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Under a Cloud of Scandal, Minerals Officials Flee Interior Department

On Tuesday, Greg Smith, the head of the beleaguered Royalty-In-Kind program at the Department of Interior Minerals Management Service (MMS) announced he is retiring. According to an email sent out at the agency, his last day is May 25. His retirement follows the announcement on May 7 that MMS Director Johnnie Burton is retiring by the end of this month.

According to a biography which had been posted on the internet in 2004, Mr. Smith had a "21-year Federal career" at that point (via the Waybackmachine). Early option or discontinued service retirement can be given to any employee who is at least 50 years old and has 20 years of federal service or to any employee of any age who has 25 years of service.

The Department of Interior Inspector General is slated to issue reports this summer concerning its investigations into the numerous problems at the MMS. In December 2006, the New York Times reported that the Justice Department had initiated a criminal investigation into the RIK program. In addition, whistleblowers at the MMS filed False Claims Acts lawsuit on RIK leases against Eni Petroleum, Shell, and Agip Exploration alleging that they had improperly deducted almost $20 million in transportation costs.

The Royalty-In-Kind program allows oil companies to pay drilling fees in oil or gas instead of paying in cash. It was widely promoted by the oil industry prior to its broad scale implementation. The program has experienced meteoric growth in recent years, despite repeated criticism from watchdogs including the Government Accountability Office.

Today, House Natural Resources Committee Chairman Nick Rahall will hold a hearing on energy legislation which includes a provision to shrink the RIK program for use only in the filling the federal government's Strategic Petroleum Reserve. Committee staff have noted that the RIK program is fraught with problems.

According to the Interior Department's 2005 annual report on RIK: "As of the end of FY 2005, MMS took in kind approximately 75% and 30% of the crude oil and natural gas royalty volumes, respectively, produced daily in the Gulf of Mexico ."