Inspector General and
subsequently ignored by the Department.
During Mr. Devaney's testimony, we learned of the massive
departmental confusion surrounding the deepwater leases in 1998
and 1999. Not only were price thresholds omitted from deepwater
leases during those 2 years, those within the Department of
Interior aren't even clear on when the omission was discovered.
E-mails from 2000 show that upon the discovery, a decision was
made at the Associate Director level of the Minerals Management
Service to keep silent the omission, a silence that lasted for
another 5 years.
Despite the lack of managerial oversight, Devaney testified
that no one within the Department of the Interior has been
fired, suspended or reprimanded as a result of the multi-
billion dollar coverup. Unfortunately, as the Inspector General
found, the deepwater lease issue is not an exception at the
Department of the Interior. The OIG has issued countless
reports citing cases of ethics failures and ineffective
management and policies within the Department.
These failings permeate employee morale, as the Inspector
General's office found in 2004 that 46 percent of employees
within the Department believe that discipline was administered
fairly only sometimes, if ever. There are reasons to look on
the bright side. In May, Dirk Kempthorne took the reins. In the
4 shorts months of his tenure, Secretary Kempthorne has already
shown signs that the status quo at Interior is unacceptable.
Mr. Devaney testified that he met with Secretary Kempthorne on
the Secretary's first day regarding the OIG's work.
Additionally, the Secretary sent a memorandum to all
Interior employees instructing them to cooperate with the
Office of the Inspector General.
Will changes be implemented? It is too soon to tell. I
don't know. If the culture of waste, fraud and abuse continues
in the Department of Interior, it will never be able to wrap
its arms around the problems of deepwater leases. But I also
know that for changes to occur, they have to start from the top
down.
I have a personal connection with the Department of the
Interior. After serving as the Attorney General of Nebraska, my
grandfather moved to DC to become Solicitor for the Interior
Department. He subsequently went on to serve as the
Department's Under Secretary and Acting Secretary. It is my
grandfather's career at Interior that caused my family to move
from Nebraska to northern Virginia. This move ultimately
resulted in my career in the House of Representatives.
It is with deep disappointment that I hold this hearing
today, given my fond memories of the Department of the Interior
and the hard work of those in decades past. I know they would
also be disillusioned by the culture of waste, fraud and abuse
at the Department and would echo my call for immediate reforms.
I would now recognize our distinguished ranking member, Mr.
Waxman, for his opening statement.
[The prepared statement of Chairman Tom Davis follows:]
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Mr. Waxman. Thank you very much, Mr. Chairman.
Today, the committee has the opportunity to investigate
several important problems at the Department of Interior. This
shouldn't be the last of the series of hearings on what went
wrong in 1998 and 1999 for leases. It should be the first in a
series of hearings on how the Department of Interior is broken
and how we can fix it.
The majority has held four previous hearings investigating
who was responsible for the omission of price thresholds for
royalty relief in oil and gas drilling leases signed in 1998
and 1999. I think we all recognize this was a huge and
unacceptable mistake. Already the House has taken action to
correct this costly mistake. Earlier this year, the House
passed legislation barring the award of leases to any company
that refuses to renegotiate its leases to include price
thresholds for royalty relief. That is a powerful incentive for
companies to come to the table.
The Senate has included similar language in committee.
While these provisions were sponsored by Democrats, every
Member should insist that they be retained in the final
Interior appropriations bill.
Unfortunately, the 1998 and 1999 leases are only a small
part of what is wrong at the Department. What we really need to
focus on are the broader problems within Minerals Management
Service and the Department of Interior as a whole that allowed
this mistake and many, many others to happen. The Inspector
General testified yesterday that the underlying problems still
haven't been corrected. That is an invitation for future
failures and losses.
Since the late 1990's, 12 major oil companies have paid
over $400 million to settle lawsuits brought by private parties
alleging the companies had systematically cheated the
Government on royalties. Why were all these claims left to
private parties to initiate? Where was MMS? A Colorado oil
executive currently has 73 lawsuits pending against more than
300 energy companies. He is accusing them of cheating the
Government out of roughly $30 billion in royalties. If they
have merit, MMS should be pursuing these claims.
And the problem isn't just that MMS is failing to act. MMS
may actually be collaborating with the oil industry to
discourage MMS's own auditors from recovering money owed to the
Government. A former senior MMS auditor sued Kerr-McGee for $12
million in unpaid royalties after MMS refused to pursue the
claim. MMS fired that auditor a few weeks later.
Another senior auditor fired by MMS alleges that under the
Bush administration, agency managers pressured him not to
collect on unpaid royalties when oil and gas companies
complained. State and tribal auditors are protesting MMS
pressure on them to scale back their auditing efforts in favor
of more superficial compliance reviews which won't reveal
deliberate cheating. This looks like an agency that has been
captured by the industry it is supposed to oversee, with the
American taxpayers footing the bill.
I have been disappointed by the refusal thus far to hear
from witnesses on these allegations. I hope that Chairman Davis
and Chairman Issa will reconsider and investigate these issues.
The Interior IG's explosive testimony yesterday highlights even
greater problems at the very highest levels of the Interior
Department. Inspector General Devaney stated that ``ethics
failures on the part of senior Department officials, taking the
form of appearances of impropriety, favortism and bias, have
been routinely dismissed with the promise not to do it again.''
And he described how the former Secretary of Interior refused
to hold high-level officials accountable for their misdeeds.
This committee has the responsibility to investigate
Government misconduct. We should not ignore what Inspector
General Devaney said yesterday. There are serious problems at
the top of the Department of Interior, and we have an
obligation to investigate these matters and hold officials
accountable for ethical lapses.
In closing, I want to thank the chairman for holding
today's hearing and request unanimous consent to insert into
the record testimony from the Project on Government Oversight,
which details some of the issues I have raised today.
[The prepared statement of Hon. Henry A. Waxman follows:]
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Chairman Tom Davis. We will include the POGO's comments in
the record.
[The information referred to follows:]
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Chairman Tom Davis. Mrs. Maloney.
Mrs. Maloney. I want to thank the chairman for holding this
very, very important hearing at a time when we have an $8
trillion debt, soaring deficits, the largest trade deficit in
history, to find out that we are missing billions and billions
of dollars that are owed to the American taxpayers for oil
extracted from land that is owned by the American people is
inexcusable. It is wrong and we have to correct it.
Yesterday's hearing was tremendously disturbing. The
Department of Interior's Inspector General, Mr. Devaney,
testified that at the top levels of the agency, widespread
ethics failures and abuses, cronyism, have become commonplace.
This is absolutely unacceptable. He testified that at the
Interior Department's Office of Ethics, they dismissed 23 out
of 25 potential ethical breaches, and then he noted that he
found that investigators had missed millions of dollars in
underpayments. His office uncovered evidence that agency
auditors had lost key files, then tried to fool investigators
by forging and back-dating the missing documents. He noted that
the agency gave a bonus to the official who came up with the
false papers.
I find this outrageous. I request unanimous consent to
place in the record two articles on MMS and the Interior
Department from my hometown newspaper, the New York Times, and
also on the huge royalties that Chevron is avoiding.
Mr. Davis. Without objection, the articles will be placed
in the record.
Mrs. Maloney. I just want to say that MMS, as Mr. Waxman
just said, they seem to be captured by the industry they are
supposed to oversee. I had someone call me last night, Mr.
Chairman, and say it is a revolving door, that half the people
who work at MMS are from the oil industries. I don't know if
that is true or not, but I would like to join you in a GAO
report request to find out is it a revolving door. I would like
to look at how many people presently and in the past have been
put there by the oil industry, because they certainly are not
serving Government. They are not serving ethics. They are not
serving what they are supposed to be doing.
The allegations that have been made are absolutely almost
criminal. What I would like to know, and I find it difficult
because I am supposed to be chairing or be ranking member at
another meeting for the Democrats right now, but I want to
know, and this is a question I want to know and I want to place
it in writing. I will come back and hopefully have a chance to
ask more question.
But I want to know why since 2001, there has been a plunge
in the royalty money collected from these companies. This has
been found from the auditing and compliance review. How do you
explain the differences in the average from 1989 through 2001
at $176 million per year? And from 2002 through 2005, when it
has been less than $50 million? How do you drop so much?
Something is wrong. MMS is not doing its job. I
specifically would like that question answered. I will get it
to you in writing. It is based on auditing that I have read.
I just want to add that the Government Accountability
Office estimates that because price thresholds were not
included in the deepwater leases from 1998 and 1999, the
Government, that is the American taxpayers, will lose
approximately $10 billion in revenue. The GAO further estimates
that the Government could lose as much as $60 billion over the
next 25 years if the Kerr-McGee Corp. wins its lawsuit
challenging the price thresholds set on its leases from 1996,
1997 and 2000.
At a hearing that Mr. Issa had earlier in July, we learned
from witnesses, from Chevron, that they had raised the issue of
the missing price thresholds with officials from MMS on several
occasions in 1998 and 1999, that for some reasons these
officials took no action. We have to look into what happened
there.
These ``mistakes'' have cost the American taxpayers
literally billions and billions of dollars. We as a Government
cannot afford these types of errors. We must ensure that this
never happens again. Personally, I believe the whole Department
should be abolished and the whole oversight should be moved out
of Interior to a different, independent department or some
other place in Government because clearly they cannot get it
right. This is just one of a long series of serious mistakes,
possibly criminal actions, that have taken place where the
American taxpayer has not been protected, and been abused on
oil extracted from land owned by the American people.
I look forward to the testimonies. Thank you, Mr. Chairman.
[The prepared statement of Hon. Carolyn B. Maloney
follows:]
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Chairman Tom Davis. Thank you.
Mr. Kucinich.
Mr. Kucinich. All across this country, the American people
have been aware of the power of the oil companies. Over this
past summer, however, they were able to squeeze consumers by
raising the price of gasoline far over $3 per gallon. What is
reflected here is that the Government has stood back while the
oil companies have continued to aggregate, monopolize the
restraint of trade necessarily has produced market conditions
which have put a squeeze on the consumers, jacked up the price
of oil, and people are basically at the mercy of the oil
companies which are now anticipating the elections, trying to
protect some of their friends, putting the price of oil down a
little bit.
