[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]



 
                ROYALTY RELIEF AND PRICE THRESHOLDS III

=======================================================================

                                HEARING

                               before the

                  SUBCOMMITTEE ON ENERGY AND RESOURCES

                                 of the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                             JULY 27, 2006

                               __________

                           Serial No. 109-238

                               __________

       Printed for the use of the Committee on Government Reform


  Available via the World Wide Web: http://www.gpoaccess.gov/congress/
                               index.html
                      http://www.house.gov/reform


                                 ______

                    U.S. GOVERNMENT PRINTING OFFICE
35-339                      WASHINGTON : 2007
_____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512ï¿½091800  
Fax: (202) 512ï¿½092250 Mail: Stop SSOP, Washington, DC 20402ï¿½090001

                     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
                       Teresa Austin, Chief Clerk
          Phil Barnett, Minority Chief of Staff/Chief Counsel

                  Subcommittee on Energy and Resources

                 DARRELL E. ISSA, California, Chairman
LYNN A. WESTMORELAND, Georgia        DIANE E. WATSON, California
JOHN M. McHUGH, New York             BRIAN HIGGINS, New York
PATRICK T. McHENRY, North Carolina   TOM LANTOS, California
KENNY MARCHANT, Texas                DENNIS J. KUCINICH, Ohio
BRIAN P. BILBRAY, California

                               Ex Officio

TOM DAVIS, Virginia                  HENRY A. WAXMAN, California
                   Lawrence J. Brady, Staff Director
                       Thomas Alexander, Counsel
                          Lori Gavaghan, Clerk
           Shaun Garrison, Minority Professional Staff Member


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on July 27, 2006....................................     1
Statement of:
    Couvillion, J. Keith, deepwater land manager, Chevron North 
      America Exploration and Production Co., a division of 
      Chevron U.S.A., Inc.; Gordon R. Cain, deepwater land 
      manager, Chevron North America Exploration and Production 
      Co., a division of Chevron U.S.A., Inc.....................     5
        Cain, Gordon R...........................................    10
        Couvillion, J. Keith.....................................     5
    Oynes, Chris C., Regional Director, Gulf of Mexico Region, 
      Minerals Management Service, U.S. Department of the 
      Interior; and Charles J. Schoennagel, Jr., Deputy Regional 
      Director, Gulf of Mexico Region, Minerals Management 
      Service, U.S. Department of the Interior...................    27
        Oynes, Chris C...........................................    27
        Schoennagel, Charles J., Jr..............................    34
Letters, statements, etc., submitted for the record by:
    Cain, Gordon R., deepwater land manager, Chevron North 
      America Exploration and Production Co., a division of 
      Chevron U.S.A., Inc., prepared statement of................    11
    Couvillion, J. Keith, deepwater land manager, Chevron North 
      America Exploration and Production Co., a division of 
      Chevron U.S.A., Inc., prepared statement of................     7
    Issa, Hon. Darrell E., a Representative in Congress from the 
      State of California, prepared statement of.................     2
    Oynes, Chris C., Regional Director, Gulf of Mexico Region, 
      Minerals Management Service, U.S. Department of the 
      Interior, prepared statement of............................    29
    Schoennagel, Charles J., Jr., Deputy Regional Director, Gulf 
      of Mexico Region, Minerals Management Service, U.S. 
      Department of the Interior, prepared statement of..........    35
    Watson, Hon. Diane E., a Representative in Congress from the 
      State of California, prepared statement of.................    21


                ROYALTY RELIEF AND PRICE THRESHOLDS III

                              ----------                              


                        THURSDAY, JULY 27, 2006

                  House of Representatives,
              Subcommittee on Energy and Resources,
                            Committee on Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2 p.m., in 
room 2154, Rayburn House Office Building, Hon. Darrell Issa 
(chairman of the committee) presiding.
    Present: Representatives Issa and Watson.
    Staff present: Larry Brady, staff director; Lori Gavaghan, 
legislative clerk; Thomas Alexander, counsel; Dave Solan, Ph.D. 
and Ray Robbins, professional staff members; Joe Thompson, GAO 
detailee; Shaun Garrison, minority professional staff member; 
and Jean Gosa, minority assistant clerk.
    Mr. Issa. Good morning. I will now call the meeting to 
order.
    The Chair will make a couple of short announcements. One is 
that with the consent of the ranking member, we will begin and 
she will be arriving momentarily. Second, there are a number of 
votes, both on the floor potentially and also in one of the 
judiciary committees. So we may have to recess very briefly for 
those votes, but we will continue until the completion of both 
panels.
    Additionally, I am going to take the extraordinary measure 
of asking unanimous consent, and we will ratify it when the 
ranking member is here, to have all opening statements placed 
in the record, and I will include my own. As many of you know, 
this is the third in a series, really almost fourth in a series 
of hearings including this one. I want to minimize for those 
who have already heard the history of the Deepwater Relief 
Threshold hearing exactly the same thing. So that will be 
ratified when the ranking member arrives.
    [The prepared statement of Hon. Darrell E. Issa follows:]

    [GRAPHIC] [TIFF OMITTED] T5339.001
    
    [GRAPHIC] [TIFF OMITTED] T5339.002
    
    [GRAPHIC] [TIFF OMITTED] T5339.003
    
    Mr. Issa. With that, I would like to ask both our first and 
second panel to stand and be recognized for the oath, which is 
required by the committee's rules, also the second panel and 
anyone who is going to assist any panelist.
    [Witnesses sworn.]
    Mr. Issa. And the record will reflect that all answered in 
the affirmative.
    Briefly, and again, we will place the entire statement in 
the record, this hearing today is the result of earlier 
hearings, including one that brought about the awareness by 
this committee of communications between Chevron, which 
volunteered the information that we will hear more about today, 
and the Department of Interior. We followed up, received the 
record of that, and today we will try to get more detail for 
the committee to make the record complete.
    With that, our first panel today starts with Mr. Keith 
Couvillion, Deepwater Land Management, Chevron North America 
Exploration and Production Co., a Division of Chevron USA; and 
Mr. Gordon Cain, deepwater land manager, Chevron North American 
Exploration and Production Co., a Division of Chevron.
    I want to thank you both for being here. Once again, your 
entire statements will be placed into the record, and you are 
free to use it or, to be quite candid, if you want to add, 
embellish or change, that would be very much appreciated. We 
would like you to please try to keep your opening remarks to 
about 5 minutes to leave time for questions.
    With that, Mr. Couvillion.

  STATEMENTS OF J. KEITH COUVILLION, DEEPWATER LAND MANAGER, 
    CHEVRON NORTH AMERICA EXPLORATION AND PRODUCTION CO., A 
  DIVISION OF CHEVRON U.S.A., INC.; GORDON R. CAIN, DEEPWATER 
LAND MANAGER, CHEVRON NORTH AMERICA EXPLORATION AND PRODUCTION 
            CO., A DIVISION OF CHEVRON U.S.A., INC.

                STATEMENT OF J. KEITH COUVILLION

    Mr. Couvillion. Thank you, Mr. Chairman. I do have a brief 
statement that I would like to make.
    Mr. Chairman, on behalf of Chevron, I wish to express our 
appreciation for this opportunity to appear before this 
subcommittee to discuss the Department of Interior's deepwater 
royalty relief program. As requested in your invitation to 
testify, my testimony addresses discussions with Mr. Chris 
Oynes, MMS regional director for the Gulf of Mexico, and his 
staff, regarding deepwater royalty relief and the omission of 
price thresholds in the 1998 and 1999 deepwater leases.
    I am a member of the American Association of Professional 
Landmen's Outer Continental Shelf Committee, which is known now 
as the OCS Advisory Board. This committee meets several times 
per year to discuss the most important OCS issues. For many 
years, members of the OCS committee have also met periodically 
with MMS to discuss a variety of offshore topics. I 
participated in a number of these meetings with MMS in the 
period from 1998 through 2000.
    In 1998, after a review of the deepwater leases purchased 
that year, we discovered that the addendum detailing the terms 
of royalty relief was not included in those leases. This issue 
was briefly raised during a portion of a fall 1998 AAPL OCS 
committee meeting attended by representatives of MMS' Gulf of 
Mexico regional office. Mr. Oynes advised that the addendum was 
no longer necessary because MMS had finalized its royalty 
relief regulations, which were now incorporated by reference in 
the 1998 leases.
    Until a meeting with MMS in 2000, when they advised us that 
the 1998 and 1999 deepwater leases did not contain price 
thresholds, we were under the impression price thresholds 
applied to all those leases.
    It is important to understand that the price threshold 
issue was only briefly discussed with MMS during the late 
1990's. Because oil and gas prices were low, price thresholds 
were never a major topic of discussion in this era. From my 
perspective, the most important royalty relief issue at the 
time was whether or not MMS would extend the deepwater royalty 
relief program beyond the year 2000.
    Consistent with Chevron's previous commitment to meet with 
MMS to discuss the price threshold issue, we are scheduled to 
meet with MMS tomorrow. We look forward to working with them to 
achieve a fair and equitable outcome for all concerned.
    Thank you for the opportunity to be here to testify. I am 
happy to answer any questions you may have.
    [The prepared statement of Mr. Couvillion follows:]

    [GRAPHIC] [TIFF OMITTED] T5339.004
    
    [GRAPHIC] [TIFF OMITTED] T5339.005
    
    [GRAPHIC] [TIFF OMITTED] T5339.006
    
    Mr. Issa. Thank you.
    Mr. Cain.

