Exposing Corruption and Preventing Abuse of Power

Interior Department Needs More Oversight to Prevent Corruption Amid a Crisis

Congress should not bail out Big Oil
(Illustration: Leslie Garvey / POGO)

The coronavirus crisis has rightly directed increased public and congressional attention on public health and the economy. Just as Congress passed a roughly $2 trillion stimulus package to help communities and businesses combat the effects of the pandemic, talks about a possible fourth emergency relief bill began. But lawmakers should not take this as an opportunity to bail out the oil and gas industries, or provide regulatory relief at the taxpayers’ expense without conducting rigorous oversight.

The government should be upholding its responsibility to collect taxpayers’ fair share of revenue from extraction on publicly owned lands—not shirking that responsibility to instead shore up mining companies’ bottom lines.

In recent weeks, the extractive industry has pursued two paths to reduce the financial impact caused by the coronavirus pandemic. First, following concerned calls to the White House from oil and gas companies, the administration proposed a $3 billion bailout for big oil in the recently passed stimulus package, though the bailout was removed before the bill passed. Second, the industry used the pandemic as an excuse to send a laundry list of priorities to the White House, including loosening rules and regulations designed to ensure taxpayers receive a fair share of the resources extracted on public lands, as well as rules intended to improve safety and protect the environment. While the world’s attention is on the crisis at hand, we worry that policymakers with close ties to the oil and gas industries, as well as the mining sector, could try to use this moment, and the potential for billions of oversight-free dollars to aid industry, as a shield to act in the interest of their industry contacts and former clients instead of in the public interest.

The extractive industries have a history of deliberately concealing the value of oil and gas extracted from public lands, with the apparent intent of underpaying royalties to the federal government. In addition, these industries have benefited for far too long from the federal government’s continued failure to collect billions of dollars in owed revenue from natural resource leases.

Numerous high-level officials at the Interior Department have conflicts of interest, from recent employment in or lobbying for the industry they now regulate, to continued contact with former clients on policy matters they should recuse themselves from working on. At the top of the list is Interior Secretary David Bernhardt, who has an “unprecedented” level of connectedness to the industry. Such coziness with the industry could give the companies an unfair competitive advantage in seeking carve-outs in potential future economic relief efforts. The Project On Government Oversight (POGO) is continuing to keep an eye on the Interior Department to ensure sure conflicted officials aren’t unduly influencing emergency spending amid a public health and economic crisis.

No Bailouts for Extractive Industries

The coronavirus pandemic and a price war between Russia and Saudi Arabia have caused global oil prices to plummet, essentially slamming the breaks on America’s booming energy sector. In fact, last month, oil prices reached their lowest levels in nearly two decades. Responding to this drop in the oil market, Harold Hamm, the founder of American oil company Continental Resources and a supporter of and advisor to the president, has reached out to the administration and encouraged it to protect the oil industry. It appears the administration has been working to do just that.

In the run-up to the passage of the stimulus bill, executive branch officials and industry groups pushed for measures to support the extractive industries. Federal purchases of oil to fill the nation’s Strategic Petroleum Reserve, trade barriers to protect the domestic industry, and low interest loans have all been floated as potential policy solutions. Though those measures did not make it into the final bill, if Congress considers a subsequent relief package, we should expect to see similar efforts to include assistance for the extractive industries again.

On March 19, Energy Secretary Dan Brouillette announced he would request that Congress appropriate $3 billion to replenish the nation’s strategic oil reserve. The same day, Treasury Secretary Steven Mnuchin supported spending as much as $20 billion to fill the reserve. The initial draft of the stimulus bill released by Senate Majority Leader Mitch McConnell on March 21 did not include a specific carve-out for the oil and gas industry as it did for the airline and air cargo industries. However, in subsequent drafts of the bill, the $3 billion request for replenishing the reserves was included, only to be cut at the last minute by Senate Democrats, who called it a “bailout for big oil.”

Are these lawmakers trying to protect their constituents or the industry?

The extractive industries also appear to be seeking legislative reforms that would result in millions of dollars in potential savings. On March 18, the National Mining Association, the primary mining lobby in Washington, DC, sent a letter to House and Senate leadership seeking financial relief. Besides requesting all aspects of the coal industry to be designated “critical infrastructure,” the letter asks for millions of dollars in tax and royalty relief. In 2019, the federal government collected more than $444.5 million in royalties and other fees for coal extraction on federal land. Especially because federal emergency spending during the current crisis has already reached nearly $2 trillion, the federal government should be upholding its responsibility to collect taxpayers’ fair share of revenue from extraction on publicly owned lands—not shirking that responsibility to instead shore up mining companies’ bottom lines.