You can look at this picture and you could find 100 things
wrong with it. Let me just talk about a few of them. It is
absolutely impossible to imagine that this condition could have
been created without the oil companies being intimately
involved in the construction of the system which resulted in
them being able to basically steal $10 billion from the
American people in terms of royalties which were not paid. I
think it would be interesting for this committee to know who
actually wrote the leases, and each iteration of a lease.
Government attorneys or industry attorneys handing it over to
the Government? It would be very interesting to find out.
Also, I think that this committee in its work ought to come
to a conclusion that says that these leases should be canceled
and renegotiated. I mean, obviously, there is an element of
either fraud or misfeasance here. That is something that needs
to be done in order to protect the public interest.
Furthermore, action ought to be taken by this Government,
if it is capable of doing it, to sue to recover at least $10
billion that was due the American people and not paid for.
Furthermore, there should be a criminal investigation of those
individuals who are responsible for overseeing the contracts.
We can't just leave this to some idea of a ``mistake.'' How is
it that mistakes are made and the oil industry ends up with $10
billion more? That is a mistake? A mistake?
If there was ever a call for a new energy policy, this is
it. If we had invested a fraction of the amount of money that
the American people have been deprived of here, and alternative
energies, we would be less reliant on oil and wouldn't be in a
situation where the oil companies are actively trying to cheat
the Government out of royalties that are due to the American
people.
So Mr. Chairman, I am glad to see us reviewing this leasing
process. There is a line in the Bible that says that which is
crooked cannot be made straight. Nothing is going to be made
straight about this energy policy until we start to move away
from non-renewable sources of energy to more sustainable
sources.
Thank you, Mr. Chairman.
Chairman Tom Davis. Thank you.
Mr. Duncan.
Mr. Duncan. Well, Mr. Chairman, very briefly, thank you for
calling this hearing. This is a very important matter.
You know, ever since I started following Government and
political issues closely as a teenager, over all these years I
have read so many examples of waste, fraud and abuse and
mismanagement at the Federal level that you almost just get
immune to it, so that almost nothing surprises us anymore.
After so many years of reading and hearing about these
types of things, you begin to wonder if the Federal Government
can do anything in an economic, efficient way. People aren't
held accountable for big mistakes. They don't even get worried
about since it is not coming out of their own pockets, so we
hear about mistakes all the time that, if they happened in the
private sector, people would be fired and major changes would
be made.
But when I read, as I read in the Congressional Quarterly
Today publication that came to us this morning, that the
Inspector General of the Energy Department testified yesterday,
saying that he ``conceded he has no evidence that the mistake
over the royalties was anything more than classic bureaucratic
bungling, with a process that required plenty of signatures,
but no individual to assume final responsibility.''
And then in another companion article, it says that
Chairman Davis said it was unacceptable that the bungled leases
failed to surface for 5 years. And it also says that nearly 30
people signed off on all this. I mean, this is one of the worst
cases I think I have ever heard of. I am just stunned.
If we end up just letting this go by excusing it as classic
bureaucratic bungling, then we have accepted something that we
shouldn't accept.
So I appreciate your holding this hearing and I hope that
we determine or arrive at some really strong action to take in
regard to this.
Thank you very much.
Chairman Tom Davis. Thank you.
I would ask unanimous consent that Mr. Markey be allowed to
sit in on today's hearing. Without objection, so ordered.
Ms. Watson.
Ms. Watson. I want to thank the chairman for convening this
hearing. The Subcommittee on Energy and Natural Resources,
which I am the ranking member, has held four hearings on this
subject. So I am really pleased to see the Deputy Secretary of
Interior and the Director of Minerals Management here in
attendance. This should be a very informative session to
finally start talking about how to fix the errors and the
larger issues the Inspector General identified at yesterday's
subcommittee hearing.
I was unfortunately unable to attend yesterday's hearing,
and we know of the major problems. Several of the oil companies
were at the previous hearings and are ready to work with us to
address the errors.
I am particularly incensed when we know that in the year
2005 oil companies registered over $110 billion in profits and
oil prices are now close to $70 a barrel. This is the only
industry here whose made those types of profits. And so our
Government has given the oil companies tremendous benefits, and
not to pay back in terms of the contractual agreement the kinds
of sums that should have come to the U.S. Government is just
unthinkable.
So this problem still persists today. The American consumer
is suffering and continues to suffer. We can't have these kinds
of profits without some responsibility on the part of our
Government to follow through. The errors that occurred during
1998 and 1999 could cost our Government an estimated $20
billion within the next 25 years. This should not be happening,
but it is not the only problems at the Minerals Management
Service and the Department of Interior.
We have a duty as Congress to the American taxpayer. One of
our duties is not to allow these companies to misuse public
assets, and we must protect American people's money. So the
House had passed the Hinchey amendment to fix this problem in
the Interior appropriations bill, and I hope that my colleagues
will support this provision in the final bill that will come in
front of us soon.
This committee has heard much about larger problems at the
Department of Interior over the many hearings, and we have an
obligation to investigate them, certainly our subcommittee has.
So I want to thank the Chair again, and I want to thank the
witnesses for being willing to come and address this problem.
Thank you so much, Mr. Chairman.
Chairman Tom Davis. Thank you very much.
Mr. Issa.
Mr. Issa. Thank you, Mr. Chairman.
Chairman Tom Davis. You started all this.
Mr. Issa. Thank you, Mr. Chairman.
I am very pleased that our subcommittee has been able to
move this discovery along, and thank you and Ranking Member
Waxman for holding this important hearing today on the Interior
Department's culture of managerial irresponsibility and lack of
accountability. I also want to thank the witnesses for taking
time to appear here before the full committee.
Over the past 7 months, the Subcommittee on Energy and
Resources has conducted an investigation of the Interior
Department and the Minerals Management Service. I sought to
find out how and why the thresholds were missing in deepwater
leases in 1998 and 1999. I conducted four hearings at which
Interior Department employees and oil company officials
testified. These witnesses shed a great deal of light on the
issue and to a great extent the culture of the Interior
Department. I believe that is what we are here for today.
I would again like to thank Chevron and its staff for their
candor before the subcommittee. It was in fact their testimony
that was a breakthrough in our discovery. Yesterday, we heard
testimony from the Interior Department's Inspector General,
Earl Devaney. He detailed the results of his own investigations
into the missing price threshold issue. The fact that the
thresholds were missing for 2 years was only the beginning of
the problem. The central issue from yesterday's hearing was the
coverup. I would paraphrase him by saying, the multiple D's:
delay, denial. That is in fact part of the culture that not
only are there mistakes made, but there is inherently a pattern
of coverup.
Department employees discovered the missing price
thresholds apparently through oil company executives telling
them, in 2000. Some e-mails even authenticated the fact that
there was that discovery. Some personnel even told their
executives and made changes on their own. Yet, the Department
made an affirmative decision not to notify their superiors. Had
they notified their superiors and amended the contracts at no
cost to the oil companies, because the price thresholds at that
time were low, we would have no reason for this investigation.
Instead, they allowed the problem to fester and become a $10
billion-plus wound. As Mr. Devaney said, this was but an
example of the bureaucratic bungling and stovepiping of
responsibility.
We are here today to discuss the bigger issue. There
appears to be a culture of irresponsibility, unaccountability
that pervades the entire Department. Officials are here from
the Interior Department today. I regret, however, that the
Secretary is not. I would hope, very much hope, that we would
soon have the ultimate responsible cabinet officer here.
Make no mistake: The American people are watching today.
The Interior Department owes the American people a fiduciary
duty to them and holds this Nation's valuable resources in
trust for the American people. The Department has let them down
and they have not accepted, and the American people will not
accept, the wink and the nod of, well, that was just a mistake.
Mr. Chairman, I want to thank you for this. I look forward
to our witnesses, but I hope that my opening statement has set
a bipartisan tenor that this is something that has gone on
before this President and if we don't change it here and over
the next several years, it will go on after this
administration.
With that, I yield back.
[The prepared statement of Hon. Darrell E. Issa follows:]
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Chairman Tom Davis. Thank you very much.
The gentleman from Baltimore.
Mr. Cummings. Thank you very much, Mr. Chairman.
I, too, thank you for holding this vitally important
hearing to examine reports of mismanagement in the way the
Department of Interior's Minerals Management Service [MMS],
collects royalties from oil companies that drill on public
property.
As you know, MMS is the Federal agency that is charged with
ensuring that all moneys derived from mineral leasing and
production activities on Federal and Indian lands are collected
properly, accounted for, and distributed. This is no small
task. Federal on-shore and off-shore mineral leases generate
almost $6 billion annually, comprising one of the Federal
Government's largest sources of non-tax income.
This revenue supports a vast array of essential Government
functions providing 90 percent of funding for the Land and
Water Conservation Fund and 100 percent of funding for the
National Historic Preservation Fund. It also generates millions
of dollars for individual States. My home State of Maryland,
for example, in fiscal year 2002 received $195.9 million. On
average, States received about $200 million annually.
Additionally, agency collections from off-shore leases
called Outer-Continental Shelf [OCS], lands, play a significant
role in our Nation's energy picture. OCS lands provide more
than 25 percent of the natural gas and 30 percent of the oil
produced in the United States. In total, MMS administers about
7,300 active leases on 40 million acres of the OCS.
Given the important of the MMS royalty collection program,
the need for it to run as effectively and efficiently as
possible is abundantly clear. Unfortunately, recent reports
indicate that goal has not been achieved and that mismanagement
and waste are prevalent.
In this morning's New York Times, Interior Department
Inspector General Earl Devaney is quoted from his testimony at
the hearing of the Subcommittee on Energy as saying ``Simply
stated, short of crime, anything goes at the highest levels of
the Department of the Interior.'' I find it troubling that
MMS's mismanagement is reportedly costing taxpayers millions of
dollars or even billions of dollars.
Equally troubling are reports that MMS leadership has
reacted with hostility when employees have the courage to blow
the whistle on the problems that exist. Specifically, in 2003,
two MMS auditors who were reportedly among the agency's most
successful and aggressive, were fired. Others report that MMS
management pressured auditors not to pursue companies that
cheat on royalties. As a long-time advocate for the rights of
whistleblowers, I find these reports to be deeply troubling and
shocking to the conscience.