                  STATEMENT OF GORDON R. CAIN

    Mr. Couvillion. Mr. Chairman, on behalf of Chevron, I wish 
to express our appreciation at having the opportunity to appear 
before the subcommittee to discuss certain aspects of the 
Department of Interior's deepwater royalty relief program.
    I am not currently a member of the American Association of 
Professional Landmen's Outer Continental Shelf Committee. Mr. 
Couvillion is now the Chevron representative on the committee.
    However, in 1998, 1999 and 2000, Mr. Couvillion was the 
Texaco representative and I was the Chevron representative. My 
recollection of what transpired at the AAPL OCS committee 
meetings is consistent with Mr. Couvillion's. In 1998 through 
2000, a time of low oil and gas prices, price thresholds were a 
non-issue.
    I note that when Chevron acquired leases in 1998 and 1999, 
we were under the impression that price thresholds applied. 
However, we made significant investment decisions after 2000, 
following MMS' clarification that price thresholds did not 
apply.
    As Chevron has committed, and Mr. Couvillion has told you 
today, we look forward to meeting with the MMS tomorrow.
    Thank you for the opportunity to be here to testify. I am 
happy to answer any questions you may have.
    [The prepared statement of Mr. Cain follows:]

    [GRAPHIC] [TIFF OMITTED] T5339.007
    
    [GRAPHIC] [TIFF OMITTED] T5339.008
    
    [GRAPHIC] [TIFF OMITTED] T5339.009
    
    Mr. Issa. Thank you. I want to thank both of you and your 
common company, previously two companies. Because I do think 
that often in the public arena we don't see companies, knowing 
that they could tie something up in court, knowing that in fact 
they might even prevail and not have to pay an amount because 
of a technicality, come forward and say, as you have said here 
today, that you bid on these contracts understanding that there 
was a threshold, you made investments after being told there 
weren't, but you are still willing to negotiate an amicable 
middle ground in order to maximize the fairness to the 
Government, in addition to obviously being responsible to your 
stockholders. The ranking member, when she arrives, I am sure 
will say the same thing she did in the last hearing, it does 
our hearts good to see that kind of proactive corporate 
behavior.
    With that, I would like to go to a series of questions. I 
guess a lot of it is basically, for today's hearing between the 
two panels. When you met with Mr. Oynes, what was his reaction 
when you told him that only you could sort of give us, you and 
the others in the room, when you said, ``Look, we have a 
problem, we have discovered that you don't have price 
thresholds, effectively a will of Congress that we were all 
aware of?''
    Mr. Couvillion. Well, the meetings that we had were all 
through that AAPL OCS committee. The committee, as I said in my 
testimony, we meet periodically to discuss major offshore 
issues and have for years. We also meet periodically with the 
MMS.
    At one of the MMS meetings, the 1998 meeting, is the first 
time this issue came up. The reason it was brought up is, we 
normally talk about a lot of topics. This one was a fairly 
insignificant topic, and it was posed as a question to Mr. 
Oynes and his staff. The question was, in the 1996 and 1997 
leases, there was an addendum attached to the leases that 
detailed the pricing thresholds, the volume suspensions and the 
field application of royalty relief. Those are the three major 
components of the deepwater royalty relief program.
    In the 1998 leases, the addendums were gone. So we 
questioned, why were the addendums left off. And the response 
from Mr. Oynes and his staff was, it was no longer necessary. 
They had completed their finalization, they had completed their 
rewrite of the regulations or actually the writing of the 
regulations for deepwater royalty relief, and now they were 
referencing those regulations in the leases. And they were 
referencing also the Deepwater Royalty Relief Act itself. So 
they didn't see the need for it.
    That was a very acceptable offer and answer for us.
    Mr. Issa. And perhaps more of an impression, this was said 
with conviction, I know this to be true, got it handled, it 
wasn't one of those, ``Well, it may be as high as it is tall 
and as broad as it is wide?'' It was, ``No, you don't have to 
because of this, next question?''
    Mr. Couvillion. No, no. It was just a general question, the 
conversation maybe lasted, as I recall, a couple of minutes. It 
was insignificant and it wasn't something that was--it was more 
of a matter of fact, and we said fine. Agreed.
    Mr. Issa. Sure. I realize that if the price remained low, 
we wouldn't be having this hearing today, even though it had 
been left out.
    When was your next meeting? Or can you describe some of the 
subsequent meetings in which anyone from MMS or Interior was 
there but particularly Mr. Oynes?
    Mr. Couvillion. Well, we have, with the AAPL OCS committee, 
we have subcommittees. The subcommittees tend to meet with AAPL 
periodically, or excuse me, with MMS, more than the big whole 
AAPL OCS committee. Normally the OCS committee itself, the big 
committee, only meets once a year with the regional office and 
once a year with the Washington office. But we do try to meet 
as a smaller subcommittee, and we call that the liaison 
committee, maybe three to four times a year. It varies, but 
normally at least three times a year. That is made up of a 
smaller group of people.
    I don't recall if it was the larger committee meeting or 
one of the smaller committee meetings, that in 1999, the next 
year, when after going back through the leases in 1998 and some 
of the 1999 leases, we still noticed that there was no 
addendum, and we were puzzled. And we brought up to the MMS a 
question. We reviewed the Deepwater Royalty Relief Act, we 
reviewed the regulations under Title 30 Part 260, that apply to 
this vintage of leases, and we were struggling with where the 
pricing thresholds were.
    We saw that the pricing thresholds were embedded in Title 
30 of Part 203, which was the other regulations that had been 
written, but we couldn't find it in 260. So again, we posed a 
brief question to Mr. Oynes and his staff, that, ``Can you help 
us, show us where the royalty relief pricing threshold language 
is?'' We still think it applies, we just don't know where.
    Mr. Issa. OK. Do you remember anyone other than the second 
panelists that were in those meetings? You said ``and their 
staff.'' Were there two or three or four or more?
    Mr. Couvillion. Well, on the first meeting, in the 1998 
meeting, we did, I did find some minutes from that particular 
meeting. They were in November, I think November 13, 1998. And 
in that set of minutes, it lists the members of the AAPL OCS 
committee that participated and it also listed the MMS 
personnel that participated in that meeting.
    Mr. Issa. OK. So that was a pretty large meeting?
    Mr. Couvillion. Yes, sir.
    Mr. Issa. So you are being as clear as can be, but the 
nature of the beast, I am going to reflect it back to make sure 
that I get it and the record gets it. In 1998, you bring up the 
fact that the addendums are gone, you get told, ``Don't worry, 
it is in this other part.'' In 1999, you bring it up and say, 
``We are sure it is in the other part, but can you show us, 
because we can't find it?'' Is that roughly it?
    Mr. Couvillion. Yes, sir.
    Mr. Issa. OK. Did you or anyone to your knowledge do the 
sort of the natural correspondence with other companies besides 
the two of you that are now one about this particular area, 
whether directly or through your trade association?
    Mr. Couvillion. No, sir, I don't remember discussing it in 
great detail with the committee. But we did, at our committee 
meetings without MMS, talk about the pricing threshold issue. 
It was not just a Texaco, at the time, Chevron issue. This is 
one of the matter that we would have talked about briefly and 
debated. Because I had asked the question to the other people, 
too, ``Can you help me with finding the price thresholds?''
    Part of the reason it is, I am the one that was signing a 
lot of these leases for Texaco. So I was very concerned about 
the provisions of the lease and any differences for year. We 
are signing a standard form lease and the addendums are the 
changes to those leases. So when we change the addendums, I am 
concerned.
    Mr. Issa. What you are saying is that when on behalf of 
your company you signed on something that affects hundreds of 
millions or even billions of dollars, you take it seriously?
    Mr. Couvillion. Yes, sir.
    Mr. Issa. I am not surprised that in the private sector 
that occurs. It is probably why you still have your job.
    Mr. Couvillion. I hope. [Laughter.]
    Mr. Issa. I am sure.
    Obviously we have talked about 1998, and I asked about the 
reaction. In 1999, when this was brought up, same sort of 
thing, only this time you are saying, ``Where is it, what was 
the reaction?''
    Mr. Couvillion. Well, the same thing happened, the staff 
said, ``Well, we will look at it and check into it.'' It was a 
very brief conversation. If I had to guess, well, I hate to 
speculate about capturing it in the minutes, because in 1998, 
it wasn't captured because it was insignificant. And I would 
know, I was the secretary of the committee in 1998. That is why 
I have a copy of those minutes. And it wasn't in those minutes.
    So in 1999, again, it was an insignificant thing and we 
were waiting to hear back from MMS.
    Mr. Issa. And it was fairly insignificant, but you remember 
it and your staff that were present remember it?
    Mr. Couvillion. Yes, sir.
    Mr. Issa. And this is conjecture, but I think it is 
appropriate, although insignificant, would you expect staff 
that were there on behalf of MMS remembered it, too?
    Mr. Couvillion. I can't speak for MMS.
    Mr. Issa. Let me ask you another question in a different 
way, because I want to be fair. In the past, when you have 
mentioned things like this, but in other examples, anecdotally, 
does the staff generally followup, even though it is not in the 
minutes, to questions that come up? Do you typically get 
followup and response from things that would be similar but not 
this example?
    Mr. Couvillion. As an example, when we have meetings with 
the MMS, at the committee level, we normally talk about, and I 
am just going to speculate here, from 8 to 20 topics. Some of 
those topics are extremely important to us.
    In the 1998 timeframe, we had very important issues in the 
OCS that we were dealing with. And this was not one of them. On 
things that are not that significant, when MMS gets back to us, 
they get back to us. It is not that important. On those issues 
that are of major concern to us, especially at the time, 
Texaco, then there is followup questions, followup meetings.
