Rogue Bureaucracy is a look back through recent years at the patterns of U.S. Department of Interior/Federal mismanagement - deliberate mismanagement in the author's opinion - of oil, gas, and other minerals owned by the U.S. taxpayer, State's citizens and American Indian tribes and individuals. Bill Robinson calls this "Rogue Bureaucracy" because it is his firm belief that the fraud and deception are deliberate. Even if no one is taking money to allow these various types of malfeasance (and worse), the decades-long history clearly qualifies Interior (and Congress) as a Rogue Bureaucracy. Billions of dollars have been lost. Feel free to email Bill (via the mailto link above) if you see related information that you think he should add. Better yet, capture this entire set of info and give it to your local newspaper editor.

Here's some more update material, ported from my DC-area Metanet BBS:

20-NOV-96 11:02 OK, here's what I can reveal here on my lunch half-hour...

False Claims Act filings have to be made by persons with insider info who have knowledge of a situation which has not been made public. In other words, even though I have comprehensive documentation of the problem through dozens of reports prepared by expert auditors, I have no standing to file a FCA action.

Secondly, the FCA filing has to be made under seal to Justice, and Justice has to decide whether to pursue the case, or litigate, on the Federal government's initiative and funds -- or give it back to the claimant(s) to litigate on their own funds. It can not be squelched legally.

Thirdly, I know the FCA was filed with Justice in mid-summer '96. I do not know if there is a deadline for response, but I know the Commercial Litigation function of U.S. Department of Justice has the action. (now know it's 60 days, but Justice will probably request an extension)

Fourthly, and most importantly, none of this information came from the claimant. The claimant's case file was apparently vetted with a number of experts, and within Justice. My info comes by word of mouth from a reliable source who was not directly involved in any way. (now have same info in October 28, 1996 Oil and Gas Journal) BTW, the vetting process was said to fully substantiate the claimant's allegations and analysis.

Fifthly, the FCA addresses all of the lower 48 States' except four.

Here's a letter going to a senior official tomorow:

???? Maple Avenue
????, MD 20912
November 20, 1996

To an Administration Official:

This responds to your request for written information on the oil and gas royalty fraud issue. By way of background, you should be aware that California and the City of Long Beach settled with some seven major companies for $345 million a while back, while Alaska seeks just under a half billion. Six other States, counties and tribes are suing now, including Texas.

Interior has been busy caving in to "global" settlements in the Federal sector as well, but several events have forced Interior to initiate new audits and investigations. Enclosed are some recent news releases documenting those, but everyone in the know says they did so grudgingly, and perhaps too late. We know that the 5th Circuit has said that the statute of limitations does not apply in such fraud cases, but the 10th disagreed to some extent.

Also enclosed is a copy of the recent Interagency Report on California Crude Oil royalty losses in the Federal sector, which verifies what Federal auditors have been saying for years: Federal losses are substantial ($400 million to $850 million in that small area alone), and were side-by-side with the California fields, yet Interior rejected auditor appeals for investigation and major audits for years.

And, I've enclosed a copy of the Oil and Gas Journal for October 28, 1996. "A sleeper issue that could explode". That's why I thought you'd like to see this, and to hear that a former oil company trader filed a major False Claims Act action covering 44 States in the summer of '96,with Justice's Commercial Litigation branch. That, of course, should be left to Justice.

All of this makes for a politically sensitive situation, whether Justice takes the FCA into litigation or gives it back for the former oil trader to pursue himself. Up to 15 oil companies may face litigaion. Once you've looked this over, you might want to visit my web page at http://www.dickshovel.com/rogue.html, or go to YAHOO! via Government/Politics/Political Opinion for "Bill's Rogue Bureaucracy".

Thanks for your interest!

Sincerely Yours,

Bill Robinson

Note:

That should get someone's attention. It's addressed to a new, senior Administration official through his aide.

The Oil and Gas Journal for 28 October 96 cites a lobbyist for a major company saying "...a sleeper issue that could explode...", but the big companies are adopting a wait-and-see attitude. Hell, it's always worked before for 40 years or so!!