Pressure for reform has been applied through media
publicity, investigations by the Office of Inspector General,
as well as hearing of the Subcommittee on Energy Resources. I
look forward to hearing from today's witnesses on how MMS has
responded to that pressure. In May, Dr. Kempthorne was
appointed as the new Secretary of the Interior. I look forward
to hearing what his response to these reports has been and
whether he has begun to implement the reforms that are
necessary to turn the agency around.
I want to thank our witnesses for being here today, and I
look forward to hearing your testimony.
[The prepared statement of Hon. Elijah E. Cummings
follows:]
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Chairman Tom Davis. Mr. Markey, would you like to make an
opening statement? Thanks for being with us.
Mr. Markey. Thank you, Mr. Chairman. I very much appreciate
your graciousness in allowing me to testify here today.
As you know, the Department of Interior admitted market-
based price thresholds for the suspension of royalty relief on
leases issued in the late 1990's in the Gulf of Mexico. I am
here today to remind my colleagues that the House of
Representatives has already acted on a bipartisan basis to fix
this problem when it passed the Hinchey-Markey amendment last
May.
As long as we protect the House language in the Interior
appropriations bill, and pass that bill this fall, we will head
off yet another glaring subsidy to companies which already have
incentives, and more than they have ever dreamed of, in the
spectactularly high world oil prices of today.
This past May 18, just 3 months ago, a bipartisan majority
of the House voted 252-165 for the amendment which Mr. Hinchey
and I proposed on the House floor. Despite the controversy
surrounding the issue, the House recognized that this amendment
threaded the legislative needle by neither abrogating existing
contracts nor ignoring a public rip-off. It does so by giving
every affected company a simple choice: either renegotiate the
old royalty-free leases or accept the fact that your company
will be barred from any future leases from the Federal
Government.
The amendment creates strong incentives for those companies
to renegotiate at a time when oil prices are high and oil
companies are making record profits, but will leave current
contracts unamended if the company chooses not to renegotiate.
The Senate has subsequently included similar language in their
version of the bill.
The recently reported discovery of the new reserves in the
so-called Jack Field in the Gulf of Mexico, estimated by
Chevron to be between 3 million and 15 million barrels of oil,
has further highlighted the need to take immediate action to
correct those leases. This week, as we know, the New York Times
reported that Chevron and its partners hold six leases in the
new Jack Field, two of which would allow the companies to avoid
royalties on as much as 87.5 million barrels of oil per lease.
The Times estimated that those leases alone could result in the
loss of as much as $1.5 billion in unpaid royalties at $70 a
barrel.
However, the Bush administration and the oil companies have
been fighting the amendment, which has now passed the House and
the Senate. The oil industry has offered a number of arguments
against our amendment, each of which has been demonstrated to
be completely false. For example, the oil industry has argued
that our amendment would violate the sanctity of the contracts
in question and force an abrogation of those contracts.
However, the Congressional Research Service clearly stated
in a memo dated May 18, 2006 ``enactment of this amendment
would not constitute a taking of existing leaseholders' rights,
but would merely establish a new qualification for potential
lessees. It has long been recognized that the Government has
broad discretion in determining those firms with which it will
enter into contractual agreements.''
The oil industry has also argued that blocking a large
number of companies from purchasing new leases would hinder
production. However, our amendment provides companies that
still desire to purchase new leases with a simple solution:
renegotiate their old leases to add a price threshold that cuts
off royalty relief whenever prices get high.
However, the administration and the Department of Interior
have opposed the amendment, seeking instead to attempt to
cajole oil companies to voluntarily come back to the table to
renegotiate. I will be sending a letter again, with Mr.
Hinchey, to Secretary Kempthorne and other sponsors of the
amendment urging the Department of Interior to immediately
support the amendment. We must ensure that all oil companies
holding these leases renegotiate, not just the small percentage
that are feeling particularly generous and public spirited,
leaving the bad actors in a position to take unfair advantage.
Our amendment is a very simple way to correct these leases
and recover the billions of dollars which American taxpayers
stand to lose in the coming decades, that received strong
bipartisan support in Congress. With gas prices hovering still
between $2.50 and $3 a gallon, the American people are again
watching today to see if the administration, the Department of
Interior, will again side with big oil over the American
people. It is time for big oil companies to pay their fair
share to drill on public land, and I urge Secretary Kempthorne
and the Interior Department to immediately come out in support
of the Hinchey-Markey amendment now pending before the House
and Senate.
I thank you, Mr. Chairman.
[The prepared statement of Hon. Edward J. Markey follows:]
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Chairman Tom Davis. Thank you very much, Mr. Markey.
Members will have 7 days to submit opening statements for
the record. We are now going to get to our panel. We have the
Honorable P. Lynn Scarlett, the Deputy Secretary of the
Department of the Interior, and the Honorable Johnnie Burton,
the Director of the Minerals Materials Management Service,
Department of Interior. Thanks for your patience.
I understand you have one statement for the two of you. We
will give you whatever time you need. It is our policy that
witnesses be sworn before you testify, so if you could just
rise with me and raise your right hands.
[Witnesses sworn.]
Mr. Davis. Thank you.
All right, who is going to give the statement? OK, Ms.
Scarlett. Thanks for being with us.
STATEMENT OF P. LYNN SCARLETT, DEPUTY SECRETARY, U.S.
DEPARTMENT OF THE INTERIOR, ACCOMPANIED BY JOHNNIE BURTON,
DIRECTOR, MINERALS MATERIALS MANAGEMENT SERVICE, U.S.
DEPARTMENT OF THE INTERIOR
Ms. Scarlett. Thank you, Mr. Chairman and members of the
committee. Thank you for the opportunity to discuss the lack of
price thresholds for the 1998 and 1999 leases in the deepwater
of the Gulf of Mexico.
The committee has also asked that I address issues raised
in testimony by our Inspector General regarding the
Department's ethics, accountability and management. With me
today, as you have noted, is Johnnie Burton, Director of the
Minerals Management Service, who also served, I might add, as
Acting Assistant Secretary of the Land and Minerals Management.
On behalf of the 70,000 employees of the Department of the
Interior, let me say that I believe the Department's employees,
both senior managers and their staff, are dedicated public
servants. They put their lives at risk fighting wildland fires
to save communities. They perform extraordinary search and
rescue missions, including round-the-clock efforts after
Hurricane Katrina. Often when I come to work I find senior
managers and their staff in the budget and finance offices
working 12, even 14 hours a day and on weekends.
They are dedicated to the Department's multifaceted mission
and to serving the American people. Our senior leaders share
that dedication.
From his comments, there appear to be disagreements over
recommendations that the Inspector General has made and
subsequent decisions of the Department regarding those
recommendations. Let me underscore that we take extremely
seriously any and all instances in which we find waste, fraud,
ethical violations, and other inappropriate actions. We strive
to address these matters consistent with statutory authorities,
available resources, and requirements to treat employees fairly
and through due process.
Secretary Kempthorne underscored during his very first day
at the Department his unwavering and unequivocal commitment to
maintaining an ethical, accountable and effective work force in
service to the American public. We are dedicated to fulfilling
that expectation.
Over the past 5 years, I believe our record is one of
significant management improvements and commitment to integrity
in the Department. We recognize that each day brings new
challenges and requires renewed vigilance. We remain today, as
in the past, committed to that vigilance.
Let me turn first to the matter of off-shore leases and the
missing price thresholds in the 1998 and 1999 leases that
occurred under the previous administration. Royalty incentives
were established in the Deepwater Royalty Relief Act passed by
the Congress in 1995 to encourage development of new supplies
of energy by promoting investment, particularly in high-cost,
high-risk areas.
Deepwater leases issued by the Minerals Management Service
in 1996, 1997 and 2000, after the enactment of the act,
included price thresholds. Leases in the 1998 and 1999 leases
during the previous administration did not. All deepwater
leases issued since March 15, 2000 do include price thresholds
that eliminate royalty relief when oil and gas prices are high.
At today's prices, royalties are due on any production from
these leases. Every lease issued in this program under this
administration includes price thresholds.
The Inspector General's investigative report may shed more
light on the timing and awareness by all relevant individuals
of the actions taken in 1998 and 1999. We look forward, as you
do, to that report.
Under our supervision, the situation that occurred in 1998
and 1999 has not happened again, and we are working to make
certain that it will not happen during any future
administration. Currently, under new practices that we have
invoked, each proposed and final notice of sale and associated
royalty suspension provisions document now receive detailed
review and scrutiny to ensure completeness and accuracy,
especially from a price-threshold perspective.
The Minerals Management Service has formalized a process of
conducting all reviews in writing through the use of e-mails
and places paper copies of those e-mails in its official lease
sale file as a record of these reviews and decisions. As
Secretary Kempthorne recently told Chairman Davis, the
Department has no interest in hindering in any way the
investigation into this matter, which occurred under the
previous administration and which we look forward to receiving
the IG's report on.
We believe we have in place a system today under which the
events of 1998 and 1999 would not occur. If there are
recommended improvements that we have not yet made, we
certainly and absolutely will consider them. The Inspector
General's testimony uses the 1998 and 1999 royalty relief issue
as a context to raise broader assertions about the Department
of the Interior and its management culture. The Department
takes seriously any matters in which accountability and
integrity of employees and the Department are questioned.
We strive to address these matters consistent with specific
circumstances and in accordance with the law. We take seriously
recommendations identified in audits. Let me give you some
examples. Consider financial management. In 2001, we inherited
170 material weaknesses in program or financial controls. Since
that time, four new weaknesses have been identified, but we
have corrected or downgraded 170 weaknesses. In addition to
financial audits, we record all management and other
recommendations generated by Interior's Office of the Inspector
General, and we track those actions to address those
recommendations. We strive to address these recommendations
issued by the Office of the Inspector General.
Recently, when the Inspector General raised to me
personally concerns whether corrective actions were being fully
completed to address his office's findings, I immediately asked
the department's Office of Financial Management, which tracks
those recommendations, to provide a status of them for those
recommendations issued in 2004 and 2005, and to work with the
IG to reconcile any differences.