    Mr. Issa. Thank you. In 1998, 1999, level one, I don't see 
it in the addendum, level two in 1999, I don't see it in all 
the places that you said it was going to be, or at least in the 
place it would need to be. How about beyond that? What was the 
next opportunity that you remembered this being brought up?
    Mr. Couvillion. Well, in the year 2000, after the first 
2000 lease sale in early 2000, we noticed when we were issued 
our leases, that the addendum was attached again. I thought 
that was kind of strange. But I looked at the addendum, and it 
was a little bit different from the addendum that was attached 
to the 1996 and 1997 leases. It now referenced the Code of 
Federal Regulations, Title 30 Part 260, which is where the 
volumetric thresholds are and where the field application piece 
is. But that didn't have pricing thresholds in it.
    But in that addendum, it did list now the specifics of the 
pricing thresholds. So at a meeting with MMS, and again, I 
don't have any notes that say when, I don't have my day planner 
any more from that year, we discussed that, we asked, OK, what 
happened. Now we have 1998, 1999, we didn't have the addendums. 
Now we have the addendums, but the addendum references the 
regulations, references the Deepwater Royalty Relief Act, and 
now it has pricing thresholds. That is when we first learned 
that the 1998 and 1999 leases, the pricing thresholds, it was 
an oversight in the way the regulations were written, and 
pricing thresholds did not apply to those leases.
    Mr. Issa. I am not responsible for trying to make the 
private sector work. So as much as I appreciate a lot of the 
things we are learning here, I have to focus on what makes 
Government work. That is why we get the title Government 
Reform.
    So I will ask you a question as somebody who works with 
Government, just intimately. Would it surprise you that MMS 
didn't know and that they never talked between the two parties, 
the solicitor on the other side that was doing this work, so 
that the statement made that, it is in the other document, was 
not based on checking or an actual conversation, or reading the 
document, but rather an assumption? And then the people who 
didn't put it in who knew they weren't putting it in, who made 
a decision not to put it in even though it was clear that they 
could and perhaps should, never talked? Would that surprise 
you, knowing the Department of Interior?
    Mr. Couvillion. Mr. Chairman, I have dealt with the various 
offices of the MMS here in Washington and in Virginia. I have 
dealt extensively with the office in New Orleans. I can believe 
with the size of the operation that is conducted in New 
Orleans, with over 8,000 leases, and oh, by the way, Chevron 
and its affiliates own over 1,000 of those leases----
    Mr. Issa. Congratulations.
    Mr. Couvillion. I can almost guarantee you that there is 
some breakdowns in communications. There just has to be. The 
operation running this business for the Government is 
tremendous. It is large. And something like this could slip 
under the radar screen until it became an issue.
    Mr. Issa. Let me ask you just a couple more questions. I 
want to note that the ranking member has arrived, and we will 
look forward to her round of questioning in just a moment.
    How many people viewed and initialed or in some other way 
signed off on these leases besides yourself?
    Mr. Couvillion. Mr. Chairman, OCS leases are not 
negotiable. They are a form. If we are fortunate enough to be 
awarded a lease after we are the high bidder, then by specific 
regulation and by the final sale notice, we are required to 
sign the lease and return it within 11 working days. If we 
don't, we lose the lease and we forfeit our deposit of one-
fifth of the bonus. So I am the one that signs the leases. 
There is no one else that initials off on it.
    Mr. Issa. But how about the checking of the form itself, 
particularly when there is a change? Because you mentioned that 
it was brought to your attention that this addendum was gone 
and so on.
    Mr. Couvillion. Normally we just review a lease and make 
sure it complies with what the final sale notice said.
    Mr. Issa. OK. So I want to paraphrase you one last time. 
One person looking at the lease, yourself, perhaps checking for 
whether the grid coordinates that are in there that describe 
the section that you have leased, makes a decision that this is 
good to go on this non-negotiable contract and signs it. And 
yet, one person, without anyone else double-checking, so to 
speak, discovered and brought multiple times to the attention 
of MMS that there was a problem relative to the price 
thresholds?
    Mr. Couvillion. Mr. Chairman, let me address this. 
Because----
    Mr. Issa. I am not doubting you, I am complimenting you.
    Mr. Couvillion. When you said initial off, in our process 
of approving contracts that we create, in the Chevron 
organization, in the Texaco organization, we had a whole series 
of people that would sign off on the leases, initial, as you 
termed, before it was executed by an officer of the company or 
someone with power of attorney. In my world, we check to 
ensure, I have staff that do just this, they check to ensure 
that the lease that has been awarded to us is properly fill 
out, that all the description is correct, that the addendums 
are on there.
    Now, as to substance of the addendums, no. But they check 
to make sure that the lease is complete before they present it 
to me for execution.
    Mr. Issa. The reason I asked the question is that we 
discovered, and you have looked at these leases when you get 
your executed copy back, there are signatures and initials just 
endlessly on these pieces of paper by various Department of 
Interior employees. It might or might not surprise you to know 
that in testimony we discovered that everyone was only dealing 
with a tabbed insert that they would be told to look at, and 
only if it was there, that in fact we were told that they 
initialed simply to say, it passed by my desk.
    And even more interesting, since they sometimes can be a 
foot deep, they may have only gotten the cover page they 
signed. So that is why I wanted to sort of see how it happens 
in the private sector, since you have the private sector and 
the Government, and it appears as though you have two different 
standards of check to make sure this is real money.
    Mr. Couvillion. Mr. Chairman, like I said earlier, the 
issue with the Federal leases, since they are non-negotiable, 
it is a take it or leave it, if we don't sign it, we lose our 
one-fifth, we don't get the lease. So that is the reality of 
it.
    Mr. Issa. OK. And I might note for your edification and the 
record, a little reminder is up on the board of just how many 
signatures the Government managed to have and only have 
apparently one person reading it and knowing what wasn't there 
on the Government side. Just in case you have ever been 
intimidated by all those signatures in Government, basically, 
and I will close off here, those signatures don't mean much, is 
what we have discovered.
    But thank you for your signature mattering, and for your 
bringing this to the attention of the Government, even if they 
failed to act.
    With that, I would like to recognize the gentlelady from 
California for her opening statement and a round of questions.
    Ms. Watson. Thank you, Mr. Chairman. Let me be excused for 
being late.
    I know this is the third in a series of hearings on this 
matter that you have called for. I do appreciate the 
opportunity to discover the root causes of the problem at hand 
and address workable solutions. I would like to thank the 
witness that again have come from Chevron and Minerals 
Management Services for appearing today. We can put you on the 
hot seat.
    I hope that with your help we can move forward in finding 
concrete answers and solutions to the oil and gas royalty 
leases during the years 1998, 1999. Energy use has become a 
huge issue in this Congress. And Americans depend on oil and 
natural gas in our workplaces and in our homes. They are among 
our most valuable natural resources, and efficient management 
of these resources by both the public and private sectors is 
critically importantly to society.
    Today, the American consumer is facing record prices for 
oil and gas while the oil and gas industries are making record 
profits. I saw on TV, did you see it this morning, that 
ExxonMobil's profit was almost over $400 billion.
    Mr. Issa. And to think I sold my stock to come to Congress.
    Ms. Watson. Something was wrong with you, sir. [Laughter.]
    Adding insult to injury, the U.S. Government cannot collect 
the royalties due for leasing public land to the private oil 
and gas companies. Errors in the 1998 and 1999 lease contracts 
could cost our taxpayers close to $20 billion over the next 25 
years. Already the lack of price thresholds in these leases has 
reduced $2 billion in lost royalties owed to the American 
public. The American people deserve an explanation for this 
costly error and maybe a reduction at the pump, since the 
profit is so great, and since you made an error that has not 
been filled in some time ago. I think you could give the relief 
to the American people.
    So during this subcommittee's last hearing, it was alleged 
that employees of the Minerals Management Services were made 
aware of the error in the 1998 and 1999 leases, yet failed to 
formally report the problem or take corrective action. So I am 
sure that those who are testifying today will give us some 
insight on how we can implement reform. And hopefully, I hope 
that you can shed light on how such a fundamental element of 
the royalty relief program could be overlooked for so long, and 
why it took 2 years to address this problem.
    Whether our work is managing public assets, distributing 
vital products or overseeing the services they depend upon, the 
American public has the right to expect each of us to perform 
our duties responsibly. The parties responsible for the faulty 
leases in 1998 and 1999 have committed a gross injustice to the 
American people. This expensive mismanagement of public lands 
and public money is unacceptable. We must work together to 
uncover the origin of this event, rectify the situation and 
make sure that this never happens again.
    So with that said, I hope that seat doesn't get too hot for 
you. But now that these mistakes have been brought to your 
attention, what are your companies doing and what is the 
Management Institute doing to rectify and to set a limit? And 
what are you doing for the American people?
    Now, I know that in the kind of industry that is 
represented here that the bottom line is the most important 
thing. But our responsibility is good public policy. So I would 
like both of you to speak to what we can do to rectify 1998 and 
1999, and what we can do to go forward.
    [The prepared statement of Hon. Diane E. Watson follows:]