New info from Texas: Texas Land Office suing nine companies on underd royalties from school lands;

Other suits filed: Class action in Houston x 35 firms for undervaluing crude and anti-trust violations;

Alabama - five counties suing oil companies for underpayment of related severence taxes; State investigating too; plus a private royalty owners class action suit.

Alaska has recovered only $3.7 million (of the half billion they agreed to settle on??) says O&G Journal

Colorado producer filed class action against 67 gas pipelines for $6 billion in gas underpayments.

Florida royalty owners filed class action against Exxon.

Louisiana sued 45 producers for underpaid severance taxes. A global settlement brought in $250 million from Texaco, plus $900,000 from four other firms. LA is auditing 8 more firms.

New Mexico settled with Texaco for $4 million in unpaid royalties and is auditing 8 other firms for underpaid severance taxes.

POGO reports Mississippi, Montana, Oklahoma, Wyoming and three Indian tribes are examining royalty and severence tax issues.

Whooooooo, Doggies !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

A False Claims Act "quitam" or action has been filed on royalty fraud for 44 of the lower 48 States, as of mid-summer 1996, according to inside sources. As the law provides, the Justice Department chose to take up the investigation - in order to decide whether the Federal Government will pursue the suit on behalf of the claimant or legally give it to him to pursue on his own resources.

Sources say the claimant is a former major oil company employee who marketed oil for the company, and thus has the expertise and the insider knowledge to detail how that company and others not yet named would post a low price for royalty computation and then sell or trade the oil at higher prices. Thus, the seven to ten percent underpayment pattern detailed in every report I've read - going back 15 to 30 years.

Sources also say that his analysis and claims have been independently confirmed by experts. Interior is said not to have disagreed.

One other interesting source finding: The major oil company is said to have been making unilateral settlements with every State where it does business, starting about January of 1996 or a bit earlier. When the same offer was made to Interior...well, we just don't know what happened.

The claimant is known, but cannot speak openly at this time.

This validates every finding in Rogue Bureaucracy , and I've [Bill Robinson] been saying this for 13 years in writing. The only conclusion I can draw is that Interior knew all along that the US taxpayer and the Indians and the States were being cheated, and the agency as a whole (without reference to any particular officials) was an accomplice during and after the fact.

Indians and States officials should track this False Claims Act action as closely as possible. At this time the full dollar value of the claim is not known, but it is surely in the low billions of dollars. If the Statute of Limitations does not apply, well, the claim could be much higher.

ADDENDUM:

The False Claims action is under legal seal until Justice decides to pursue it or release it for the claimants' pursuit. The claimant has NOT spoken to Bill Robinson nor communicated in any way. All of this FCA info is from reliable sources, independently confirming each other. And a total claim of losses in the billions of dollars is entirely likely.

The Project on Government Oversight (PoGO has, in tandem with Congresswoman Caroline Maloney of NY, forced action by Interior to review "low" posted prices (the basis of most underpayment of royalties) in federal oil and gas fields in/offshore of California.

Also, An Interagency Task Force on CA Crude Oil Undervaluation finally got it's report out, showing Federal losses in CA alone at $850 million since 1978. Interior has recently issued an order (about two weeks ago) to review low posted prices between 1983 and 1988.

Back to crude oil royalties: The Department of Interior has said it will look at changing its flawed royalty regulations, which in the late 80's were revised to allow the use of "posted" prices only -- the basis of the undervaluation schemes.

And, the OIL AND GAS JOURNAL recently said that this is a sleeper issue which will "explode" after the election (I'm told -- have to see it to say more).

Yesterday, a key watchdog/government oversight group with a 15-year record of effective intervention in Federal matters agreed to pick up this item and run with it. What we need are proven, investigated, documented cases of minerals and/or oil and gas royalty fraud NOT ALREADY in Rogue Bureaucracy. And keep it short!! Email summaries of not more than one typewritten page to Bill Robinson at wrob@tmn.com as soon as you can, and continue to do so whenever something new comes up.

Do not send in unproven allegations and rumors. We'll need a raft of solid evidence to surface this, even though we have 40 years of Congressional and press reports already. Best inputs will be included here.

Indian Nations could use the Rogue Bureaucracy text as background material to show how the Interior Department is fleecing all of America, having learned how by fleecing the First Americans for so long.]