Many issues raised by the Inspector General pertain to
ethics. When Secretary Norton assumed office in 2001, the
Inspector General reported to her the results of a 1999
management assessment of the ethics program. Subsequent to
that, and in consultation with the Office of Government Ethics,
the department made significant changes to its ethics program.
A new director of the departmental ethics office was selected
and the office was moved to the Office of the Solicitor.
During this administration's tenure, the department's
ethics office has grown in stature from being an office
centered on narrow delivery of service to individual employee
questions, to a broader mission of ensuring soundness of all
bureau ethics programs and departmental initiatives. Under the
leadership of Secretary Kempthorne, the Department continues to
strengthen these efforts to meet the highest standards of
ethical conduct.
Among Secretary Kempthorne's very first actions on day one
in the department was a meeting with the ethics office and with
our Inspector General. Over the past 5 years, I and other
senior department leaders, have met regularly with the IG and
have advanced many management improvements based on his reports
and our own initiative.
For example, in 2002 the Inspector General found fault with
the Department's appraisal methodology for land transactions.
The Department concluded that significant restructuring was
necessary and consolidated the appraisal functions performed by
bureaus in a new departmental office, responding to criticisms
that have endured previously for some 50 years. The new unified
Office of Appraisal Services enhances consistency and
efficiency, and guards against conflict of interest problems.
Among matters of particular interest to the Inspector
General are those pertaining to conduct and discipline. We take
seriously workplace infractions and inappropriate conduct. The
Inspector General has noted a perception by employees that a
significant amount of misconduct is not being reported, and
that discipline is administered inconsistently and unfairly in
the department. We take these findings very seriously and have
prepared a comprehensive action plan to address the Inspector
General's recommendations. With a large and dispersed work
force, we know that we must constantly strive for and we are
dedicated to that effort.
We are also committed to maintaining an efficient work
force that operates with integrity. For example, the Interior
Department has created a detailed policy regarding Government-
issued credit cards. We have put system controls on all
accounts, require training for all card-holding officials and
established reports to monitor activity.
We have a process in place to refer suspicious activity to
the Inspector General. We have created account controls by
placing authority and spending limits on accounts. The
department's charge-card management team also worked with a
bank to create a series of electronic reports that help us
identify potential misuse, manage delinquency and track
spending.
When problems are identified, the Department takes the
appropriate action, including removing employees from Federal
service. I believe that our overall record has yielded
significant management improvements that benefit the American
public. In an organization with the size and reach of the
Interior Department, indeed a size that rivals that of a small
city, unanticipated and unacceptable decisions and actions may
sometimes occur. We take those actions seriously and take
actions to address them.
I would be happy to answer any questions you might have at
this time.
[The prepared statement of Ms. Scarlett follows:]
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Chairman Tom Davis. Thank you very much.
In your written testimony, you state the price thresholds
are discretionary for deepwater leases. If this is the case,
what legal review occurred with the 1998 and 1999 deepwater
leases? What I am asking is were there attorneys at Interior
who analyzed the leases themselves to determine whether the
Secretary had exercised his discretionary authority to include
price thresholds? Or if the Secretary had deliberately decided
not do to so?
Ms. Scarlett. Mr. Chairman, I will ask Johnnie Burton, the
Director of Minerals Management Service, to answer the detailed
questions about the 1998 and 1999 leases.
Chairman Tom Davis. That is fine.
Ms. Burton. Thank you, Mr. Chairman.
We are not sure what happened. We did look at it, and we
arrived at some conclusions, but because we could not actually
be sure what happened in 1998 and 1999, this is why we asked
the Inspector General to run an investigation and tell us what
he could find. We don't have his report yet, but I can tell you
what we saw from our perspective.
What we did see was in 1995, Congress passed a Deepwater
Royalty Act and it had to be amended right away. There was an
interim rule that was put together where the price threshold
had to be determined. That takes quite a bit for the Economics
Division to arrive at the proper level, and so they had decided
at that time in 1996, shortly after the bill was passed, to put
the price threshold in an addendum to the lease. By the way,
someone asked who writes the lease. The lease is a form we get
from OMB. We don't write it. This is a standard Government
form.
So if we have very specific provisions for that lease,
which is the case for royalty rate, for a cap on what is
acceptable as a bid, for rental, etc., we put that in an
addendum to the lease. So in 1996, it was put in an addendum to
the lease prior to the rule, but as the rule was being
developed, it also was placed there in 1997.
By early 1998, January 1998, the rule was final. The rule
was issued. Now, this is all conjecture on our part, but what
we can see is that in 1998 when the rule was issued, there were
no thresholds in the rule. The staff had been used to putting
the threshold in the lease. However, when the rule became
final, that same staff assumed that the threshold would be in
the rule because it had been discussed. What they didn't know
is that the associate director of the off-shore program had
made the decision not to have the threshold in the rule, but
continue having it in the lease. And there was, so far as we
can tell, miscommunication between those two units.
What I wanted to know is whether or not that
miscommunication was intentional or not. This is why I asked
the Inspector General to run an investigation. He has kept me
apprised.
Chairman Tom Davis. We had him up here yesterday.
Ms. Burton. So you know he has not finalized it.
Chairman Tom Davis. A critical question that this just begs
is whether the Secretary at the time intended not to exercise
his authority to include the thresholds. Do we know the answer
to that?
Ms. Burton. We do not, sir. I don't know what Secretary
Babbitt decided at that time.
Chairman Tom Davis. OK. We have the IG report coming and we
are going to be doing more on that. You are present now at
lease negotiations, aren't you?
Ms. Burton. Yes, sir.
Chairman Tom Davis. Would you have been in a better
negotiating position had you renegotiated the leases when the
missing price thresholds were discovered in 2000?
Ms. Burton. I am not sure I can answer that question, sir.
I don't know what the previous directors did.
Chairman Tom Davis. Let me ask you this. Would we have been
in a better position had we disclosed these problems in 2000
instead of hiding them for 5 years?
Ms. Burton. I suppose we could have been in a better
position if they had realized what mistake had been made. It
seems to me that when they realized it in 2000, I don't know
how they handled it. Did they think it was a mistake? Was that
done by the Secretary? I don't know.
Chairman Tom Davis. Can you give me the status? Mr. Markey
raised this in his comments. Mr. Issa has raised it. What is
the status now of negotiations with oil companies concerning
the lease price thresholds? They came before the subcommittee
under oath and, oh yes, we will renegotiate. What is the status
right now? Can you give us a broad status?
Ms. Burton. Yes, sir. I have been contacted either by
phone, by letter, or in person by roughly 20 companies. I think
I have personally spoken, I mean, they came to the department
maybe about 10 of them. We have developed an agreement, a
standard agreement for them to come to attach to their share of
the lease. They are thinking about it, and we are still talking
to them, so we are right in the middle of the discussions.
Chairman Tom Davis. Does this include all the companies? I
mean, some of these have leases that aren't producing anything.
Some have leases that are producing a lot. Does this include
everybody? Is there anybody who isn't coming to the table?
Ms. Burton. Out of 55 companies, we had about 20 that
contacted us. Now, what I don't know at this point is whether
the others that did not contact us, whether their leases have
been relinquished, whether they have expired, so I don't know.
Chairman Tom Davis. We need an inventory of all these
leases, who is renegotiating, when they expire, and that will
give us a pretty quick line, and then Congress can decide if we
need to take action. We may not be able to come back and look
at the current leases, but we have power over future leases and
other things we can do.
I just think it is just, with the price of oil having gone
up so significantly, and the companies making record profits
and so on, that this is an appropriate time for them to show
some faith and give back a little bit for the royalties and the
omissions in the earlier leases. We can exhaust it ad infinitum
today, but what we need is a chart showing the status of this,
who is talking, who isn't talking, and then we will work with
you I think to completion.
Ms. Burton. And you might be interested, Mr. Chairman, in
knowing that about 17 of those leases are producing today.
Roughly 27 have indication of discoveries, but we don't know
whether they are producible or not, and nothing has happened on
the others. Over 400 have already been turned back into the
pool, which means they will be released.
Chairman Tom Davis. And all the new ones, of course, you
have priced thresholds in?
Ms. Burton. Oh, yes, sir. And we have thresholds on all of
them since 2000.
Chairman Tom Davis. I would note there is an ongoing IG
investigation on the Oregon issue, and GAO is doing an in-depth
review of raw data and assumptions in the MMS revenue
projection, so hopefully we can all work together to get to the
bottom of this. This literally is millions of dollars for the
Federal treasury, literally, so we are trying to get this
resolved as quickly as possible.
Mr. Waxman.
Mr. Waxman. Thank you, Mr. Chairman.
Yesterday, the Inspector General for the Department of
Interior, Mr. Devaney, issued a scathing indictment of senior
officials in charge of the department. He discussed ethics
failures on the part of senior department officials. He
discussed department leaders' refusal to take any action
against those officials or to change the ethical culture of the
department. He discussed how top Interior officials disregard
the IG's findings, responding to serious allegations by trying
to discredit or undermine his office's work. He discussed the
ongoing evasive and corrosive nature of these problems and how
they are destroying the morale of agency employees and the
trust of the American people.
Ms. Scarlett, in your testimony, you say you disagree with
the IG's characterization of your department. Let's take his
concerns about ethics failures in high-level officials. What
has the department done in response to specific incidents
raised by the Inspector General?
Ms. Scarlett. Yes, thank you, Congressman. I meet regularly
with the IG every week or every other week. We go through
various of his recommendations and vigorously strive to
implement them as fully as we can. While I can't talk in this
public setting about the specific personnel matters which seem
to be at the root of some of his comments yesterday, concern
about recommendations made on the disposition of investigations
of individuals, I will say, for example, that in one recent
instance where he investigated various people associated with a
programmatic failure and recommended actions on eight
individuals, three of the individuals actually left the
department before we had an opportunity to act, but in the
other cases we took actions on all five.
Mr. Waxman. Let me ask you this. You say you can't discuss
some of these matters because they are personnel matters and
are not public. But the Inspector General thought some of the
conduct was so egregious that it was appropriate to make the
matter public so the names and violations are already out
there. Are you trying to tell us that you can't publicly
discuss the department's response to some of these public
allegations?