    [GRAPHIC] [TIFF OMITTED] T5339.010
    
    [GRAPHIC] [TIFF OMITTED] T5339.011
    
    [GRAPHIC] [TIFF OMITTED] T5339.012
    
    Mr. Cain. Congresswoman, we are scheduled to have our first 
meeting with MMS tomorrow morning on this issue. We are hopeful 
that a satisfactory resolution for al parties can be arrived 
at.
    Ms. Watson. Would you let them know tomorrow that you have 
two concerned Members of Congress, and others, too, they are 
just not here today, that are going to be watching and 
listening. We hope you can become a good corporate citizen and 
relieve American people, American drivers, American families 
somewhat.
    Mr. Couvillion.
    Mr. Couvillion. Similar to Mr. Cain, we are looking forward 
to meeting with MMS to try to resolve this issue and work 
toward and equitable and fair resolution. We have not talked 
with MMS about this issue yet, so we don't know what the MMS 
has to propose.
    Like I had mentioned earlier, since the lease is a take it 
or leave it proposition, we are assuming that the Government 
has something to offer, and we are looking forward to seeing 
what that is.
    Ms. Watson. Also, would you discuss a threshold, should you 
put into the provision, some kind of threshold?
    Mr. Couvillion. Ms. Watson, again, we don't know what the 
Government yet is going to propose.
    Ms. Watson. Just bring it up, would you?
    Mr. Couvillion. Oh, yes, ma'am. That is the main reason for 
the meeting. We just don't know what else.
    Ms. Watson. Thank you, Mr. Chairman.
    Mr. Issa. Thank you.
    I will just do a quick second round. Because the gentlelady 
wasn't here for the one part, and it is very important that I 
think all of us understand that there is kind of an oddity in 
business, in that although you assumed that there were price 
thresholds and planned on it in your bidding process, Chevron, 
Chevron-Texaco, has now made investments and partnerships in 
some cases where you have extended dollars based on the 
assumption there were none because of that period 2000 until 
some time more or less when we began the inquiries.
    Is that roughly accurate?
    Mr. Couvillion. Yes, sir.
    Mr. Issa. And I don't expect you to be a walking green-
shaded budgeteer, but you haven't drilled yet, at least you 
haven't come up with yielding wells yet. Do you have an 
estimate of just how significant those post-2000 investments 
and partnerships, based on not having a price level, might be? 
Do you have a feel for the scope of that?
    Mr. Couvillion. No, sir, I don't have a feel, but we have 
approximately 100 leases between Chevron and Union Oil Co. of 
California, which is now an affiliate of Chevron in the Gulf of 
Mexico right now. We have 8 discoveries on those leases, 8 
projects, 14 leases, that are involved with the 1998 and 1999 
leases.
    So the value to us is significant in the Gulf of Mexico. 
And we are going to talk about that with the MMS tomorrow. But 
I cannot give you a number. I just don't have that number.
    Mr. Issa. But $20 million or more have been expended in 
researching, drilling, exploring, putting platforms out, or is 
that too low, and it is much greater?
    Mr. Couvillion. It would be a lot greater.
    Mr. Issa. Give me a number.
    Mr. Couvillion. I hate to speculate, Mr. Chairman.
    Mr. Issa. Curiosity killed the cat, but satisfaction 
brought him back.
    Mr. Couvillion. But I hate to speculate. What I can tell 
you is that one of our projects that has been sanctioned by our 
corporation, we are moving forward, it is a multi-billion 
project. And it is only one. And we have eight of them with 
discoveries.
    Mr. Issa. I can certainly understand why you are so 
sensitive to the investment you made at a time in which the 
Government chose to tell you that they had made a mistake, but 
they weren't going to ask you to correct it, even though they 
had discovered it. I want to close with just that sort of a 
question. Since you bid based on the assumption that there were 
price thresholds, and then when you discovered suddenly the 
document you had complained about multiple times for not 
appearing to have those thresholds had the thresholds, suddenly 
it is back in there with this language that makes it very 
clear, when that happened, the Government basically told you, 
MMS told you, you don't owe for thresholds over here. That was 
more or less what they said?
    Mr. Couvillion. More or less. It just said the pricing 
thresholds do not apply to the 1998 and 1999 leases.
    Mr. Issa. If at that time the kind of meeting you are 
having tomorrow had occurred, if I understand correctly, if in 
2000 when you saw this new lease, had occurred, at that time, 
would you have in fact had made no real investment based on the 
assumption it wasn't in there, because until that day you 
thought it was in there?
    Mr. Couvillion. That is going back in history and 
speculating, Mr. Chairman. But we would have to have talked 
about it with MMS. Since I am not aware, at least in my tenure 
in Offshore, I am not aware of any leases being amended.
    Mr. Issa. No, I wasn't speaking to the amending. And I 
apologize. Between 1998 and 2000, you acted in good faith and 
bid based on price thresholds being assumed by your company 
because you kept asking and they kept saying, they are in 
there. It was like the Prego where you are looking for the meat 
but you can never find it in that tomato sauce. But they say it 
is in there.
    In 2000, they came to you and said, it is not in there. On 
that day, you had made no investments, on that day you had made 
no investments which were assuming that there were no price 
thresholds, because that was the day they told you, well, the 
reason this thing is there is that there are no price 
thresholds for those 2 years.
    So if I can recap sort of the logical thinking, the change 
in investment occurred when the Government said, we made a 
mistake for 2 years, they may not have called it that, and we 
are not going to try and do anything about it, just wanted to 
let you know from now on it will be there. That is basically 
what they said, because they didn't say, oh, by the way, we 
need to talk about this 2-year error.
    Mr. Couvillion. I can't be that specific. Because we have, 
like I said earlier, a thousand leases. The way we explore is 
normally by multiple leases together with different vintages. 
We look at all the leases.
    Not having pricing thresholds in some of these leases was 
not a major issue for Texaco at the time, because we never 
thought the thresholds would be reached. We thought we would 
enjoy royalty relief. We were surprised when they were, and 
very pleased when the price of oil started to go up, because we 
were really struggling in 1998 and 1999 with the price of oil.
    So it is a little more complicated than trying to say, just 
for 1998 or 1999, because very rarely do we drill just one 
lease. It is normally a lease within what we call a prospect.
    Mr. Issa. Sure. I certainly understand that.
    And before we go to the next panel, Mr. Cain, you have been 
very fortunate, contrary to the ranking member's statement, you 
probably have a very cool seat there. But can you illuminate us 
any further on particular subjects? Particularly, do you know, 
and this is for both of you, do you know of any other contacts 
made by your companies or other companies during any of this 
period that might have caused someone else at the Department of 
Interior at any level to be aware that there was a potential 
problem?
    Mr. Cain. I am not aware of any other contacts.
    Mr. Couvillion. Mr. Chairman, as far as I know, Texaco 
didn't make an other contacts, but to the regional office. I 
can't speak for my colleagues, because I haven't quizzed them 
about this.
    Mr. Issa. OK. And the gentlelady would like do a second 
round also. Thank you.
    Ms. Watson. Thank you, Mr. Chairman.
    I don't know if the Markey bill was mentioned earlier. But 
there is a bill that has been introduced and you might want to 
take that proposal to your meetings tomorrow. The bill would 
suspend royalty relief when oil and natural gas prices exceed a 
threshold price: $34.71 per barrel of oil, or $4.34 per 
thousand cubic fee of natural gas.
    With respect to existing leases, the bill would require the 
Minerals Management Service to renegotiate the leases to 
include these price thresholds. Any company that refused to 
renegotiate an existing lease would not be eligible for any new 
lease for oil or natural gas on Federal lands. So you might 
want to think about that, you might want to respond or just 
hold, make that presentation to your various groups and then 
get back to us on that.
    Mr. Couvillion. Yes, ma'am.
    Mr. Cain. Yes, ma'am.
    Ms. Watson. Smart guys.
    Mr. Issa. I want to thank both of you once again on behalf 
of this committee on a bipartisan basis. I want to thank 
Chevron for volunteering information that has led to, I think, 
a fuller understanding of what occurred during this period. 
Although as a member of Judiciary, I personally am very 
committed, and I believe the committee is very committed, to 
maintaining contract sanctity, essentially saying that a 
properly induced and accepted contract is the underpinning of 
American law and American business.
    And I, like the gentlelady from California, we have 
chastised Russia and some of their former satellites for saying 
a deal is a deal unless we want to change the deal, and we will 
deliver you gas unless we don't want to deliver you gas, and we 
will keep you warm unless you don't behave right and so on.
    I certainly think on a bipartisan basis that you will find 
that the Congress wants to maintain what has made our economy 
so incredibly well, and that is the predictability that an 
honestly negotiated contract is in fact a contract that will be 
upheld, even if it is a benefit to one side or another. I 
realize that there are a lot of nuances to this particular set 
of contracts, but I wanted to make sure that was on the record.
    And one last time, I want to thank Chevron for their 
willingness to be a very active and positive participant in 
this process. With that, the first panel is excused, and I look 
forward to hopefully not having to have any more panels, 
because I think you have been so forthcoming with information.
    I will ask one unanimous consent, and that is that other 
members of the committee be able to submit in writing questions 
to both of our panelists that could be responded to. Is that 
agreed to?
    Mr. Couvillion. Yes, sir.
    Mr. Issa. Without objection, it is so ordered. Thank you.
    We will take about a minute while the other panel comes up.
    I want to thank our second panel for being here today. We 
have already dispensed with the swearing-in process. Once 
again, I want to thank the Department of Interior for making 
both of you available. Again, if you can try to have your 
opening comments to about 5 minutes, a little red light will 
come on when we would like you to wrap up.
    Mr. Oynes, if you would go first.