In a classic, typically muted fashion, the General Accounting Office reported in March 1997 that Interior's Bureau of Land Management (BLM) "faces risks in completing the Automated Land and Mineral Record System" (GAO/AIMD-97-42).

One would think that this system, which BLM "began planning " in the mid-1980's, and which it "decided on the scope and functionality of" in 1993 -- only 8 years -- would be in place after 12 years, to track critically important case processing and other reporting on Federal oil and gas leasing (and management of 264 million acres of land in 28 states).

But, never fear, after spending $537 million (33% above targeted $403 million between 1986-96), BLM now plans to implement a system riddled with problems, at a "risk of degraded performance," in 1997 .... without a critical case management component ... because "completing the work to develop the capability would cost too much and take too much time." What? Take too much time? The rogue bureaucrats have taken 12 years to reach this conclusion!

And what they have developed is a system "20 times too slow" to meet its needs, with "204 uncorrected high-priority problems," according to a 1996 report by the prime contractor. As of February 1997, 85 documented high-priority problems remained, but no testing has been done with realistic user loads and an operationally-sized database. BLM "intends to reactivate case information reporting" in the first set of maintenance modifications after deployment. Other capabilities could also be deferred.

Now, BLM is spending one million dollars a month to correct software problems, and this is projected to run over one year.

Other things GAO found missing: necessary management plans, policies or procedures essential for operating and maintaining a nationwide system; no system security plan; no transition plan; no operations and management plan. BLM claims it has a configuration plan, but it has not been "finalized and adopted."

The author, Joel C. Willemssen (willemssenj.aimd@gao.gov -- email address in public document) says in conclusion that BLM stated it "generally agrees with our observations and will implement all of our recommendations." Hell, Joel, do you really believe that drivel? After 12 years, with 85 high-priority problems, and over a year of corrections budgeted for at this time? Can not you look back over GAO's own reports over the past 16 years or more and see that this is deliberate delay?

If this was a private company, the stockholders would have thrown the entire management and board of directors out, sued them for malfeasance at best, and restructured the whole outfit! It's time for citizens -- stockholders in our Federal government and owners of that 264 million acres (where billions of dollars in gold and platinum is being given away for a total of $2.50 an acre under the 1873 Mining Law) -- to take that same option.

The Rogue Bureaucracy that is Department of Interior should be stripped of responsibility for stewardship of Federal and Indian land. This would be a well-earned reward for that agency's long history of deliberate mismanagement of our Nation's resources, in order to enrich foreign and domestic companies.

BTW: There is even a link to campaign finance reform, because those same companies contribute about 1% (several million dollars a year) of their ill-gotten gains to Congressional and Presidential campaigns, as well as to state-level politicians.

The author of that GAO report noted in the last update has apparently cancelled his email address or changed it, even though it was in his March 1997 report. I was invited by voicemail to respond through another GAO email account, and did, with the same update (plus info on the letter I got in January from Clinton's Chief of Staff, Erskine Bowles -- saying he had referred my November letter to WH Office of Agency Liaison. Well, I just learned this from my White House contact: that WH office referred my letter to Interior for response directly to me, in late January '97.

Naturally, 60 days later, I have had no response -- even though we know Interior MMS has been online here 20 times or more since then.

HI, GUYS!! HOW'S IT GOING THERE AT ROGUE BUREAUCRACY CENTRAL? WHO DO YOU THINK YOU'RE DEALING WITH HERE? ARE YOU ALL LOOKING FORWARD TO SEEING THIS LATEST UPDATE IN SEVERAL MAJOR PAPERS? EVEN THOUGH THAT CONTROL SYSTEM IS ABOUT BLM, IT'S ALSO ABOUT CROSS-LINKING LEASE REPORTS AND MMS ACTIVITY, AS I RECALL... HOW ABOUT A RESPONSE TO MY LETTER, PLEASE

From a prime source inside USDOI/Minerals Management Service; April 1997...