Ms. Scarlett. I am not aware in his testimony that he
addressed specific individuals.
Mr. Waxman. Well, let me tell you about specific cases. For
example, in November 2005, the IG released a report on the
tragic death of a 16 year old at the Chemawa Indian Boarding
School. The IG found that the inaction on the part of senior
officials was a significant factor in the death, and he
recommended administrative sanctions. According to the IG,
there was a historical pattern of inaction and disregard for
human health and safety at this Government facility. He pointed
to senior officials in the Bureau of Indian Affairs who were
repeatedly told of these problems, but failed to take action
that might have prevented this death, as well as the
endangerment of countless other students. Was anyone fired in
that incident?
Ms. Scarlett. That is the specific incident actually that I
was referring to. In that particular instance, there were eight
individuals that were identified. As I noted, several left
before the report was completed, and we took action in the
instance of the other five. We proposed dismissal actions. As
you are aware, through due process requirements, employees have
an opportunity to appeal, and through that process some
alterations in the ultimate disposition occurred, but we
believe we followed through on the IG's actions as appropriate.
Mr. Waxman. So none of them were actually fired because
they asked for their due process rights, and then you had a
plea agreement with them?
Ms. Scarlett. I believe that there were some
recommendations for dismissal, but I would have to go back and
check specifically.
Mr. Waxman. Was anybody suspended without pay?
Ms. Scarlett. I would have to check on that specific
matter.
Mr. Waxman. Anyone demoted?
Ms. Scarlett. Again, as I said, we took action on all
eight, including recommendations for dismissal. I would have to
go back and see the specifics of how many were either dismissed
and/or demoted.
Mr. Waxman. Well, it is curious that you knew about this
specific incident, but aren't prepared to give us the facts of
it. A girl died and there were no real consequences. I think
the IG's concerns about the Department's lack of response are
pretty compelling.
Let me ask you about another example. Earlier this year----
Ms. Scarlett. Congressman, I have it right in front of me.
Specifically, discipline actions were proposed on five of the
eight employees named in the IG report. In the other three
cases, no actions could be taken because the subject employees
no longer worked for the Bureau of Indian Affairs. Indian
Affairs proposed the removal of two other supervisory employees
in addition to those listed as culpable in the IG report. After
the appeal period, one was exonerated and the second was
removed. So that is the detail of that specific case.
Mr. Waxman. So one was actually fired, successfully?
Ms. Scarlett. No, sir. I said five of the eight had actions
taken against them. Of the two supervisory, one was found not
culpable and one was dismissed. The details of the five others,
I would have to find, sir, specifically the actions.
Mr. Waxman. Well, my time is up, so perhaps you could put
it into the record. I would like to know what actions were
actually taken in the incident.
Ms. Scarlett. We will do that for you.
Mr. Waxman. Thank you.
Mr. Issa [presiding]. Thank you, Mr. Waxman.
I am sure we are going to need a second round here. This is
informative for us, and I hope you will understand that we
share in the responsibility. I don't think on this side of the
dais, anyone is implying that your failures aren't also the
failures of our oversight committee, of the laws and rules and
regulations, even the process for terminating employees.
On one question, though, on those eight employees, as far
as you know, all of those employees would be eligible to work
in the Federal Government today? None of them are barred from
starting somewhere else and continuing their Federal career.
The ones who quit, the ones who had reprimands, even the one
who was fired can basically go somewhere else and be back in
the Federal system in a substantially similar role. Isn't that
true?
Ms. Scarlett. Sir, I don't know the details of that. In
response to Congressman Waxman's larger question, we will add
that response as well.
Mr. Issa. I appreciate that, because that may be part of
our oversight we need to change.
Director Burton, in what year did you learn of the failure
of these price thresholds to be in the contracts?
Ms. Burton. In 2006.
Mr. Issa. OK. So basically you were one of those high-
ranking executives that never got the word because it was
sequestered at a lower level. Is that correct?
Ms. Burton. I am not sure I would phrase it that way, sir.
I think I would say that I didn't know about it because I
arrived at the department in 2002, which was 4 years after this
happened.
Mr. Issa. And 2 years after the discovery had been made
that they were missing, at lower levels.
Ms. Burton. But the people that knew about it were no
longer at the Department.
Mr. Issa. Your Solicitor, Milo Mason, is at the Department
today, madam.
Ms. Burton. Yes, he is. He doesn't work for me. He works
for the Solicitor. I did not review all the contracts that were
issued before I arrived at the Department and there was no
reason for me to ask of those specific years. I had no idea
something was wrong with them.
Mr. Issa. Isn't it true that, based on what the IG told us
yesterday, that there were three people who were suspected of
knowing it? There was testimony that one of the three had been
told. My understanding is one of the individuals made a sworn
statement, took a polygraph and passed it, saying I am not the
one who knew. One made a sworn statement and refused to take a
polygraph, and one refused to make a sworn statement and
refused to take a polygraph. Aren't all three of those
individuals, as far as you know, still working, and in this
case, they are under your side of this problem?
Ms. Burton. I do not know who they are.
Mr. Issa. We will get you the names.
Ms. Burton. I found out about this by reading the IG's
testimony yesterday, but I don't know who they are. I assume if
he said they are still working there, they are.
Mr. Issa. This is one of my concerns, is that they continue
to be in a position. This is something for our committee to
look at, I am sure, as much as you. When somebody refuses to
make a sworn statement before this committee, we don't let them
testify. To be honest, as far as we are concerned, they
shouldn't work any longer for the Federal Government if they
are not willing to tell the truth under oath.
It appears as though that is not the case, under current
rules of some of your fiduciaries that you deal with every day
that have these responsibilities.
Mr. Bilbray. Will the gentleman yield?
Mr. Issa. Yes.
Mr. Bilbray. It is not that they just refuse to testify.
They are at the epicenter of the coverup.
Mr. Issa. Absolutely.
Mr. Bilbray. They are at the epicenter of the coverup. They
fingered three people. One did testify, not only under oath,
but took a lie detector. One testified, but wouldn't take a lie
detector, and one refuses to do anything. I think the
astounding thing to all of us on both sides here is we have a
multi-billion mistake, albeit it was made before your watch,
but nobody has been fired. Nobody has been reprimanded.
Mr. Issa. I will give you just two of the names. We are
going to get the third one for you, but Marshall Rose and Larry
Slaznick. Do you recognize those names?
Ms. Burton. Marshall Rose, certainly. He is the chief of
the Economics Division. The other person, sir?
Mr. Issa. Larry Slaznick.
Ms. Burton. Slavsky.
Mr. Issa. Slavsky, yes.
Ms. Burton. OK.
Mr. Issa. We will get you the third name. We are concerned
because when there is that kind of clout, and I am only talking
about the two who refused to take a polygraph, and certainly
the one who refused to even give a sworn statement. I would
have a hard time, and I have different rules for my employees,
but I would have a hard time allowing somebody to be in that
kind of position of trust when they basically say, oh no, I am
not going to take a statement for which I could be held to a
perjury standard. I can understand that. I just can't
understand them still working for me in those positions of
trust.
I realize you don't have the ability to terminate Milo
Mason, but I am very concerned about something that the
Secretary said. I am sorry, that Director Burton said, you said
that a Deputy Director made the decision not to put it into the
regulations. What was the name of that Deputy Director?
Ms. Burton. The only thing I know, sir, is that I read a
letter that was written, I think in 2001, by a lady named
Carlita Colauer, who was there before I was there, so I don't
know her, but she was Associate Director for OffShore. There is
a paragraph in her letter that says that the decision was made
not to put the threshold in the rule, to preserve flexibility
to follow the market, so something to that effect. I am
paraphrasing because I don't know the exact.
Mr. Issa. OK. We would like to have that letter.
Ms. Burton. Sir, it was sent to you.
Mr. Issa. OK. We would like to have a copy of it so we can
compare it with the stack of papers, because it appears as
though we are, and I will tell you specifically that Milo Mason
did not under oath, was not able to give us the name of
somebody who said that this wasn't to be included. Just the
opposite, he talked in terms of policy as though policy
preempted the orders of the Congress. He wasn't able to give us
the names. He talked in terms of, and to be honest, this is,
Madam Secretary, why your statement that you have made reforms
doesn't work.
The Solicitor today is still basically telling us when he
testified here that you walk down the hall and you tap somebody
on the shoulder and you ask them for a legal opinion, they give
it to you, and you record nothing in writing. That is what was
said here. I am paraphrasing, but that is what was said here.
No, there are no e-mails. No, there are no memorandums of
record. No, we don't keep paper on it. That is part of our
problem at this committee. When we ask for a paper trail or
something from the fiduciary, the lawyer who works for the U.S.
Government, for the people of America, says, no, as a matter of
course, we don't keep the paper.
So that is our challenge, is that is not corrected as of
testimony before my subcommittee just a matter of about a month
ago, with Congresswoman Watson who, since my time is up, I am
going to grab a second round, but I very much want her to ask
her questions because we have worked on this together hand in
hand. I am going to close just by reminding you, from this
Member's perspective, this is not about the oil. It is not
about the money. It is about the trust of the American people
in the agency that you operate.
We will work with you hand in hand to recover substantially
all of the money that might otherwise have been lost in
whatever way necessary, working within contract sanctity, with
the oil companies. That is a promise from this person, and I
have a better than average chance of being reelected, so I
expect to be here. But we have to move beyond the question of
the money on both sides of the aisle. This is about you leaving
the agency that you are responsible for, and the entire
Department of Interior as a place in which people can be proud,
that coverups don't happen, that when a problem occurs, a
mistake happens, it is quickly rectified.
With that, I would yield to the gentlelady from California,
Ms. Watson.
Ms. Watson. Mr. Chairman, I just want to thank you for
identifying the issue. You remember we had that conversation
several weeks ago. We got on it. We have had four hearings.
What is confounding me is that this goes back 8 years. Why have
we not corrected this and addressed this issue? And why have we
not been able to recap those dollars that belong to the public?
I just can't understand why this bureaucracy cannot resolve
this issue and get the money back. Can one of you respond? What
is the inertia there?
Ms. Scarlett. Congresswoman, I believe we are responding.
There are several issues that you allude to. First, all
leases----
Ms. Watson. Wait a minute. Would you address the 8 years
that it has taken to come to today, please?