STATEMENTS OF CHRIS C. OYNES, REGIONAL DIRECTOR, GULF OF MEXICO 
  REGION, MINERALS MANAGEMENT SERVICE, U.S. DEPARTMENT OF THE 
  INTERIOR; AND CHARLES J. SCHOENNAGEL, JR., DEPUTY REGIONAL 
 DIRECTOR, GULF OF MEXICO REGION, MINERALS MANAGEMENT SERVICE, 
                U.S. DEPARTMENT OF THE INTERIOR

                  STATEMENT OF CHRIS C. OYNES

    Mr. Oynes. Thank you, Mr. Chairman.
    It is a pleasure to be here today. I hope that we can 
provide some additional elucidation on how the process worked, 
or did not work, as the case may be.
    My name is Chris Oynes. My current position is as the 
Regional Director for the Minerals Management Service [MMS], in 
the Gulf of Mexico Region in New Orleans. I have been the 
Regional Director or the Acting Regional Director since my 
appointment in 1993. This position is part of the Senior 
Executive Service.
    Prior to 1993, I served as the Deputy Regional Director in 
the Gulf of Mexico Region in New Orleans. That position I held 
since October 1986. I have been an employee of MMS or its 
predecessor agencies for about 30 years. In my position as 
Regional Director, I manage a staff of approximately 550 
employees. As was alluded to a little bit by the previous 
panel, the scope of the operations that I manage is quite 
extensive. It involves not only leasing but also approval of 
plans, inspections for safety and environmental compliance, 
violation notices and penalties, operations, evaluation of 
geologic or resource potential, acceptance of bids from lease 
sales and environmental reviews and environmental studies.
    Mr. Chairman, that the leases in 1998 and 1999 were issued 
without price thresholds was a serious mistake. It is a mistake 
I believe that happened because of poor processes in MMS and 
not because of any intentional or calculated act. I have 
provided, and as you noted, I submitted my testimony for the 
record. At this point, this concludes my statement, and I would 
be happy to answer any questions.
    [The prepared statement of Mr. Oynes follows:]

    [GRAPHIC] [TIFF OMITTED] T5339.013
    
    [GRAPHIC] [TIFF OMITTED] T5339.014
    
    [GRAPHIC] [TIFF OMITTED] T5339.015
    
    [GRAPHIC] [TIFF OMITTED] T5339.016
    
    [GRAPHIC] [TIFF OMITTED] T5339.017
    
    Mr. Issa. Thank you.
    Mr. Schoennagel, please.

            STATEMENT OF CHARLES J. SCHOENNAGEL, JR.

    Mr. Schoennagel. Thank you. It is also a pleasure to be 
here today to try and answer any questions that the panel has, 
and to try and clear anything up.
    My name is Charles J. Schoennagel, Jr. My current position 
is Deputy Regional Director for the Minerals Management Service 
in the Gulf of Mexico Region in New Orleans. I have been the 
Deputy Regional Director since my appointment in August 1998. 
This position is at the GS-15 level. Prior to August 1998, I 
served in the Gulf of Mexico Region for the Regional Supervisor 
for Field Operations as the Chief of the Office of Safety 
Management since November 1992.
    I have been an employee of MMS and its predecessor agency, 
U.S. Geological Survey, since 1973. My 25 years of experience 
prior to becoming the Deputy Regional Director were all on the 
operational side of the house.
    I assist Mr. Oynes in managing the approval of plans, the 
inspection of safety and environmental compliance, violation 
notices and penalties, operations, evaluation of geologic or 
resource potential, acceptance of bids from lease sales and 
environmental reviews and environmental studies.
    I will be glad to answer any questions I can.
    [The prepared statement of Mr. Schoennagel follows:]

