<DOC>
[109th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:35339.wais]
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
______
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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
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:]
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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:]
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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:]
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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.]
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