"Ken Salazar knew when he became interior secretary that he was inheriting a department with a reputation for shady behavior and for cozying up to the industries that it is supposed to regulate. On Wednesday, Mr. Salazar took a big step toward creating a more transparent and responsible agency. He announced his intention to kill a scandal-ridden oil and gas royalty program that had cheated taxpayers of millions of dollars through corruption and incompetence.

The target for extinction is the royalty-in-kind program, which is administered by the department’s Minerals Management Service. The service collects about $12 billion a year in royalties from oil and gas production on federal property, onshore and in waters like the Gulf of Mexico. Of this, about half is paid not in cash but in oil and gas, which the government then sells to refiners on the open market or, when necessary, diverts to the Strategic Petroleum Reserve.

Under Mr. Salazar’s plan, the government will henceforth collect all its royalties in cash. This should be more easily administered and more transparent than payment-in-kind, which is vulnerable to manipulation at either end of the transaction. Oil can be overvalued when the government buys it or undervalued when it is sold. A series of reports have found that, for one reason or another — sheer laziness was often a factor — the service had failed to collect many millions of dollars in royalties it was owed under the program."

Get the Story:
Editorial: Trust and the Interior Department (The New York Times 9/18)

OIG Reports:
Gregory W. Smith | MMS Oil Marketing Group - Lakewood | Federal Business Solutions Contracts

GAO Documents:
Federal Oil And Gas Management: Opportunities Exist to Improve Oversight | MMS Could Do More to Improve the Accuracy of Key Data Used to Collect and Verify Oil and Gas Royalties | Royalty-In-Kind Program: MMS Does Not Provide Reasonable Assurance It Receives Its Share of Gas, Resulting in Millions in Forgone Revenue

House Natural Resources Committee Hearings:
Full Committee Legislative Hearing On H.R. 3534, The CLEAR Act (Part 1) | Full Committee Legislative Hearing On H.R. 3534, The CLEAR Act (Part 2)

Related Stories:
Interior to phase out troubled royalty program (9/17)