    [GRAPHIC] [TIFF OMITTED] T5339.018
    
    [GRAPHIC] [TIFF OMITTED] T5339.019
    
    [GRAPHIC] [TIFF OMITTED] T5339.020
    
    [GRAPHIC] [TIFF OMITTED] T5339.021
    
    Mr. Issa. Thank you.
    I must admit that when we ask people to please abbreviate 
and their full statement is in the record, we seldom get such 
great cooperation. Thank you.
    Mr. Oynes, in your testimony you used the term ``no 
overarching system,'' and the ``system was totally broken 
down,'' as if someone in the system is at fault for the missing 
price thresholds, ``I take exception to that statement. It is 
individuals that cause a problem by not following basic 
procedures or meeting minimum requirements of their job 
descriptions.'' There were about 30 surname signatures, they 
are up there on the screen, on each lease sale, and you signed 
more than 600 leases that you knew did not have the price 
threshold. I am actually reading it as thought it was still a 
quote.
    The document up there has all of those signatures on it. 
But I believe that in the 600 or so leases that you signed, 
that you knew that those signatures were mostly pro forma and 
that you were the operating person that had to be responsible 
for that. Is that pretty correct?
    Mr. Oynes. To a degree, Mr. Chairman. If I might try to 
clarify. The document that you had up on the screen previously 
is what we call a decision memo. That is, it is a record of the 
policy level decisionmakers in our Washington office as they 
make decisions about the character, that is, what is the area 
to be offered in an individual lease sale, and the terms and 
conditions of that lease sale. A decision memo like that is 
prepared for both the so-called proposed notice of lease sale 
and for the final notice of lease sale.
    So the surnames as an example that you referred to I 
believe are all Washington level officials. Whereas, once the 
decision has been made, that is, the structure of the lease 
sale has been put together and the authorization to go ahead 
with either a proposed notice of sale or a final notice of sale 
has been made, then it falls upon the staff in the Gulf of 
Mexico region to execute that.
    I hope that clarifies things.
    Mr. Issa. A little bit. Sort of like Louisiana mud that is 
in the water, you know there is water there, but it looks 
mostly like brown mud.
    Again, my basic question was, you signed these documents. 
You were the one who was in the November 13, 1998 meeting in 
which it was asked if these price thresholds, why these price 
thresholds weren't there, and answered that they were 
essentially in another part of the implied document by the 
regulations, and that there was no problem. And again in 1999, 
when you were asked, ``Where are they, we can't find them?'' 
And you and your staff apparently implied that you would get 
back with an answer, because you knew they were there.
    All those Washington names that we saw, and we are not 
going to put it back up again, we have had testimony that those 
were pro forma, that people only looked at them if people 
before them had tabbed something particular to look at. Because 
we have had testimony that these are take it or leave it 
documents, that even though they don't say Ohio standard legal 
form number 201, that in fact they are all the same, except for 
location.
    So I again want to understand, you said the system was 
broken. But I have to ask, the system appears to have been you, 
your assistant, whoever was signing a particular lease, saying 
that something was there when it wasn't, and implying that you 
knew when it wasn't. Tell me why I am wrong here. I really want 
to know.
    Mr. Oynes. First of all, Mr. Chairman, let me go back to 
the two meetings with the members of the AAPL. The comments 
that they made about what was discussed in the meeting about 
the price thresholds, as I indicated in my testimony, I have no 
recollection in either one, in the 1998 or 1999, that issue was 
discussed like that. I have no recollection that they have made 
those presentations as they stated that they did.
    Mr. Issa. Mr. Schoennagel, is that the same for you? You 
were also in those meetings?
    Mr. Schoennagel. Yes, it is. And let me just state that I 
had never seen the 1996 or 1997 leases. The first time I got 
involved in this was in August 1998. So my understanding of the 
leasing process was extremely minimal when I first got into the 
job as the Deputy Regional Director. All of my experience 
before that was in the operational side of the house.
    Mr. Issa. Mr. Oynes, you are not saying that Chevron was 
saying when they said a question was asked?
    Mr. Oynes. Absolutely not. I am just saying that I have no 
recollection of that conversation as they have laid out.
    Mr. Issa. And you previously answered to this committee, 
not in hearing, but answered to the committee that you didn't 
remember anyone bringing it up, until, if I recall from that 
meeting, the year 2000 when you checked and that is when it got 
put in the addendum, is that correct?
    Mr. Oynes. Right. I didn't recall that anyone had brought 
it up at any meetings. I believe what I indicated to the staff 
when we talked, not in testimony, was that some time in late 
1999 or early 2000 is when I first became aware that it was 
missing from the leases.
    Mr. Issa. Maybe you can just give me an understanding of 
one thing, though. If we assume that Chevron has no reason 
whatsoever to be telling us anything but the truth, they came 
forward with this from their own recollection and 
documentation, November 13, 1998, a fairly large gathering 
brings this up, because they are concerned, they want to make 
sure, it is a lot of money, potentially, even though it is down 
the road. And on that date, and it is important for me to 
understand this, that meeting was at about 8 o'clock in the 
morning, it finished off some time during the day.
    On that date, 11/13/98, you signed seven leases that didn't 
have a threshold in them. So let me understand, if you signed 
seven that day, in order to sign seven that day after they 
brought up the question, you would have to have said, oh, no, 
it is taken care of in the other part of the document. Is there 
any other way that if you were asked that question that you 
wouldn't have checked before signing seven of them, even though 
you don't remember today?
    Mr. Oynes. Mr. Chairman, I don't remember them saying that 
at the meeting. So I would be totally speculating as to what 
would be appropriate or not appropriate. I don't recall that 
was raised at the meeting.
    Mr. Issa. OK, but you do not dispute it?
    Mr. Oynes. No, I do not dispute it. The only other thing I 
would add, as I indicated in my testimony, these meetings 
usually covered a wide range of issues. And there were many, 
many issues that were of significant importance to the members 
of the committee, AAPL group, that they raised to us in these 
various meetings.
    Mr. Issa. We are probably going to have to come back after 
the vote. I just want to make sure the record is complete, 
because this is where the difference between my background in 
business and my understanding of Government breaks down. I 
think it is important we make the record complete, because we 
are trying to make Government work more like business. On that 
day, you happened to sign seven documents, seven leases. During 
that week, you signed 17. Between November 13th and the time 
that Chevron--and we have no reason to doubt them, you have no 
reason to doubt them--brought it up again in a similar forum, 
you signed 71, for a total actually of 160 leases, you signed 
after being told twice that they could not find the thresholds 
in them.
    I have to ask, if you don't remember the first time, you 
don't remember the second time, but others remember it, and as 
we go through this process and we discover other staff that 
were in these meetings and other companies and representatives, 
how do you explain that you and/or some staff member, the two 
of you being on the hot seat here today, would not have checked 
at some level to discover exactly how they were there? Because 
you had companies bringing it up at least twice in two 
different veins. First of all, where is it, then second of all, 
we can't find it where you said it should be.
    Mr. Oynes. Well, Mr. Chairman, it keeps coming back to the 
same thing. I do not recall that this issue was raised at 
either the meetings in 1998 or in 1999.
    Mr. Issa. I am going to ask just one more quick question, 
then I would like the ranking member to get 5 or 10 minutes 
before we run to the vote. Did you or your staff, the two of 
you or any one that you know that works for you, read the 
interim and final rules on new leases? There were never price 
thresholds in either of the rules. If no one read it, how do 
you explain that you would have the responsibility that the two 
of you have, in the 30 years plus or minus that you have, and 
you wouldn't have read them?
    Mr. Oynes. Mr. Chairman, my best recollection is I did not 
read that final rule. I was probably at the time of my 
understanding relying on staff representations about what was 
in the rule. And as to whether other staff people had read the 
rule, I can't speak for that.
    Mr. Issa. OK. I am going to pause now and let the 
gentlelady get hers in, then we will come back.
    Ms. Watson. I am going to ask a couple of questions and I 
would like you to respond to them both at the same time. Then I 
am going to have to run, we both will have to run.
    My first question is, how many audits of oil and gas 
