MMS staffer says was told to omit royalty language from OCS deals

Washington (Platts)--13Sep2006

An employee of the US Minerals Management Service responsible for
preparing deepwater US Gulf oil and gas drilling leases in the late 1990s was
told by officials from two agency divisions to remove price thresholds for
royalty relief, a top Interior Department official will tell House lawmakers
Wednesday.

Interior Inspector General Earl Devaney, due to testify at 2 p.m. EDT,
will say that the MMS intended to include price thresholds in hundreds of late
deepwater leases, but failed to do so, apparently because of "bureaucratic
bungling," according to a copy of his testimony.

In the testimony he will give to a Government Reform subcommittee
investigating why the price thresholds were left out of 1998 and 1999 oil and
natural gas lease agreements, Devaney will say his ongoing investigation is
unlikely to find a "smoking gun."

Inclusion of the price thresholds would have cut off royalty relief at a
certain price. The MMS employee who said he was instructed to remove the
thresholds took a polygraph test and passed, Devaney IG said.

The officials in the economics and leasing divisions denied telling the
employee to remove the thresholds. One official submitted a sworn statement
and passed a polygraph. The IG said two other division officials declined to
do the same.

Devaney also said his review of some 11,000 MMS emails showed that
officials made a concerted effort not to advise the agency's director about
the omission of the price thresholds. The Government Accountability Office has
said the missing provisions could cost the US Treasury more than $10 billion.

--Mike Schmidt, mike_schmidt@platts.com

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