The Minerals Management Service (MMS) is a misnomer. It should be the Minerals Mismanagement Service. Throughout its history, MMS has never taken a firm stance against the energy industry when protecting the public's interest in the U.S. mineral resources. Beginning with the rewrite of the valuation regulations effective 3/1/88, industry began it's stronghold over the MMS. The effects of those new regulations were to be analyzed and studied to determine if the regulations were "revenue neutral". Of course, anytime MMS implements new regulations and is required to do such a study, my view is that they can easily fudge numbers so that it will appear to be revenue neutral. The following is a short list of "regulations" or "policies" that MMS changed which were most likely not revenue neutral but you can be sure that the MMS said that they were:

1. 3/1/88 revised valuation regulations
2. BLM's royalty rate reductions on stripper wells
3. NTL-5 Gas Royalty Act
4. Pilot offshore gas royalty-in-kind project
5. Global settlements

The Committee consisted of six individuals representing MMS (one of which now works for IPAA), four state representatives and nine industry representatives. Throughout the committee's negotiations, industry would talk about how difficult it is to trace the flow of gas and how little money they make, blah, blah, blah. The committee operated on a consensus basis. Many of the consensus's reached were reached within a vacuum, i.e. The states might have agreed to one thing early in the negotiations, but then when another aspect of valuation was brought up that directly affected the earlier consensus, the committee would not go back to change the previous consensus.

If the States had to vote on the entire package, they would probably vote "thumbs down." The proposed gas valuation regulations are so complicated and cumbersome that there is no way that they could be determined to be revenue neutral, not only for the concessions the States had to make to Industry, but also for the additional administrative costs the MMS would have to incur.

Throughout negotiations, there was one industry representative who frequently made veiled threats about President Clinton and about how many contacts they had in Washington.

I would also keep an eye out for the proposed oil valuation regulations. In light of the evidence of oil undervaluation found in the California study, these new regulations need to be implemented.

However, it will be interesting to see how politics comes into play, and how easily Industry groups will lobby against it.

This is the only federal regulating agency where the regulatee gets to determine what they will and will not do. I only wish I could tell the IRS what I will and will not pay. The MMS could take some lessons from the Norwegian Petroleum Directorate and the Canadian Department of Natural Resources. From my understanding, those two governmental entities are very strong armed when it comes to protecting the public's interest in their mineral resources.

Contract Settlements - MMS probably would not have pursued this issue if the State of Louisiana had not aggressively pursued it.

The Federal Oil and Gas Royalty Simplification and Fairness Act of 1996 - written for the exclusive benefit of industry and there is talk that MMS was in on it from the beginning.

Reengineering - The MMS is beginning a Business Process Reengineering effort in order to better itself. I believe their original intentions are good, but the more I hear of it, the more I believe that MMS will not look much different then it does now. Upper management voices their support of the effort, but at the same time, they are imposing constraints on the BPR team and upper management is setting goals which are so vague and achievable, that it would not require much change to attain those goals.

General - The MMS wasted a lot of money. I have seen many frivolous trips, i.e., many auditors are forced to stay at the companies to conduct their audits when in reality, the audit can be completed within one or two trips to the companies offices to collect records and the audit can be completed within the MMS offices. At the same time, MMS will not spend the money to give their auditor's quality training to enable them to better perform their jobs.

Large monetary awards are given to top management while the worker bees are given nominal awards and recognized for nothing. Most employees at MMS are "scared" and are basically kept quiet and in the dark. I believe the MMS auditors are impeded from doing the best job possible because many issues which come to light are dismissed because of "political pressure."

There is also a rumor mill about the political involvement's and under table dealings of the Deputy Associate Director of the Royalty Management Program.

Along with the issues of MMS' mismanagement of royalties are personnel issues. I know there are several sexual harassment filings which are kept quiet and where the person filing the suit is treated horribly and the sexual harasser is protected ("the good ole' boy network").

An extremely reliable source tells me [Bill Robinson] that the following letter, in quotes below, with blacked-out portions where noted, surfaced after the mailing date of February 26, 1997, and before the present date of June 15, 1997.

I'm told by that source that independent verification confirmed that the letter was sent to a high-level U.S. Department of the Interior official, Bob Armstrong, written by an attorney not yet identified.

