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Project on Government Oversight

POGO Royalties-In-Kind Report: Drilling The Taxpayer

Related Content: Oil & Gas Royalty Revenue
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September 17, 2008

The Department of the Interior’s Minerals Management Service (MMS) continues their fatal attraction to the oil and gas industry, with no signs of the cozy relationship cooling. Last week’s salacious findings in the Department’s Inspector General report cited specific instances of corruption, inappropriate relationships, and conflicts of interest. A report, Drilling the Taxpayer: Department of Interior’s Royalty-In-Kind Program is being released today by the Project On Government Oversight illustrates that those scandals are only symptoms of a much larger problem in the royalty collection program.

For years, POGO has questioned the MMS royalties-in-kind (RIK) program. Royalties are the second largest source of federal revenue outside of Internal Revenue Service collections. Nearly half of those royalties are collected in kind—in the form of crude oil or natural gas—rather than in cash. The product is then sold in the marketplace, returning the proceeds to the Treasury. POGO ’s report, the fifth in a series about royalties, tracks how industry’s influence on the RIK program has been pervasive, and can be traced from the program’s inception through its expansion into the full-blown program that exists today. POGO now demands the program be abolished.

“The IG tried to find evidence of a quid pro quo for the presents and trips given to government employees. Perhaps, the evidence was so big the IG missed it. The program itself is the gift industry wanted in return. It is clear from the facts that the gas and oil industry’s pals in MMS implemented a program tailored to the industry’s benefit, defended its unverifiable book-keeping, and expanded the program without any regard for good governance or accountability,” said Danielle Brian , POGO Executive Director.

POGO ’s report found that the program lacks standard taxpayer protections, avenues for public participation, regulations to explain the program, and professional audits, and is surrounded by secrecy.

Essentially, the RIK program asks taxpayers to trust that industry delivers the correct amount of oil or gas to the government in lieu of cash, but has reduced oversight to such a degree that the GAO labeled RIK’s management “an honor system.” “That honor system has failed, and it’s time to shut the program down,” stated Brian.

Founded in 1981, the Project On Government Oversight (POGO) is a nonpartisan independent watchdog that champions good government reforms. POGO’s investigations into corruption, misconduct, and conflicts of interest achieve a more effective, accountable, open, and ethical federal government.

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