As POGO highlighted in a September 2019 report, now-Interior Secretary David Bernhardt agreed to speak at the association’s October 2017 board of directors meeting. Bernhardt’s appearance at the meeting at the very least gives the appearance of a potential conflict of interest, as he now leads the government agency that regulates mining extraction on federal lands. This appearance is exacerbated by the fact that Bernhardt formerly represented a number of oil, gas, and mining interests as a lobbyist. Moving forward, Bernhardt could be a powerful advocate in persuading Congress to pass subsequent legislation granting temporary relief for the industry.

The oil and gas lobby is also seeking relief through regulatory avenues. While the American Petroleum Institute has stated it has “no interest in engaging in discussions about bailouts” and that “this is not something we are advocating for,” the lobbying group is seeking regulatory relief designed to save companies a significant amount of money. In other words, this regulatory relief would amount to a bailout in disguise. On March 20, the lobbying group sent a letter to President Donald Trump requesting that the administration waive “non-essential compliance obligations” imposed by several government agencies. The Environmental Protection Agency has already acted on relaxing enforcement of 17 requirements for the industry, 16 of which the lobbying group had explicitly requested in a letter to the agency.

At the Department of the Interior specifically, the group asked to waive reporting and auditing requirements, leasing and permitting considerations, and nonessential training. Considering leases alone can bring in millions of dollars, it’s safe to say this relief would result in significant savings for the industry. When you factor in other savings such as labor costs, legal fees, and other associated costs, the savings could well be worth millions to the industry. This behind-the-scenes avenue for seeking a bailout could be an attempt to prevent a backlash of the sort that followed other industries in the past, such as the banks and auto industry a decade ago that did receive a traditional bailout. The bailouts during the Great Recession caused a public relations disaster for the banks, as the public was angered that taxpayer dollars went toward bailing out companies whose CEOs continued to make millions—and that lawmakers had voted to approve the bailouts. It would be no wonder if the oil and gas industry wouldn’t want to be perceived as receiving direct payments from the government.

Many of the reforms the industry is requesting would not require congressional action. Some could be achieved administratively through existing authorities already granted to the Interior Department and Bernhardt. For example, under the Outer Continental Shelf Lands Act the interior secretary can set royalty rates for oil and gas in federal waters. Last month, 14 members of Congress sent a letter to Bernhardt urging the department to temporarily grant offshore royalty relief for companies drilling on federal lands in order to protect the domestic oil industry and U.S. jobs directly and indirectly involved in the extractive industries. (It’s worth noting that the leader of the House letter, Texas Republican Dan Crenshaw, received a $2,500 contribution from the American Petroleum Institute’s political action committee last March.) On March 30, a dozen Republican senators sent a similar letter to Bernhardt requesting royalty relief for the extractive industries. (Six of these senators have received a total of $21,000 from the American Petroleum Institute’s political action committee since 2017.)

However, the argument that reducing royalty requirements would help preserve jobs is flawed. Americans are still consuming oil and gas, as they are continuing to drive their cars and heat their homes. Furthermore, when this crisis ends there will likely be increased demand, and prices will begin to rise again. Oil and gas are commodities, and like all commodities their prices rise and fall over time. The nonpartisan Congressional Budget Office estimated that increasing the federal royalty rate for onshore oil and gas to match the offshore rate could increase revenue to the federal government by as much as $200 million over 10 years with little or no impact on production levels. Furthermore, the Government Accountability Office found that offshore leases that had been awarded between 1996 and 2000 with a guarantee of no royalties on initial volumes of production resulted in about $18 billion in foregone royalties through 2018. The reduction of royalty rates seems like a market intervention that would likely only benefit the industry, not consumers. This raises the question: Are these lawmakers trying to protect their constituents or the industry?

The coronavirus outbreak has also put pressure on state and local budgets, due not only to the need for increased spending to cover unemployment insurance and coronavirus testing, but also the loss of tax revenue from the many affected industries and the drop in oil prices. During negotiations over the bailout, Senate Democrats initially wanted as much as $750 billion for state stabilization efforts; the stimulus package ultimately allocated $150 billion to the states. Given the reduction in state and local tax revenue, it would be unwise to reduce or eliminate oil and gas royalties in this period. This money goes to the federal treasury as well as to state and local governments, and some states depend on that revenue to fund key programs for the public. This is not the time for the government to be passing up potential revenue, but instead to be looking for ways to increase revenue.