As you will see, the letter advises Armstrong that major oil companies met with independent (small) oil companies and agreed to fund the small companies' efforts to derail current efforts to improve the collection of oil and gas royalties from Federal wells -- by changing the regulations to better reflect market value, the basis of royalty calculations. The major oil companies, as this web page indicates, are under strong challenge from many states and the Federal government to repay "underpaid" (what I call stolen) royalties. So, by having the small companies do their dirty work, the major oil and gas companies can avoid the apparent conflict of interest while they are being sued. Note especially the reference to copying tobacco companies' tactics!!

Word has just come in that Mobil settled with Alabama for about $12 million in underpaid royalties -- and more importantly, Mobil agreed as part of the settlement to open it's books to the State auditors, which may result in significant findings of deliberate underpayment. Texas just settled with Chevron for about $17.5 million. And California won an appeal against Exxon, the only firm to escape the last round of trials that allowed CA to collect about $350 million from some ten other firms. And these are just the tip of the iceberg, folks.

There is a major Fraud Claims Act under consideration by the U.S. Department of Justice (as the letter indicates) which has the majors sweating. Billions of dollars could be at stake. Throughout the letter I have interspersed comments...

Now, the letter:

"February 26, 1997 [inside address blacked-out]

Re: API and IPAA Opposition to Proposed Oil Valuation Regulations

Dear Mr. [blacked-out]

On February 20, 1997, I attended by telephone an open, 3-1/2 hour meeting of the IPAA's valuation task force. I did so at the request of my client [blacked out]. He had been invited to attend or have a representative present. Although this was an IPAA [small companies] meeting, lawyers and lobbyists representing Chevron, Amoco, Conoco and other major oil companies attended. At the meeting it was reported [some group of major oil companies - blacked out] just met and decided that the API must become active in opposing the proposed new market value oil royalty valuation regulations. Every oil producer, without andy question, has an unrestricted right to oppose the government's proposal on its own behalf, on any grounds it deems appropriate. [the following five lines have been [blacked-out]

The strategy discussed at the meeting was to seek to delay the proposed regulations as long as posssible, and then file suit in the name of the IPAA ("another IPAA v. Babbitt case") to prevent them from becoming effective on whatever *procedural* [*denotes word underlined*] not substantive grounds are available. It was suggested that the IPAA-API should consult with the tobacco industry on legal tactics, since that industry has so much more experience in litigating against government regulations than the oil industry.

The Chevron representative said he was attending the meeting to offer Chevron's financial support to the IPAA to delay and oppose the proposed market value regulations, on procedural, not substantive, grounds. On one or more occasions he said "he did not feel comfortable" with the discussions of pricing, a "substantive" matter, and he cautioned against portions of the agenda on pricing, mentioning that matters discussed here were not subject to the attorney-client or other privilege. He said some of the pricing matters on the agenda would best be taken up at a private meeting the following day.

(Comment: In other words, boys, we can't discuss an attempt to cover up our deliberate underpayments outside of an attorney-client protected meeting, because we could be forced in court to explain out comments and discussions!)

The Chevron man said they were checking with their Democratic friends on the Hill to see if the recent statements by Senator Boxer (calling the major oil companies "deadbeats") and by Rep. Carolyn Maloney had somehow emanated from the White House, the DNC or Vice President Gore's Office.

(This seems an interesting manifestation of apparent paranoia. I wonder whether if I, a Republican, were able to prevail upon Bill Archer and John Kasich to support a federal production tax on Gulf OCS production equal to the Texas or Louisiana production taxes, in order to help pay for Medicare, Chevron would attribute theidea to a Machievellian plot by the DNC or the White House?)

The Chevron man said the strategy would be to fund opposition, including litigation, against the proposed regulations in the name of IPAA, as representative of the "small producers", rather than in the name of the "giants".

(Comment: There it is. The majors can't openly fight the new valuation regs because they are being sued by many States; so they pay the minor companies to fight the regs!)

He said this could also provide "a forum for taking political initiatives." There was a whole series of meetings scheduled for that week and this week, including with members of Congress, to lay the groundwork for publicy support oflitigation, and to coordinate the political and litigation aspects of the pricing problem. There was mention of the fact that the Department of Justice had sent out more than 100 letters to different producers. There was speculation that a likely source of the DOJ list of such producers was some list Cynthia Quarterman (Comment: high level Minerals Management official in Interior.) must have, of the 125 producers she apparently mentioned, in Congressional testimony, whose royalty reports MMS would be examining for possible underpayments. I did not volunteer another possible explanation for the source of the DOJ list.