royalties were done in the year 2003, if you know? You have 
been there since 1986. So how many were done in 2003, 2004, and 
2005? Were there any mistakes found? If so, were they 
rectified? And what wasn't done for the 1998 and 1999 period?
    It has been suggested that MMS can only implement what 
Congress has written into law, that is why I mentioned the 
Markey bill. But do you feel that Congress should create 
legislation to define collection actions for the leases between 
that period of time, and should Congress create legislation to 
handle collections from this year one?
    That kind of goes to what I mentioned before. You are going 
to go to your respective institutes, so these are some things 
that we are going to be talking about. So can you respond, 
please, both of you?
    Mr. Oynes. On the question of audits, I assume you mean a 
formal audit.
    Ms. Watson. Yes.
    Mr. Oynes. The auditing function is handled by a different 
part of the Minerals Management Service that is headquartered 
in our Denver field office, and is handled by what we call 
Minerals Revenue Management. I am not a part of that, and I 
therefore would not be aware of any scope or details of the 
dates of any audits. So I just don't know.
    Ms. Watson. Well, Mr. Chairman, who should we have here 
next time who can answer some of these questions?
    Mr. Issa. If the gentlelady would yield, that was why I was 
kind of taking a deep breath when you said this might be our 
last hearing, I do suspect that as we followup the train of 
audit, we are going to have to have follow-on.
    Ms. Watson. I didn't mean last hearing, I meant my last 
chance to ask questions.
    Mr. Issa. Oh, yes. We will undoubtedly have to have the 
audit function looked at by this committee.
    Mr. Oynes. Ms. Watson, as to the second part of your 
question, on the legislation and the bill that was introduced, 
I would have to defer to that. Again, I work in a regional 
office. Our headquarters office is the one that would speak as 
to the use of any of the bills and the concepts in any bills 
and the support or lack of support for any particular bill.
    Ms. Watson. Yes, then let me ask you, are you going to 
actually do some negotiation or renegotiation tomorrow?
    Mr. Oynes. As far as I am aware of, I am not a part of the 
negotiations. It is going to be handled by our Washington 
office.
    Ms. Watson. OK. Well, you heard what we asked the first 
panel, so you might want to raise some of these issues, because 
we certainly are going to.
    Mr. Oynes. I will make that a point to do that. I think 
that they are well aware of that already, though.
    Ms. Watson. All right, and then I just want to say to the 
chairman that I am going to have to leave and I can't come 
back. But I do appreciate you holding these, and I certainly 
expect to have more of these hearings until we get to the 
bottom, until we can come up with some kind of authority, some 
kind of legislation that would look at this problem and be a 
resolution to the problem.
    Thank you so much, witnesses, for coming, and thank you, 
Mr. Chairman.
    Mr. Issa. I thank the gentlelady. I would like to now ask 
unanimous consent that the letters submitted by Chevron be 
inserted into the record as well as a briefing memorandum 
prepared by the staff and other relevant materials. Without 
objection, so ordered.
    Additionally, I ask unanimous consent that the record be 
held open for 2 weeks from this date, so that those who may 
want to forward submissions for possible inclusion be allowed 
to. Without objection, so ordered.
    Last but not least, we will be recessed for this very quick 
series of votes. Those are the last votes of the day, I am 
pleased to report. As a result, when I come back, we will be 
able to conclude at a reasonable pace. Thank you very much, and 
we stand in recess.
    [Recess.]
    Mr. Issa. Thank you all for your patience. This hearing 
comes back to order.
    I will be brief. I have kept you much later than I had 
planned. The good news that there are no further votes probably 
is of little consolation to you.
    But let me just wrap up with a couple of questions that 
came from the first round. Mr. Oynes, you testified that you 
did not read the regulations governing the leases. You were the 
main person in charge of MMS and the Gulf Office for that 
entire period until today.
    How can you sign leases worth billions of dollars without 
being familiar with the regulations MMS is charged to enforce?
    Mr. Oynes. Mr. Chairman, as I indicated earlier, I had also 
been briefed by staff on the content of the regulations. MMS 
issues a wide variety and lots of regulations. I don't profess 
to be an expert on every single one of them. As I indicated, I 
have a staff of 550. I have a leasing group that is presumably 
made aware of that.
    Mr. Issa. Mr. Oynes, who on your staff briefed you to tell 
you that in fact there was no need for the addendum, so that 
you participated in removing it?
    Mr. Oynes. Mr. Chairman, I did not participate in its 
removal. I know that it was removed. I don't know who removed 
it.
    Mr. Issa. Let's go back through the time line. There was a 
time when there was an addendum. When the addendum came out, 
did you question why the addendum came out?
    Mr. Oynes. I didn't know it had been removed.
    Mr. Issa. Until it was brought to your attention by 
Chevron?
    Mr. Oynes. Until it was brought to my attention some time 
in late 1999, 2000, by staff.
    Mr. Issa. Well, Chevron has testified that they brought it 
to your attention.
    Mr. Oynes. They have testified to that, and I am not aware 
of those meetings.
    Mr. Issa. OK, so to your recollection, and I should ask 
both of you, because you both at various times had this, did 
anyone ever brief you as to the change in the lease in the 
1998, and I realize that Mr. Schoennagel, you were not there in 
the previous time, but were either of you ever briefed as to 
the change causing the addendum not to be there?
    Mr. Oynes. When it was brought to my attention in late 1999 
or early 2000.
    Mr. Issa. No, that is not the question. I really want to 
ask----
    Mr. Oynes. I was not briefed.
    Mr. Issa. No one on your staff, to your recollection, ever 
briefed you about the change in the addendum?
    Mr. Oynes. That is correct.
    Mr. Issa. And the same for you, sir? I realize you came in 
at that transition time.
    Mr. Schoennagel. That is correct, yes.
    Mr. Issa. And to your recollection, who briefed you about 
what was in the regulations that by reference are included in 
these leases?
    Mr. Oynes. Mr. Chairman, I don't recall who was the one 
that briefed me on that.
    Mr. Issa. You have 500 people who work for you. It was one 
of them.
    Mr. Schoennagel, when you came in, you have a lot of 
experience here, who briefed you on these leases and how it 
worked and how the references represented the rest of the body 
of the document?
    Mr. Schoennagel. I do not know, and I do not know if I was 
really ever briefed, because the regulation changed in January 
1998, before I was even in that position, and I came in after 
the first----
    Mr. Issa. But you signed leases?
    Mr. Schoennagel. Yes, I did, for the second sale in 1998, I 
believe I signed some.
    Mr. Issa. Did you ever request a briefing, so you would 
understand the document you were signing?
    Mr. Schoennagel. No, I didn't.
    Mr. Issa. Mr. Oynes, did you ever request a briefing? 
Because I think you would remember if you requested a briefing, 
did you ever request a briefing as to the meaning of these 
documents?
    Mr. Oynes. Your question, Mr. Chairman, and I am not trying 
to be evasive, your question is very broad. There are a large 
number of issues brought up in the decision process and in the 
leases. So yes, I was briefed on several issues contained in 
the leases in 1998 and 1999. I could go into specific issues 
but----
    Mr. Issa. Well, the ones we are obviously concerned about--
--
    Mr. Oynes. Right. I was not briefed on this issue, no.
    Mr. Issa. Did you ever request a briefing on that?
    Mr. Oynes. No.
    Mr. Issa. When the interim or the final regulations were 
issued, did you ever request a briefing on either the interim 
of the final, so you would have an understanding of these 
fairly voluminous documents prepared elsewhere?
    Mr. Oynes. No, I did not.
    Mr. Issa. Chevron testified that after notifying you, Mr. 
Oynes, in 1998 and again in 1999 in a meeting you were both in 
that you would have your staff check into the price thresholds 
that weren't in the regulations or the leases. I am going to 
ask this one last time, who did you ask or who would you have 
asked to check into this?
    Mr. Oynes. Since I don't recall that they asked or 
presented that information, I did not ask the staff to check 
into anything. And it would be pure speculation as to who I 
would have asked to check into that.
    Mr. Issa. But you know your org chart, both of you do. Who 
are the people, to your recollection, it is not unreasonable--
500 people don't run an organization. Three or four or five 
report to you.
    Mr. Oynes. I would have probably asked Mr. John Rodey, who 
at that time was head of the sales unit.
    Mr. Issa. Mr. Rodey. And Mr. Schoennagel, who would you 
have asked, if you had been carrying that for your boss?
    Mr. Schoennagel. Probably the same person, John Rodey.
    Mr. Issa. OK. And this goes to both of you, again. Did you 
contact anyone at headquarters after you found out the price 
thresholds weren't in the leases or the regulations? This would 
have been apparently 1999, end of the year, or 2000.