More Oversight is Needed

It’s important to stress that the need for increased oversight of the oil and gas industry in the United States is not new. For decades the industry has engaged in practices designed to undervalue the resources it extracts from public lands—resources and land owned by the taxpayer. What is new, however, is COVID-19, which has brought with it the potential for industry to use it as an opportunity to benefit financially.

Amid the ongoing pandemic, the Interior Department is continuing business as usual when it comes to offshore leasing of public lands. But the department’s practices, combined with its leaders’ close ties to the industry they regulate, demonstrate the urgent need for more robust oversight while the country’s attention is largely elsewhere, to make sure Interior is putting the public, not industry, first. Oversight is needed now more than ever.

In March—as more cases of COVID-19 were confirmed, Americans continued to socially distance, and state and federal leaders gave daily updates on the pandemic—the Interior Department’s Bureau of Ocean Energy Management conducted an auction for leases in the Gulf of Mexico. The auction brought in more than $93 million in high bids. This figure is significantly less than the previous auction, in August 2019, which brought in more than $159 million, and the auction a year ago which brought in more than $244 million in high bids. That means this month’s auction represented a more than 42% decline since August 2019 and brought in almost 62% less than the auction last March. While the sharp decrease in bid revenue could potentially be attributed in part to the recent drop in oil prices, reporting by POGO and the Government Accountability Office (GAO) suggest that Interior is increasingly leaving money on the table from oil and gas leases.

This money could be used to help purchase personal protective equipment, fund unemployment benefits, and develop a vaccine and treatment for COVID-19, not increasing the profit margins of the extractive industries.

In a report released last fall, the GAO identified two procedures the Interior Department had engaged in for decades that may not have resulted in a full fair market value return for oil and gas leases: retroactively lowering its valuations of tracts of seafloor in order to accept bids that would be unacceptable under the bureau’s stated procedures, and accepting lower bids because it unreasonably determined the tracts might be worth less in the future. Together, these procedures are estimated to have led to more than $1.4 billion in forgone additional bid revenue from March 2000 to June 2018, according to the GAO.

This recent history should now raise key questions for lawmakers and the public: Is the Interior Department continuing these egregious policies while taxpayers and overseers are focused on other more pressing issues? As the country contends with a pandemic, and the government dedicates significant amounts of money to emergency relief for the American people, Interior should be working to guarantee it is bringing in all the revenue it can. For its part, the Bureau of Ocean Energy Management should be making its enforcement of the law more rigorous, not less.

The administration is also continuing to lease onshore public lands, raising far less revenue from auctions than it did a year ago. On March 19, the Bureau of Land Management completed a quarterly onshore oil and gas sale in its eastern region that resulted in three parcels of land totaling almost 322 acres bringing in almost $13,000. This means that combined bids plus fees from the sale averaged just over $40 an acre. On March 24, the bureau held another auction of 71,689 acres of land, which raised $3.4 million, or an average of just over $47 per acre. In comparison, a lease sale almost a year ago of 96,000 acres raised $11.8 million, or an average of almost $123 per acre.

The department’s history of auctioning off land during difficult times, when the public is more concerned about other pressing issues, emphasizes why more oversight is needed during this pandemic. As the Western Values Project notes, during the 2018-2019 federal government shutdown, the Interior Department approved 73 drilling permits for companies belonging to the three of the country’s major oil trade associations. Those associations, the Independent Petroleum Association of America, National Ocean Industries Association, and the U.S. Oil and Gas Association, are all former clients of Bernhardt’s.

Continuing to auction off public lands during a pandemic requires heightened oversight to ensure American taxpayers are receiving their fair share for publicly owned land and resources. Otherwise, these leases are effectively just a giveaway to the industry, allowing companies to increase their profits at the public’s expense, benefiting shareholders rather than taxpayers. The Interior Department needs strong leadership now more than ever to ensure conflicts of interest don’t enable corruption. And in times of crisis, it’s all the more important that public officials avoid even the appearance of a conflict of interest. However, it appears this department lacks such independent and accountable leadership.

Profiles in Courage Conflicts

Key leaders in the Interior Department have significant conflicts of interest. The backgrounds and conduct of these officials raise questions about who they really are working for. Are they working in the taxpayers’ interest, or are they actually working to benefit their previous employers and clients?

