Interior official defends agency's oil lease management

A top deputy in the Interior Department on Thursday defended the agency's commitment to accountability and effectiveness in managing offshore oil and gas leases, while criticizing a damning report on the matter by the Interior Department inspector general as "vague" and a "broad-brush characterization."

In testimony before the House Government Reform Committee, Deputy Secretary Lynn Scarlett responded to Inspector General Earl Devany's report on the failure to collect up to $10 billion in royalties from deepwater leaseholders in the Gulf of Mexico. In earlier testimony, Devany told a subcommittee that a "classic bureaucratic" blunder in 1998 and 1999 had led to the lapse in royalty payments and that the whole department had a long history of irresponsible and unaccountable management.

"He [Devany] makes broad and serious, yet vague, allegations," Scarlett said. "The department disagrees with the IG's broad-brush characterization. We take seriously any and all instances in which we find -- whether through our own management efforts or from IG investigations -- waste, fraud, ethical violations and other inappropriate actions."

Scarlett and Johnnie Burton, director of the agency's Minerals Management Service, went over in some detail how the major lapse had occurred, and went on to describe steps taken to prevent a recurrence. Both officials also said that subsequent royalties owed to the government had been collected since 2000 and will continue to pour into the Treasury as long as oil and gas revenues produced from deepwater wells remain high.

Both Republicans and Democrats on the panel continued to express outrage at the mismanagement, and demanded that disciplinary action be taken against any Interior officials who were responsible for the loss of revenue. The Government Reform Energy Subcommittee conducted its own inquiry of the situation. The subcommittee's chairman, Rep. Darrell Issa, R-Calif., pledged to support efforts dictated by Congress to retrieve the lost royalties.

He and Government Reform Chairman Tom Davis, R-Va., also denounced a five-year coverup of the lapse in payments and called on Interior Secretary Dirk Kempthorne to hold to account those responsible for the mismanagement.

Meanwhile, House Government Reform ranking member Henry Waxman, D-Calif., and Rep. Edward Markey, D-Mass., chided the Bush administration for opposing the House-passed bill that requires the Interior Department to bar energy companies that benefited from the lapse in payments from future oil and gas leases unless they make good on the royalties they failed to pay.

On that score, Scarlett said the White House "believes that the federal government must be a reliable business partner and must honor its contractual obligations, even when in retrospect the terms of those contracts appear unfavorable."

She said the department is engaged now in "voluntary negotiations" with the affected leaseholders to see if they can be coaxed into coughing up the money. Burton acknowledged, however, that of the 55 companies that own interests in the 1,032 deep water leases, only 20 have responded so far to the department's call for talks.