Ken Salazar pulls the plug on a boneheaded royalty scheme
One of Ken Salazar's first moves as Secretary of the Interior was to visit the Lakewood office of the Minerals Management Service, an obscure agency responsible for collecting billions in oil and gas royalties from companies drilling on federal lands, and vow to clean up the place. As detailed in my April feature, "The Zen of Ken," the heavily symbolic moment came complete with cowboy hat, bolo tie and tough talk about a new sheriff in town.
Nine months later, the former Colorado senator is finally taking substantive steps to go along with the symbolism. In this speech to the House Committe on Natural Resources on September 16, Secretary Salazar announced that he was terminating the MMS royalty-in-kind program, a much-criticized experiment in letting foxes guard hen houses.
Royalty-in-kind (or RIK, as acronym-crazed bureaucrats know it) was supposed to streamline the agency's dealings with energy companies by allowing the government to collect payment in the form of actual oil and gas reserves rather than cash. Originally conceived by the Clinton administration, it took off in the Bush years, as industry-leaning officials looked for ways to make the Department of the Interior more "responsive" to the needs of energy producers. What better way, the argument went, than by making the government take its own crude to market?
But RIK quickly became a magnet for scandal. In the Lakewood office, MMS employees who were supposed to be overseeing royalty collection became entirely too cozy with energy company execs. There were improper gifts, boozy parties and sexual relationships, even allegations of in-office drug use, leading to a scathing internal investigation and some very embarrassing press (see last year's "Crossing Over"). Yet the greatest damage done by the program may be the way it led to a drastic decrease in the auditing of royalty payments -- essentially leaving it up to the industry to do the right thing. As Bobby Maxwell, the MMS whistleblower I first wrote about in 2005's "Duke of Oil," wildcatter Jack "Fighting Mad" Grynberg and other MMS critics have shown, the government has lost millions, if not billions, in royalty revenues thanks to RIK and other "business-friendly" schemes.
Salazar knows that MMS is ripe for reform. Getting rid of royalty-in-kind is an important first step on that road to high noon.