Let’s take a look at these officials, their ongoing conflicts of interest, and why those conflicts matter now.

David Bernhardt has served as interior secretary for almost a year. He previously served as deputy to former secretary Ryan Zinke, who resigned amid investigations into his business dealings, travel, and policy decisions. Immediately following Bernhardt’s confirmation, the agency’s inspector general announced an investigation into Bernhardt.

The inspector general investigated whether Bernhardt pursued policies designed to help a former client, Westlands Water District, and whether he continued to lobby for clients up to the month before his nomination, contrary to official paperwork he filed stating that he had stopped lobbying months before he was nominated for a position at Interior. This possible conflict of interest resurfaced late last year when the department proposed a contract to grant Westlands permanent access to lucrative federal irrigation water supplies. The contract was approved in February. Before he joined Interior, Bernhardt’s former firm earned $1.3 million for lobbying services on behalf of Westlands between 2011 and 2016.

The Westlands example does not appear to be an isolated case. According to an analysis of lobbying disclosures by Western Priorities, three dozen companies paid Bernhardt’s firm nearly $12 million to lobby Interior, and 19 of those companies hired the firm after Bernhardt’s nomination. Once Bernhardt was confirmed, this analysis found that the majority of these clients saw their projects advance.

Lawmakers should not take this moment as an opportunity to bail out the struggling oil and gas industries, or provide regulatory relief at the taxpayers’ expense without conducting rigorous oversight.

During his confirmation process, the Center for American Progress reported that Bernhardt had more conflicts of interest than any other nominee for a Cabinet position during the Trump administration. Out of 27 former clients and employers Bernhardt disclosed on his ethics forms, the Center for American Progress found that 20 had actively lobbied the Interior Department since the beginning of 2017.

Furthermore, a recent report by the online news outlet Sludge found that even though Bernhardt was barred from meeting with Halliburton Energy Services until August 3, 2019, because of possible conflicts of interest, he met on three occasions in 2017 and 2018 with lobbying groups that represent the company, a period when he served as the deputy secretary. In addition, records show that in May 2018 Bernhardt met with Shell Oil, a member of the National Ocean Industries Association, one of the lobbying groups on his recusal list. This revelation came after the department acknowledged the secretary’s staff was intentionally omitting from his calendar potentially controversial meetings with industry representatives, including those from the extractive industries. This level of connectedness to the industry he’s supposed to be regulating is unethical.

Katharine MacGregor was recently confirmed as deputy secretary of Interior. According to a November 2019 report by the Center for Investigative Reporting, when she was an aide to former secretary Zinke, MacGregor helped to fast-track a drilling permit for Cimarex Energy Co., despite the fact that the company’s application was “deficient” and “incomplete.” Dating back to her time as a senior aide on the House Committee on Natural Resources, MacGregor had developed close relationships with key industry lobbyists. After she joined the Interior Department, those contacts later reached out directly to her after she joined the department when they hit regulatory roadblocks.

Pacific Standard magazine reported in 2018 that MacGregor had been instrumental in canceling a health study by the National Academies of Science on the impacts of coal mining in Appalachia. The mining industry had opposed the study, and, according to Pacific Standard, in the months before it was canceled, MacGregor met with several of the country’s top mining lobbyists, including representatives from the National Mining Association.

MacGregor has also played a key role in the administration’s effort to expand offshore drilling. In a 2018 report, Drilling Down: Big Oil’s Bidding, POGO highlighted MacGregor’s role in implementing the Trump administration’s plan to put more public land on the auction block—a plan that fits a decades-long pattern of the government engaging in a virtual giveaway of offshore drilling rights to private industry. Based on her reported record and connections to industry, the public has reason to ask whether MacGregor is working for the American people or her industry contacts. When these contacts again run into permitting issues there’s no reason to believe they won’t directly reach out to her again, and there’s no reason to believe she won’t again try to help them, even if that might not be in the public’s best interest.

Susan Combs was confirmed as the department’s assistant secretary for policy, management and budget in June 2019. As her nomination was stalled in the Senate for nearly 700 days, Combs began working at the department in a variety of acting roles. In March 2018, she was appointed acting assistant secretary for fish and wildlife and parks, and in August 2018 she began working in her current Senate-confirmed role in an acting capacity, although her official title at the time was senior advisor to the secretary.

