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Opening Remarks of U.S. Rep. Nick J. Rahall, II
Chairman, Committee on Natural Resources
Hearing on "Royalties at Risk"
March 28, 2007
The Committee on Natural Resources is convening today to conduct a hearing on "Royalties at Risk."
In recent years, many of us have witnessed a sorry pattern across the spectrum of Federal agencies. At every henhouse, a fox is stationed. The well-connected few are rewarded at the expense of the common folk. And all the while the people's branch has been looking the other way. The Minerals Management Service (MMS) exemplifies this troubling pattern.
Throughout the last several years, MMS seems to have drifted further and further into the grasp of the oil and gas industry. No doubt this occurred, in part, because of the agency's dual and conflicting roles. On the one hand, MMS is charged with developing energy resources on our public lands. On the other hand, it is supposed to collect, at a fair value, payment owed the people for development of the resources they own. But something has gone wrong.
Development has been thriving. Oil and gas drilling has dramatically increased. It is obvious by the sheer number of rigs that are sprouting up all over the West and drilling platforms in the Gulf of Mexico. The energy development function at MMS has been running at full throttle. But when it comes to collecting the payment due the people, the agency has stalled. At best, its performance might be described as slipshod, but some argue it is something more sinister.
Further complicating the collection capability of the MMS is the Royalty-in-Kind program - a program I have consistently raised concerns over. The RIK program was designed to allow energy companies to pay the government in-product rather than in-cash. But it has become an elusive mess. For MMS, tracking money was hard enough, but following the flow of oil has proven to be slippery business indeed. By some accounts, the Royalty-in-Kind program has served as a giant loophole, allowing wealthy companies to forgo fair payment to the public.
To make matters worse, in 2000 the agency further watered down its audit function through a process known as "compliance review." Under this regime, fewer and fewer audits are being conducted even as more and more energy is being produced. Some seasoned auditors tried to raise red flags, but they were ignored or pushed aside.
As a result, the people back home who are struggling to pay the mortgage, buy the groceries and pay their annual tax bill have been getting tougher treatment from Uncle Sam than do wealthy multinational oil conglomerates.
The MMS, by necessity, works closely with representatives of the oil and gas industry. But in far too many instances, that closeness has taken on the distasteful appearance of coziness. It is becoming clear that the agency has acted to the benefit of the industry and the detriment of the public. The recurring questions are: To what extent did it do so deliberately? How can it be fixed? And what can be done to prevent it from happening again?
This Committee has long neglected its duty to explore those questions. That ends now. I thank the witnesses for taking the time to be with us today and I look forward to hearing your testimony.
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