Ms. Scarlett. Yes, that is exactly what I intend to do.
As soon as it was discovered that the 1998 and 1999 leases
had no price thresholds in them, all subsequent price leases
have included, since 2000, price thresholds. So that part of
the issue, as soon as it was illuminated, has been rectified.
All leases that we now undertake do address that.
With respect to any renegotiation of the past leases, we do
not have authority in a mandatory way to do that. But what we
did do as soon as we, again, found that those 1998 and 1999
leases had no price thresholds, we began to appeal for the
companies to come in and discuss with us renegotiation of those
leases. That process, as Johnnie Burton described, is underway.
So those are the two issues.
Ms. Watson. Again, let me ask about that, because in our
last hearing I was very pleased that at least one of the large
oil companies did step forward. I mentioned it after their
testimony. If several of the companies are willing to start
sitting down and negotiating, what is your perspective on the
time it would take? It just seems to me irresponsible that it
has taken so long. We know the issue. We hear it over and over,
every time we have had a hearing, the same thing.
I am getting a little tired of it. Tell us when we can
resolve this?
Ms. Scarlett. I appreciate the concern. Let me say that we
are actively at the table discussing renegotiation of the
leases as we speak. Because we are doing this in a voluntary
context, it is a back and forth, and I cannot give you a
precise date. We are actively in those negotiations. I will
turn to Johnnie to give you more detail.
I will also underscore that when the 1998 and 1999 lease
issue came to our attention, which was, as Johnnie Burton said,
just in 2006, we immediately asked for an IG investigation so
that we could understand what went wrong and rectify or remedy
the processes that led to that.
Ms. Watson. Let me just stop you. We know all that. We have
heard it over and over again. I am wondering why the
administration is opposing giving Congress, or giving you the
right to leverage, to be able to renegotiate? Where is the
inertia? Who is stopping you? Why is it that the witnesses
would not come and testify? What do you think?
Ms. Scarlett. Well, we are actively renegotiating on a
voluntary basis those leases. The administration has
significant concerns, and indeed sent up a statement of
administration position opposing mandatory renegotiation.
Ms. Watson. Hold on. Why do you think they have done that?
Ms. Scarlett. I am about to describe the justification for
that. These contracts, like all contracts, reside at the
bedrock of a reliable Federal Government as they enter into,
whether it be a contract to supply weaponry equipment, whatever
it might be. It is very important that we uphold the sanctity
of those contracts so that the Federal Government and its word
when it signs a contract can be relied upon.
Now, we are very actively engaged in voluntary
negotiations.
Ms. Watson. Yield, please, on that point, the sanctity of
these negotiations. Explain what you mean.
Ms. Scarlett. No, I said, the negotiations. Of the contract
itself, a contract is a written and signed agreement, and it is
extraordinarily important because those contracts are part of
many, many, many other contracts that the Federal Government
makes. As a reliable business partner, anybody who enters into
any future contracts with us has some sense of security that
contract in fact will be honored.
Ms. Watson. Yield, please. On that issue, we are talking
about 1998 and 1999.
Ms. Scarlett. And on the 1998 and 1999 leases, we are
actively working on renegotiating on a voluntary basis those
leases.
Ms. Watson. Yes, Johnnie.
Ms. Burton. May I add something, Congresswoman? As I said,
I have been talking to several companies. I didn't want to give
any names because when you are in negotiation, it is not always
smart to do that. However, I know one of the companies is very
close to signing an agreement, and that is Shell Oil. They are
one of the major owners of leases offshore. The lawyers are now
finalizing the agreement. So we are working on it.
The reason it takes so long is because it is such a complex
type of contract that has many partners in it. So the companies
have to check with their, you know, they have to worry about
their shareholders. They have to worry about their partners,
etc.
Ms. Watson. I need to ask the Chair a question.
Chairman Tom Davis [presiding]. Sure.
Ms. Watson. Does the renegotiation void old contracts?
Would not the old contract apply? We just want to be back----
Chairman Tom Davis. Well, the old contract is law. That was
the underlying law that governs at this point. Should they
renegotiate and reach a new agreement, of course, that would
abrogate the old agreement. There is no legal obligation to do
that. There are certain incentives that either we or Interior
can offer them.
Plus, I think the light that shines on this can be a great
disinfectant on this whole thing, and bring them back to the
table. I mean, they are making record profits at this point, if
they have a loophole in here that they claim under oath here
they didn't intend, that this didn't come from them. So
hopefully, they are in good faith.
Did you want to add anything to that, Ms. Burton?
Ms. Burton. I think you are absolutely right, Mr. Chairman.
We are not renegotiating the contract. We are having a separate
agreement that will be attached to that contract, and the
agreement will be that the company agrees to come back under
the threshold and pay royalties.
Ms. Watson. Yes, what I understand, and I can be corrected
on this, the Markey legislation would say, well, if you don't
want to renegotiate, then you shouldn't get a new contract.
Chairman Tom Davis. That is right, but current contracts
would stay in effect. What we are working on right now is
trying to look at the current contracts and come back. The oil
companies, many of them have expressed a willingness to do
this. So that is why I asked where it was. That is why I have
asked for the chart.
Before I proceed, I just want to share my grave concern
that we have employees who may or may not have made the
mistake, either in the original negotiations or in the coverup.
But people make mistakes, OK? I make mistakes. I know Mr. Issa,
I don't know if you do, but the rest of us, I mean, we make
mistakes.
The key here is it is done, but what we are trying to find
out is what happened and get information. If an employee who
has been fingered as being part of that mistake then refuses to
give a statement under oath or to take a lie detector test,
that is a grave concern to us. I understand their lawyers are
probably telling them a lot of different things, but at the end
of the day we have to be able to govern accordingly. We have to
have employees to fess up, then we can move on, that's all, and
somebody can be fired.
Somebody who refuses to cooperate in investigating a
coverup, that is a major, major problem that I think may be
systemic throughout the Department, and may not be just to
these leases.
All right. We are ready for a second round. I will start
with you, Mr. Issa, and then I have more questions.
Ms. Issa. Thank you. I will just pick up where we left off.
I appreciate this, Mr. Chairman.
Just a quick statement. From my recollection, some of the
oil companies who were most willing to renegotiate explained to
us, and Ms. Watson probably will remember this as I say it,
that they have in fact entered into some negotiations where
these thresholds not being there meant that their partner in
the actual drilling or in some other aspect, had a contractual
expectation of receiving money from dollar-one that envisioned
not having a 12.5 percent payment to us.
So I certainly can understand why it is complex, that they
have to either get their partners onboard or in some cases I
imagine, I don't want you to disclose your negotiations, but I
would imagine they maybe saying we can't give you a royalty on
the part that we have already given away to a sub, but we will
pay you on everything else. I can understand that. When we make
a contract that is faulty, they may have in good faith, up
until 2000, we could have just said, look, it is faulty; let's
fix it.
Unfortunately, we reiterated in a sense that they were good
with those contracts for a number of years. They relied on, oh,
it's OK to act on those contracts the way they are, looking
back. That is why we are having this investigation now, it is
that in 2000, when it was discovered, nobody said, oops, we are
going to have to renegotiate that; we are going to have to
figure out a way.
Because as a businessman, 20 years in business, when it
would have cost me nothing, and I am on the board of a public
company, when it would have cost the company nothing other than
a hypothetical what if, because the price threshold hadn't been
met, it would have been easy to say, oh, we always thought it
was; let's correct it. I am not even sure it would have come to
a public company's board to make those corrections.
I can imagine in no uncertain terms that every public
company's board is dealing with this personally on every one of
these leases. There is no chance under Sarbanes-Oxley that the
board is not figuring out who is going to sue them for settling
with us, which I do expect that some lawyer will sue these
companies for giving in to the Government the 12.5 percent that
they really do owe.
I have a couple of questions. First of all, the third name,
so you have it, is Dan Henry.
Ms. Burton. That doesn't ring a bell. I am sorry.
Mr. Issa. Well, that is the third name, from our records,
of the three that we are dealing with. I think publicly we will
not say which ones took and didn't take, but obviously there is
one good, one mediocre, and one bad out of that crowd, in our
view.
I want to go back to the policy question, though. This
letter, which I checked with my staff, I am sure we received
it, but in the pile we did not pick out that one paragraph, and
we now want to focus on that paragraph, of that letter. If an
associate at some level, upper-management, but certainly not in
1996 and 1997, 1998, 1999, the Secretary of the Interior, said
that was policy. If I understand correctly, at that level, you
don't make policy. Policy comes from the top down. Is that
correct?
Ms. Burton. Associate directors are really upper-
management. They usually run their policy calls to the
director. If it is a substantial policy call, it is run up
through the Secretary. At least that is the way we work now.
Mr. Issa. Exactly. So in light of what we see today and how
you work today, the idea of not putting something in that
clearly Congress said we want to have these price thresholds,
we want to empower you to have them, but basically saying you
get a free ride, period, no matter where the price went, at
least potentially in the rulemaking, that policy could well
have gone to Secretary Babbitt at the time. Is that right?
Ms. Burton. Yes.
Mr. Issa. So we need to find out where that policy came
from, and that is why it is helpful if we can have this
associate director's name, which we will get out of it. To be
honest, we now want to continue up and find out where that
policy decision was made.
Ms. Burton. Mr. Congressman, we have not been able to trace
it beyond that letter. That is the only thing we found.
Mr. Issa. Is that person still alive?
Ms. Burton. No.
Mr. Issa. Oh.
Ms. Burton. She wrote that letter to a company in response
to a company complaining that we, the Government, Department of
Interior, did not have the right to put thresholds in. She
answered saying they are not in the rule because we made the
decision not to have them in the rule. They would be in the
leases, but the Secretary has the discretion to decide what the
thresholds will be and whether there will be any.
Mr. Issa. Was that Kerr-McGee that sent the letter?
Ms. Burton. No, but it was the same issue. It was before
Kerr-McGee, and this was another company.
Mr. Issa. OK.
Thank you, Mr. Chairman.
Chairman Tom Davis. Thank you very much.
Mr. Markey.
Mr. Markey. Thank you, Mr. Chairman, very much.
