Congress Turns Its Attention to Royalty Collection

The Department of Interior will soon be implementing a host of new changes to its program to collect royalty revenues from companies producing oil and gas on federal lands. In a report released last December, the agency's independent Subcommittee on Royalty Management detailed over 100 recommendations to improve the program.

Now members of Congress are starting to weigh in. The Senate Appropriations Subcommittee for Interior met on February 26 to hear testimony from agency officials and the co-chairs of the Subcommittee on Royalty Management. Tomorrow, the House Natural Resources Subcommittee on Energy and Minerals will also hold a hearing to examine the recommendations and the royalty program in general.

POGO submitted written testimony for tomorrow's hearing which concludes that, although many of the Subcommittee's proposed changes are long overdue, the recommendations still do not go far enough to correct many fundamental concerns. To address these concerns, POGO included additional reforms that should be considered:

  1. Presidential appointment and Congressional confirmation for the Director of the Minerals Management Service would provide additional oversight and scrutiny of the agency, as well as elevate the status of one of the largest non-tax revenue operations within the federal government.
  2. Moving the compliance and audit function out of MMS is a critical step to improving the independence of the agency from oil and gas companies and reducing conflicts of interest within the agency. The same people responsible for working with companies to see that federal lands are used to their greatest leasing potential and working in partnership with those companies to sell royalty oil should not also be in charge of auditing those companies.
  3. Transparency of MMS leases, contracts, documents, and procedures is paramount to reducing opportunities for fraud and increasing public confidence in the agency.
  4. An independent and public study of the royalty in kind program and its use to fill the nation's Strategic Petroleum Reserve should be commissioned to determine if this is in the best interest of the taxpayers. While this program may have many benefits, evidence is mounting that it compromises the integrity of the agency and squanders taxpayer money through inefficiencies.

The Subcommittee's report received little debate when the Royalty Policy Committee voted on January 17 to send the recommendations to Secretary Kempthorne, despite a letter from POGO to the Committee stating that the report did not address basic, systemic royalty concerns. The Secretary accepted the report a week later and ordered that all administrative recommendations must be implemented. POGO commends Congress for taking an active role in response to the Subcommittee's report and hopes that this will be a catalyst for future action to improve royalty collections and look out for taxpayers.