(Comment: some kind of inside comment not explained.)

A representative of one of the majors present, Conoco I believe, mentioned it was meeting with Dodge Wells at the Justice Department the following week, and it was generally agreed that Dodge Wells must be "The Man" at the Justice Department in charge of royalty pricing matters. Someone mentioned that Shell had filed suit in federal court "in the Northern District of Oklahoma" to block subpoenas.

(Comment: an apparent reference to DOJ's possible filing of a Fraud Claims Act action.)

There was talk of using influence on the Appropriations Committee to block the expenditures needed to implement the proposed regulations. There seemed to be a consensus that there will be a coordinated FOIA request to DOI to obtain the underlying data, studies and information used by DOI in preparing the proposed regs, following a simple letter request for the information.

Then there will probably be a federal suit to block the regulations on all *procedural* grounds devisable.

One of the female lawyers discussed the two meetings scheduled with Cynthia Quarterman the following week, the one on Tuesday to involve other matters besides pricing, but with the Wednesday afternoon meeting to be exclusively on royalty pricing, with Ms. Quarterman and her staff, including "Lucy". When there was a lot of trouble and noise on the conference call, and some of the participants were temporarily cut off, one of the ladies said, to general laughter, "that's Lucy," and I gather these ladies seem to think "Lucy" is one of the industry's main problems. (On behalf of my client, I felt somewhat slighted, but after hearing the discussion I know I would like to meet this mysterious bogey-woman.)

Someone (either the IPAA or one or more of its members) has retained Attorney Marshall Doke with the law firm of Gardere and Wynne to advise the group on the False Claims Act. He was introduced as an expert on the False Claims Act, being a Past President of the ABA Section on the FCA and a life-long practioner in the area of government contracts. [three lines blacked out]. The eminent Mr. Doke opined that "we think the government will file an FCA case if they think they can make it stick." He alluded to the fact that the FCA provides criminal as well as civil penalties, and he warned that even if the government can't make an FCA case stick, there is a False Statements Act that make [sic] any kind of alse statement to the government actionable. Doke was careful not to make any false statements in his short speech, or to openly solicit further business in my possibly competitive presence. I thought you might be interested in some of these matters. Enclosed is the agenda of the meeting. [blacked-out] Sincerely [blacked-out]

February 26, 1997 letter to Armstrong:

I have learned that the letter has been authenticated to the satisfaction of two experts; that Bob Armstrong, Assistant Secretary for Natural Resources, Department of Interior, has refused to give the letter to anyone without a Freedom of Information Act request (his aide is Tom Kitsos); that the letter was written to Armstrong by Pat Holloway (spelling to be confirmed), said to be an attorney for an oil company based in another State.

Also confirmed:

a linkage between the "small" companies which are going to fight the new valuation regulations -- and the majors which are funding the fight under the table: Mr. Po Liggett (sp?) said to be a Shell attorney & said to have been representing the small companies at the teleconference mentioned in the Holloway letter. Source: confidential

Also confirmed:

"Lucy", the "mysterious bogey-woman" cited in the Feb. 26th letter, is probably Lucy Querques, an Interior employee who works for Ms. Quarterman in the minerals management area.

The Oil and Gas Journal issue for the week of June 30, 1997, confirms portions of the letter to Armstrong cited above.

The title of the article is "Royalty Valuation Rule Changes Loom", by Patrick Crow, Energy/Politics Editor.

The article indicates that changes to "controversial" oil royalty valuation rule are unlikely to "appease most oil firms."

Harking back to the important October 28, 1996 article, p. 19, (which laid out all the lawsuits underway by states), Crow indicates Interior took action because of "alleged royalty underpayments". Comment: Just incredible that Interior can still pass the laugh test on that issue, when California/Long Beach had documented clear evidence of fraud for many years -- right beside Federal fields operated by the same companies.

MMS expects that the new rules, which would benchmark oil value (and royalties calculated on value) against the futures market, will bring in an additional $50-$100 million a year to the Federal government. Comment: Interior persists in estimating losses at around 3%, when audits consistently show 10% or higher underpayments, that is, about $400 million a year lost. I'm surprised that Industry is fighting these rule changes, if that's the net effect!