    Mr. Oynes. Yes. I remember that I contacted my immediate 
superior, Carlita Calor.
    Mr. Issa. Do you remember any conversations with superiors, 
Mr. Schoennagel?
    Mr. Schoennagel. No, I don't.
    Mr. Issa. Did either of you change or give orders to change 
the final notices of the sale to reference 30 C.F.R. 203 
instead of 30 C.F.R. 260?
    Mr. Oynes. I did not, Mr. Chairman, in fact, I did not know 
that change had been made.
    Mr. Schoennagel. Neither did I.
    Mr. Issa. Do either of you know of anyone who did give that 
order or is knowledgeable of that order change?
    Mr. Oynes. I am unaware of who made the change or order to 
change.
    Mr. Schoennagel. I am also unaware of that.
    Mr. Issa. Do you believe that this is a change that within 
the purview of your job description as the No. 1 and yours as 
the No. 2, you should have been informed of?
    Mr. Oynes. I believe it should have been brought to my 
attention, yes.
    Mr. Schoennagel. Yes.
    Mr. Issa. So would it be fair to say that people in your 
organization made changes in leases without your authority?
    Mr. Oynes. Without my knowledge, yes.
    Mr. Schoennagel. That is correct.
    Mr. Issa. Now, I asked authority rather than knowledge for 
a reason. You are a hierarchical organization, that change is 
going to cost the Government hundreds of millions, probably 
billions, even after good corporate citizens come back and make 
some adjustments, that we the people are not going to be made 
whole. So back to the question of authority, wasn't it your 
decision to make, and wasn't that decision one that if you had 
made you also would have ensured that the lease reflected it 
properly, with the addendum never being dropped out?
    Mr. Oynes. I think the broad, the answer to that question 
is in general, yes, Mr. Chairman. The only thing I would add is 
that the way our process works, as I mentioned to your staff 
when we had a briefing, is that other individuals and groups 
are involved in the finalization process of that. So as an 
example, some of the other divisions in our headquarters group 
could have been involved in this. I don't know that they were, 
but that is a possibility. But yes, in terms of the broad 
question, it is something I should have been briefed on, and it 
would have been in my authority to at least investigate if not 
to decide the issue.
    Mr. Issa. Mr. Schoennagel.
    Mr. Schoennagel. I would agree for that, for the sale that 
was held in 1998, although I was only in for before I guess 
even this final sale notice was probably issued, before I took 
the office. But certainly for the 1999 sales.
    Mr. Issa. You remind me a little bit of a brand new second 
lieutenant who reports to the company on the day the shotgun is 
lost by an MP, but unfortunately, he's the second lieutenant in 
charge of that MP that day.
    Mr. Schoennagel. It is a very steep learning curve to go 
from just the operational side to the lease, to the pre-lease 
side, from the post-lease side to the pre-lease side.
    Mr. Issa. I have little doubt that we are offering you some 
addition to your learning curve here today.
    Mr. Schoennagel. You are.
    Mr. Issa. Now, you both said that you did not read the 
interim or final regulations. I want to understand. What is the 
role of the New Orleans office in implementing and enforcing 
regulations? And this is obviously relevant to those 
regulations. Are you the organization that has to implement and 
enforce those regulations?
    Mr. Oynes. We certainly are the implementer, the regional 
office, and in terms of the enforcer, we are certainly part of 
the enforcer. It probably goes broader than that, but 
ultimately, we are certainly part of the enforcement of that.
    Mr. Issa. Do you believe that the MMS policy to include 
price thresholds in the leases issued by your region between 
1995 and 2000, in other words, do you believe there were 
supposed to be price thresholds the entire period from 1995 to 
2000 in the Deepwater Royalty Relief Act? Obviously 1995 isn't 
a relevant part, but a little later.
    Mr. Oynes. Yes, absolutely.
    Mr. Schoennagel. I've read the act, and I believe that it 
probably requires that. But again, I am not an attorney that 
can look at the act and then determine whether or not it is 
required.
    Mr. Issa. I guess I will ask just one or two more questions 
and let you off the supposed hot seat, although we announced 
that it was Chevron in those seats. But I suspect they haven't 
cooled down.
    What has been changed, as of today, that would cause me to 
feel that the Congress should sleep well at night, that this 
couldn't happen again? Just the briefest answer, if possible, 
so that I can understand it, simple enough for Congress.
    Mr. Oynes. The staff has been instructed many years ago to 
bring significant issues as they come up in the sale process to 
me. As we speak, a draft has been presented to me on my desk of 
changes in procedures which will create a formal process for 
review of these types of changes and significant issues, if you 
will.
    Mr. Issa. And would you make that draft available to us so 
we can see your progress?
    Mr. Oynes. Surely. It still needs some work, it is a work 
in progress, but it is a draft.
    [Note.--Mr. Oynes has been contacted and never submitted 
answers to the chairman's questions for the record.]
    Mr. Issa. We would appreciate that.
    I am going to close, and I am not going to read exactly the 
prepared statement on this last question, but I want to 
paraphrase it and maybe tone it down just a little. Chevron 
testified that they told you about the missing price thresholds 
in 1998 and 1999. And you both say you don't remember or it 
didn't happen. I have to tell you, by Chevron telling us this, 
volunteering the information in the previous round, coming 
forward, negotiating as early as tomorrow with MMS, they stand 
to lose billions of dollars for their stockholders, rather than 
just not mentioning it, not volunteering it.
    This is something which has at a minimum cost them in the 
court of public opinion a great deal. Because of their 
willingness to try to meet the intent minus in negotiations the 
cost as a result of the misdirection, and whatever that ends 
up, they are still going to give up billions of dollars over 
the life, or at least hundreds of millions, that they otherwise 
believed that in good conscience they were told in 2000 they 
had.
    So I am not going to read the rest of it, and I am not 
going to say I don't believe you. But I will ask you, why is it 
I should believe your lack of memory over a period in which 
others seem to have good memory, good dates, and they have 
nothing to lose but, in a sense everything to gain by 
forgetting?
    Mr. Oynes. Mr. Chairman, I don't think there is anything 
else I can really add that hasn't been already put in the 
record. There are a very large number of issues that are dealt 
with in the regional office, in these meetings with the AAPL. 
We discuss a number of other significant issues, and I don't 
have any better explanation other than that, simply that what I 
am telling you is the truth. I do not recall that we discussed 
those matters.
    Mr. Issa. OK. The same for you, sir?
    Mr. Schoennagel. I don't recall that, and perhaps part of 
my issue is that I really did not understand the leasing 
process, so something that was mentioned may have just gone 
right over my head. Because I was very new to the job at the 
time.
    Mr. Issa. As I have described, I was a butterbar at one 
time, too. I understand, and I had been a private before that. 
So the transition was significant for me, and I certainly 
appreciate your comments.
    I am going to ask one more question along a slightly 
different line, probably because of sensitivity here in the 
Congress and what affects things, I feel this has to be put in 
the record. Have either of you accepted a trip, a gift or 
attended an event paid for by an oil or natural gas company, or 
an individual with an interest in them? Have you accompanied, 
and this is all of the above, any of the above, have you 
accompanied industry representatives on trips on which you 
didn't pay the fair market value of the trip? Any of those. Is 
that part of your job?
    Mr. Oynes. I would say the answer is I have not done any of 
those actions.
    Mr. Schoennagel. Absolutely not.
    Mr. Issa. Well, then I have to report that you are better 
off than most Members of Congress. I appreciate your answer on 
the record on that.
    I am going to close briefly by just putting into the record 
that I am deeply disappointed that this kind of mistake could 
happen, that as of today, subject to material changes in how 
the Department of Interior works broadly, not just in New 
Orleans but here in Washington, it is likely that these 
mistakes are happening again.
    This committee will continue, with the ranking member and 
other members of the committee, to explore this event in hopes 
that we can see how it can be prevented in the future.
    I want to thank you for your testimony today. The record 
will remain open for 2 weeks from this date, so that others may 
forward submissions. With that, we stand adjourned.
    [Whereupon, at 4:55 p.m., the subcommittee was adjourned.]
    [Additional information submitted for the hearing record 
follows:]

[GRAPHIC] [TIFF OMITTED] T5339.022

[GRAPHIC] [TIFF OMITTED] T5339.023

[GRAPHIC] [TIFF OMITTED] T5339.024

[GRAPHIC] [TIFF OMITTED] T5339.025

[GRAPHIC] [TIFF OMITTED] T5339.026

[GRAPHIC] [TIFF OMITTED] T5339.027

                                 