Before joining Interior, Combs served as a Texas state representative, state comptroller, and state agriculture commissioner. As comptroller, she was hostile to expanding the list of endangered species and has advocated for reforming the landmark Endangered Species Act, calling it “cumbersome and ineffective.” (The Department of the Interior and its Fish and Wildlife Service administer the Endangered Species Act.) According to the Independent Petroleum Association of America, in recent years, the law has been used to impede oil and gas development on federal lands.

Combs is closely connected to the oil and gas industry. According to the National Institute on Money and Politics, Combs received more than $900,000 in contributions from the oil and gas sector during her tenue in Texas politics. In addition, as reported by Global Witness, in the year and a half before her nomination, her financial disclosure showed that Combs earned between

$271,000 and $2.1 million in rent and royalties from six oil companies for leases on her properties in Texas. (It’s important to note that financial disclosures only report the ranges of specific financial transactions.)

As assistant secretary for policy, management, and budget, Combs is responsible for budget, policy development, acquisition, and other key functions. This means Combs has an instrumental role in the department’s reorganization plan, including relocating the Bureau of Land Management’s headquarters out west. As highlighted by Global Witness, the oil industry is supportive of the department’s reorganization as it would help “streamline permitting and approvals” and reduce or eliminate what it calls “unnecessary barriers to oil and natural gas development.” As Rolling Stone reported, although she pledged not to involve herself in any matter involving the oil companies that she received royalties from, or trade associations that represent them, it is unclear if she got approval from Interior’s ethics office to work on the reorganization plan supported by the oil industry.

Given Combs’s close connections to and personal financial interest in the extractive industries, lawmakers and the public would be right to wonder: Can we be sure that the decisions she makes at Interior will be in the best interests of the department and the American people, or of the industry?

William Pendley joined the department as deputy director of policy and programs at the Bureau of Land Management in July 2019, and since September has been “exercising authority of the director.” On April 3, Bernhardt once again extended Pendley’s term until May 5, subject to further extension. It appears that Pendley will be in charge of the bureau in this role unless and until Trump nominates and the Senate confirms him or someone else to serve as director on a permanent basis. It has been more than 1,100 days since the bureau has had a permanent, Senate-confirmed director.

Pendley spent almost 30 years as the president of the Mountain States Legal Foundation, a nonprofit law firm that has represented clients in suits overt federal land use restrictions and other property rights issues. Together, Pendley and the Mountain States Legal Foundation filed at least 40 lawsuits against the Interior Department, and some of the cases that began while Pendley was president of the foundation were still ongoing when Pendley assumed the duties of the director.

Not only that, but in April 2025, Pendley will begin receiving lifelong payments from the Mountain States Legal Foundation as part of a charitable gift annuity valued between $250,000 and $500,000. In other words, he will continue to have financial ties to the foundation throughout his time at the Bureau of Land Management. When he assumed the role of acting director in September, Pendley released a 17-page recusal list highlighting a number of people, companies, and advocacy groups he must avoid while working at the Bureau of Land Management, including the National Mining Association and several oil companies. As mentioned above, the association has directly asked Congress for assistance during this pandemic, and there’s no reason to trust that Pendley won’t do what he can to seek relief for the industry administratively.

Pendley’s history of close ties to the oil, gas, and mining sectors goes all the way back to the Reagan administration. In 1982, while serving as deputy assistant secretary of energy and minerals, he approved below-market coal leases in the Powder River Basin the same day he dined with coal executives. Pendley resigned not long after the GAO published the results of an investigation into him and others at the department. Given these unethical decisions taken by Pendley during his first stint at Interior, it’s astonishing he has returned and is now acting as director of the Bureau of Land Management.

Pendley’s history of advocating for the oil and gas industries raises questions about potential conflicts of interest that could complicate the agency’s handling of leases and management of our nation’s public lands. It is for these reasons that a dozen senators signed a letter requesting that Bernhardt terminate Pendley’s acting director authority.

Congress Must Act

In this time of crisis, are the people tasked with making crucial decisions at the Interior Department people we can trust to make decisions that benefit the public, or will they instead bail out their friends in industry and focus on them? During the current pandemic, it’s imperative for Congress to conduct rigorous oversight. With tens of billions of dollars on the table in potential revenue for natural resources, the government should be working to ensure it collects as much money as possible from these publicly owned resources to help the American people. Congress should keep in mind that this money could be used to help purchase personal protective equipment, fund unemployment benefits, and develop a vaccine and treatment for COVID-19—all purposes far more urgent than increasing the profit margins of the extractive industries.