Ms. Scarlett, I have a list of the 56 companies that hold
576 leases let in 1998 and 1999 that remain active. Which of
these 56 companies are the 20 that you say have actually
responded to your letter inviting them to renegotiate?
Ms. Scarlett. Yes, I will turn to Johnnie for that, who has
been actively discussing with those companies that issue.
Ms. Burton. Congressman, I think I was asked by another
member to provide, and by the chairman, to provide a matrix of
all those companies and where we stand.
Mr. Markey. We have asked for that, but if you can answer
that.
Ms. Burton. Off the top of my head, I can give you some
names, but I know I am going to leave some out.
Mr. Markey. Let's move down to the next level. Which of the
20 who have responded favorably so far, of the 20 who did
respond, how many of them have responded favorably to you? Yes,
they will renegotiate?
Ms. Burton. I know Shell Oil is ready to sign. That is
Shell. BP is close behind. I can't really tell you because the
others we are still talking. I don't know how close they are.
It is difficult when you are negotiating.
Mr. Markey. I understand. But you are saying that, who are
the 10 of the nearly 10 that have actually met with you on
scheduled meetings? Do you have those off the top of your head?
Ms. Burton. I can give you some names, but I am not sure
that it is appropriate to give you names when I am still
negotiating with them. They may walk away. I don't know.
Mr. Markey. I guess what I am trying to get at here, there
are 56 companies altogether, and they range from A, Amerada
Hess, to W, Woodside Energy. So you have 56 companies, 20 have
responded, 10 have met with you, and what you have said so far,
2 it sounds like, are renegotiating with you, out of 56.
Ms. Burton. We are talking to nearly 20. We have been
contacted by nearly 20 companies. We are talking to about 10.
Mr. Markey. Yes, so less than half have responded, and of
those so far you are only able to name two who are
renegotiating.
Ms. Burton. The only reason I named two is because I know
these two companies have told me I could say it. The others
have not given me that permission, and because I am
negotiating----
Mr. Markey. Well, tell me, how many other companies are
renegotiating, without giving their names? Are actually
renegotiating, how many others?
Ms. Burton. Those 10 are at the table.
Mr. Markey. Are all negotiating?
Ms. Burton. Yes.
Mr. Markey. OK. So one-fifth of the companies are
renegotiating, and I guess you could say 10 out of 56, maybe 1
out of 5 ain't bad in some realms of life, but here when you
are talking about potentially billions of dollars of taxpayers'
money, if all they recover is 1 in 5, that would not be a good
situation.
So I guess what, in response to a question from Chairman
Davis, you said right now 17 of the leases that lacked priced
thresholds are producing today, and an additional 27 leases
have indications of oil or natural gas being present, meaning
that they could start producing soon. How many of these 44
leases have been renegotiated to include price thresholds?
Ms. Burton. I am sorry. I am not sure I understood your
question. You want to know how many have been renegotiated?
Well, none. We are talking right now.
Mr. Markey. Exactly. OK.
Ms. Burton. You know, some of the folks we are talking to
hold a good deal of those leases, so it depends on who we are
going to reach an agreement with that may cover more or less of
the production in the leases. They don't have exactly the same
amounts.
Mr. Issa. Would the gentleman yield?
Mr. Markey. I would be glad to yield.
Mr. Issa. Would you give us an estimate of the 700 leases,
because you said 400 of the 1,100 were turned back in, of the
700 leases, these 10 companies roughly, how big a part of those
700 leases do they represent? A substantial portion,
disproportionate perhaps for the total number?
Ms. Burton. It is probably a fairly good amount of the
leases are represented by those. The ones that have been
relinquished obviously are no longer in play. The companies we
are dealing with are most likely the ones holding the leases
that are still active, or most of them active, but I can't give
you a number at this point.
Mr. Markey. I thank the gentleman.
So we are looking at 1998 and 1999. We are trying to find
out what went wrong, and that is very important to us, to find
out what went wrong. Now, you have less than 20 percent of
these oil companies who are negotiating with you. So my
question to you, Ms. Scarlett, is why does the Department of
Interior and the Bush administration continue to object to the
Markey-Hinchey amendment, to give you the leverage you need to
get every one of these companies to the table, so that you can
provide the relief?
I mean, there was a big mistake that was made. We have to
get to the bottom of that. But you also need a solution. What I
am hearing today is I don't hear a solution. I hear something
that is very nice, but without the leverage that the Government
would need in order to bring them all to the table.
Why do you continue to object to this language that was
passed in a bipartisan manner in the House and in the Senate?
Ms. Scarlett. Congressman, let me first underscore a point
that Congressman Issa made and that Johnnie Burton was making.
While there are 55 companies and 20 of them have come forward
to us and we are actively discussing with 10 of them, that does
not represent 1 in 5 of the actual production activity.
We believe that the companies we are negotiating with, of
the active leases still covered by the absence of price
thresholds, that we have likely the majority of production. So
this constitutes significant progress if we successfully
renegotiate these leases.
Mr. Markey. I think that is the key phrase: If you
successfully conclude negotiations. So what I am asking you is,
why don't you want this additional leverage? That will help
your negotiating position. It won't affect any of these
companies since they are going to reach an agreement with you
anyway. Why do you object to getting this extra leverage?
Otherwise, these negotiations could go on for years before you
actually resolve it.
You don't have any guarantee that you are going to reach a
deal with any of these companies. In fact, it is very likely
they are trying to run out the legislative clock this year so
that this bill doesn't pass. They stop it, and then they just
drag it on for another 2 years. Why don't you want the
leverage? What is it about the Bush administration's
relationship with oil companies that stops you from saying,
give us the leverage to correct this huge injustice against the
American taxpayer?
Ms. Scarlett. Congressman, I appreciate your concerns. We
are actively renegotiating the leases. We believe we will be
successful.
Mr. Markey. Why are you objecting to this additional
leverage? Why don't you want it?
Ms. Scarlett. We do have concerns, as indicated in the
statement of administration policy, about any actions that
would in a mandatory fashion either directly undermine
contracts. We think the honoring of contracts itself is an
important bedrock principle of law.
Mr. Markey. Again, let me just re-state it one more time.
This does not change any existing contract. It only deals with
future contracts. OK? You keep saying that this is going to
deal with the reliability of existing contracts. It does not.
This amendment only says that you now have the discretion in
future contracts as to which companies you are going to deal
with. Why don't you want that leverage?
Chairman Tom Davis. I think you have asked, and I think she
has given the answer she is going to give, but I appreciate the
question. The gentleman's time has expired.
Your testimony describes common tensions between
centralized control of the bureaus and their mission-specific
needs. That is something the IG has dwelt on. Would a more
centralized control at Interior be beneficial to managing the
department's programs?
Ms. Scarlett. As I indicated in my written testimony, the
tension in any large organization between deciding how much
centralization and how much decentralization is a constant and
common management challenge.
Chairman Tom Davis. It is. But look, at Interior you have
had problems on the Indians in terms of Indian recognition
rights. This has been well documented. You have had problems
here. I mean, it just looks to me like there needs to be adult
supervision across the board here. Am I missing something?
Ms. Scarlett. Congressman, we have many, many, many
different programs, some of them very specific to particular
statutes and particular missions. We have taken steps to
centralize those activities where we believe the activity would
benefit from that kind of coordination. Specifically, through
25 recommendations made by our Inspector General, we actually
created a centralized department Office of Law Enforcement and
Security to bring common practices and procedures for all of
our law enforcement entities within the department, which
number some close to 4,000.
I did not the appraisal services, which used to be
distributed throughout our bureaus. We centralized that into a
single office. Likewise, with our information technology, we
have done significant centralization of purchasing and
management, again to address some of the IT security issues
that have been noted.
So we are looking at specific management problems and
taking that management tack, whether it be centralization or
strengthened coordination, that seems appropriate to the task
at hand.
Chairman Tom Davis. I believe we have expressed the
concerns in terms of what has happened. We haven't really
satisfactorily explained the coverup. Ms. Burton, when did you
first learn about this? You came in 2002, right?
Ms. Burton. I came in 2002, and I heard about those 2 years
with no threshold in early 2006, maybe at the very end of 2005.
Chairman Tom Davis. Did you ask why it took so long to come
up to you through the ranks?
Ms. Burton. I don't think the ranks realized that they
needed to tell me about it. This was an issue that happened
previously, and they felt the Secretary, it was not an illegal
issue.
Chairman Tom Davis. No, but it cost Americans billions of
dollars.
Ms. Burton. Absolutely.
Chairman Tom Davis. And let me just say this, on something
like this as you go through a review, to me it is incredible
that someone wouldn't have brought this to the attention.
Evidently, they brought it to the New York Times before they
brought it up through the ranks. Maybe they felt they couldn't
do it with the current department structure.
Ms. Burton. Oh, no.
Ms. Tom Davis. Well, tell me about it. The earlier you
learn about this, the earlier you can renegotiate. In fact, if
we were renegotiating in 2004 instead of 2006 before the oil
prices came up, think of the billions of dollars that we would
have gotten.
I also want to add, for Mr. Markey, we have asked for a
chart in terms of all of the different leases, which ones are
actively being drilled, which ones aren't, and we will be happy
to share that with you when we get it, and then have an idea of
whose negotiating, just to try to get some handle on this.
I guess the concern is ordinarily we would say that the
department do what it will, but in this particular case,
obviously, without I think additional congressional oversight,
a lot of this would not have been done, without the increased
scrutiny.
It is difficult for us to get up here and have to make
tough choices over money for school lunch programs, over money
for student loans, over money for additional transportation,
just by the way, because someone somewhere within the
Department of Interior decided they didn't want to have price
thresholds on this thing and billions of dollars are now out
the window. That is the concern. I think we would not be doing
our job if we weren't here asking the questions.
To me, the fact that some of the employees involved in this
won't at least come forward and talk about what happened so
that we can figure out and make it quit from happening again.
And then what Mr. Markey is talking about is if you can't get
these leases renegotiated, I think Congress is going to have to
re-think, House and Senate, in terms of putting pressure on
these companies to do something else.
If you come forward and you renegotiate the leases without
Mr. Markey's amendment, that is great. I mean, I think we can
preserve the contract integrity and everything else. But if you
are unsuccessful, believe me, with this much money on the
table, I think the legislation may be even more to your un-
liking, because this is just a lot of money. Do you understand
what I am saying?
Ms. Burton. I certainly do, Mr. Chairman. We share your
concern, believe me.
Chairman Tom Davis. Ms. Burton, look, we are both aware
that GAO is conducting an in-depth review of the royalty
revenue projections and the loss of royalties as a result of
the 1998 and 1999 mistakes. GAO is doing that. The projections
you have made are based upon raw data and assumptions provided
to GAO. My understanding is that an initial read of those data
and assumptions probably does not bode well for the department.
You tell me today that you are going to do whatever is
necessary so the American people get what is owed to them in
this course, because these resources at the end of the day,
these are the American people's resources. Will you tell me you
will do everything you can to try to get this right?
Ms. Burton. Absolutely, sir. And we are working hard on it,
and we appreciate your help to get there.
Chairman Tom Davis. OK. Thank you.
We have another round. Mr. Markey.
Mr. Markey. I thank the chairman very much.
Again, I just want to zero in on this issue. We have to
look to discover whether or not there was a coverup. But we
also have to make sure that we don't have an ongoing stick-up
of the American taxpayers. We have to solve this and solve it
now. The Department of Interior only began this process under
pressure from the Congress. This had sat there as an issue for
years.
So I remain perplexed at the reluctance of the
administration to accept this leverage, which the Congressional
Research Service makes quite clear does not violate in any way
the contract and would serve as the answer to the question
which you have in terms of this problem. Let me read to you
again on this issue. The Congressional Research Services says
this on May 18th: ``As we stated in our telephone conversation
of May 17, there do not appear to be any constitutional
impediments to the proposed amendment. Enactment of this
amendment would not constitute a taking of existing
leaseholders rights, but would merely establish a new
qualification for potential leases. It has long been recognized
that the Government has broad discretion in determining those
firms with which it will deal.''
Again, I continue to hear your objection to receiving this
leverage, while I don't hear from you any agreed-upon deals
with any of these oil companies. From a taxpayer's perspective,
I just think that it is irresponsible to refuse to support the
additional leverage which would enhance the likelihood that
these oil companies would come to the table, so that you can
protect the taxpayers.
It just seems inexplicable from a public interest
perspective that you would oppose having this additional
leverage, because the oil companies are still in a situation
where they only have to voluntarily come in, knowing that a
terrible deal was cut back in the 1990's. I still haven't heard
a good explanation from you why you don't want to do that.
Ms. Burton. Congressman, we agree this is not a taking.
What it is is a strong leverage, as you call it, to essentially
change the terms of a contract in order to continue business in
this country. And this administration feels that this goes to
the heart of the sanctity of contracts.
Mr. Markey. Again, I just read to you from the
Congressional Research Service.
Ms. Burton. You are talking about two things, sir.
Chairman Tom Davis. This is a policy call. I mean, their
policy call is, as I understand it, is the inequality of
bargaining power balanced here. Is that the administration's
view?
Ms. Burton. That is correct, sir.
Chairman Tom Davis. I think it boils down to, if they can
renegotiate these leases without it, great. But let's see what
happens.
Mr. Markey. We have already seen the results. They are
sitting there. They have no results.
Chairman Tom Davis. They are still working on it.
Ms. Scarlett. I think the most important results we have to
underscore are, from 2000 and forward, including every single
lease in this administration, we have had those price
thresholds. Therefore, for the taxpayers, those revenues are
forthcoming as we speak on all those issues. And that is a
critical point.
Mr. Markey. I will say this right now. We will have a
solution to the Middle East crisis before you get BP and Shell
to agree to a $36 a barrel threshold. That will never happen
unless you accept this additional leverage. Never.
I think you are sitting down there continuing a policy that
allows the oil companies to maintain the whip hand in the
negotiations with the public. I think that this administration
should put their thumb on the scale to even-out this
negotiation process because otherwise they are enjoying
windfall profits that are historic and unlikely to be
discontinued unless you accept this additional power on behalf
of the public.
I just think that you are operating in a completely
delusional way, reflecting the likelihood of these oil
companies surrendering these huge profits. In fact, they have a
fiduciary relationship. They have a fiduciary responsibility to
their shareholders not to surrender those profits. Whereas you
have a fiduciary responsibility to the American taxpayers to
reclaim them.
I don't think in the absence of your accepting this power
and removing your objection to the passage of the legislation,
just waiting for your say-so, that you will have to show a
little responsibility of losing billions of additional dollars
that could have been used to provide education and healthcare
for the American people. I think that will be on your
shoulders.
Chairman Tom Davis. Let me ask, before I let Mr. Issa sum
up, let me ask very briefly. Are we close to any agreements
with these companies?
Ms. Burton. I believe we are very close with Shell and BP.
I don't know about the others yet.
Chairman Tom Davis. OK. How much active drilling are they
doing at this point?
Ms. Burton. They are very active in the Gulf, both
companies. I don't know how many on those particular leases. I
am trying to get all the companies who have leases----
Chairman Tom Davis. That is fine. We need the chart. We
just need to have a chart so we can follow it.
Ms. Burton. Yes. I will get that to you, Mr. Chairman.
Chairman Tom Davis. And the leases that have been
negotiated from 2004 is great, but most of those aren't being
used at this point. It takes time once the lease is signed,
doesn't it, and to get the oil from the ground. Is that right?
So this would be in the future.
Mr. Issa.
Mr. Issa. Thank you. I will try to sum up.
There is a famous quote: What did you know and when did you
know it? We certainly remember that from our youth. I know you
are too young to remember the 1960's, but I sort of do.
Ms. Scarlett. I might even remember the 1950's. Thank you,
Congressman.
Mr. Issa. It doesn't show.
I would appreciate if, as you are going through your own
evaluation, Director Burton, you told me that you didn't know
until 2006. I would like to know, and I would really appreciate
it if you would provide us with a similar chart of who knew
when. Now, the IG is going to provide quite a bit, but I think
the fact that people clearly knew and made the changes, and yet
we have this whole void of people who, between the ones who
made the changes when the discovery was made, and the time it
got to you in 2006. I find it hard to believe that there wasn't
a chain bubbling up of an awareness by more and more and more
people of this, even if it was at the water cooler.
So I would appreciate if we could get an understanding of
how this thing morphed to where in 2000, people figured out
there was a change, under the previous administration, a
problem. They changed it, and it took until 2006 to bubble up
to you. So I would appreciate understanding that better because
that has been one of the illusive things is who knew what and
when, and we would like to fill in what we don't have.
Madam Secretary, I think particularly, the Solicitor does
fall under your watch. Is that correct?
Ms. Scarlett. The Solicitor is in the Office of the
Secretary, of which I am a part.
Mr. Issa. OK. I need to know when you are going to do the
reform of that office, because this committee and my
subcommittee found it very clear that reform has not happened
yet, that they are still doing water cooler, no memo for the
record, kind of dealing. That clearly was one of the points at
which this failure occurred and would not otherwise have
occurred in spite of all the other things that happened.
Ms. Scarlett. Congressman, we are in fact looking at the
Office of the Solicitor and its management and those processes,
and how to improve them in terms of that approval process.
Mr. Issa. And now I will use one other quote that I am
probably not qualified for, and that is, and now the other part
of the story. I voted against Mr. Markey's amendment, as I
recall. I believe in contract sanctity and I don't believe his
solution is fair. What I do believe, though, from the discovery
of our committee, is that this is much less like a contract
that you negotiated, and now you are back saying, but the deal
changed because the price changed. This is much more like a
triple-net lease for a building, and then the roof falls in,
and you are trying to figure out, well, did you think the
triple-net meant you fix the roof? Or did you think this was a
triple-net where you thought the landlord was going to fix the
roof?
Before our committee, multiple oil companies, perhaps some
of the largest by far, testified that they thought the
thresholds were in the contracts when they signed them, meaning
that they paid a price to the Government, sort of like how much
you lease a building for, depending upon whether or not you
think you are going to have to fix the roof. They bid on these
contracts transparently as though they were still in, because
the bidding prices in their own testimony didn't change.
So when you are negotiating, and Johnnie, I think you are
probably face to face with these people, I disagree with Mr.
Markey because I don't think it is about whether the price went
in. I don't think it is about cajoling them. I think it is
about saying, come on, folks, if you believe that it was in
there, you believe you signed it. We believe that the
Government was supposed to have it in. We believe this is the
kind of a failure that should not be taken advantage by either
party.
I would hope that in your negotiations, you would say,
look, if the Government thought it was supposed to work this
way, and it was to your favor, and you came back to us, we
would be having the discussion exactly the same, which is, the
intent of a contract is part of the contract. And you go back
often, even though you have a written agreement, and I was
recently deposed on one where I had an agreement in court
codified by a U.S. Federal judge in which I gave a license to
somebody. And wouldn't you know it, they wanted to have me
testify as to what I thought I gave them 8 years later, because
it does matter. What you think you got and what you think you
gave matters.
So I believe that is a strong point, and that is the reason
I didn't vote for Mr. Markey's amendment, is I believe you have
the ability to negotiate in good faith, based on original
intent of both parties. I believe you will be successful, and I
also believe world peace will come in the Middle East. But I
believe that your settlements will come sooner because I
believe one company signs, that will be the model for all of
them.
Thank you, Mr. Chairman. And thank you for holding this
important hearing.
Chairman Tom Davis. Thank you.
And Mr. Markey, thank you as well.
I would just add, I am not sure where I was on Mr. Markey's
amendment. As I recall, I had other interests to protect in
that bill. You did vote for it? OK. I get it right once in a
while.
The purpose here is to give you some leverage as you sit
down, and also to give the companies, who I think want to do
the right things, but have that fiduciary duty he talked about
to their shareholders, to be able to come forward and get the
right thing done.
But good luck as we move forward. I look forward to getting
the charts from you.
Ms. Burton. Yes.
Chairman Tom Davis. This is an issue we are going to
continue to, well, we will watch it, continue to investigate,
and probably do further hearings.
Thank you very much. The hearing is adjourned.
[Whereupon, at 12:30 p.m. the committee was adjourned.]