Importantly, MMS is apparently bowing to exemptions "sought by indepentent producers", amending the rule in late June and opening the comment period for 30 more days (including gas valuation rules), through July 23, 1997. There was a meeting with industry groups in Golden, Colorado on July 1st. Comment: Remember, the letter to Armstrong said that major oil companies are using the small companies as a false front (even paying them under the table) to fight the new rule.

"MMS observed, 'Industry chose not to participate in any negotiated rule-making on this issue because of their involvement in private litigation involving crude oil valuation.'" Right. And, one could add, the fact that they are facing between one and three Fraud Claims Act cases from the Federal government and over a dozen States' suits.

"There are mumblings within industry that unless MMS extensively changes the proposed rule, a lawsuit will be filed to block issuance of a final rule." Comment: EXACTLY what the letter to Armstrong forecast!!

While the article goes on to say that independent oil and gas companies have some apparently valid arguements against some provisions of the rules, the major companies (through the American Petroleum Institute - API) claimed that the rule would impose substantial costs, uncertainty, and inequities on oil firms.

Comment:

My bottom line is this: There are over a dozen State lawsuits initiated, pending or settled; there is rumored to be at least one Fraud Claims Act case pending, and perhaps up to three; California won it's long-running case (delayed by inappropriate lower court decisions) against some 15 companies for nearly $400 million, and Alaska won it's claim for half a billion.

Several southern states appear to have won similar cases based on underpaid (I say stolen) royalties.

Folks, where there's that much smoke, theres one hell of a fire, and the companies are fighting a rear-guard action with tobacco company tactics (if you believe the letter to Armstrong).

Here's what ought to happen now. MMS ought to pull together the basis of the California/Long Beach winning case and the basis of the Southern and Southwest States' cases -- compare and contrast industry patterns and practices -- pursue the Fraud Claims Act case(s) -- and implement rules which give the Federal government, the States and the Indian Tribes their fair share of the true market value of their own oil and gas.

Furthermore, Armstrong ought to send me a true and complete copy of the letter noted in this web page recently. Interior's insistence on a FOIA for a two page letter is ridiculous and unseemly -- but not nearly so unseemly as Interior's decades-long practice of turning a blind eye to this multi-billion dollar scam against the Federal govenmennt and its citizens.

Bill Robinson has obtained third-party information on the Holloway letter to Interior and Justice. Note that the sections formerly blacked out are filled in, and especially notice the reference to the word "conspire." Note that no one outside of Interior and Justice has the unabridged text; this information is pieced together from reliable sources, according to Bill:

An extremely reliable source tells me that the following letter, in quotes below, with [blackout] portions provided from supplementary sources where noted, surfaced after the mailing date of February 26, 1997, and before the present date of June 15, 1997.

I'm told by that source that independent verification confirmed that the letter was sent to a high-level U.S. Department of the Interior official, Bob Armstrong, written by an attorney not yet identified. - - - - - As you will see, the letter advises Armstrong that major oil companies met with independent (small) oil companies and agreed to fund the small companies' efforts to derail current efforts to improve the collection of oil and gas royalties from Federal wells -- by changing the regulations to better reflect market value, the basis of royalty calculations.

The major oil companies, as this web page indicates, are under strong challenge from many states and the Federal government to repay "underpaid" (what I call stolen) royalties. So, by having the small companies do their dirty work, the major oil and gas companies can avoid the apparent conflict of interest while they are being sued.

Note especially the reference to copying tobacco companies' tactics!!

Word has just come in that Mobil settled with Alabama for about $12 million in underpaid royalties -- and more importantly, Mobil agreed as part of the settlement to open it's books to the State auditors, which may result in significant findings of deliberate underpayment. Late word has it that Mobil's employees will also be asked to testify in other proceedings!

Texas just settled with Chevron for about $17.5 million. And California won an appeal against Exxon, the only firm to escape the last round of trials that allowed CA to collect about $350 million from some ten other firms. And these are just the tip of the iceberg, folks.

There is said to be a major Fraud Claims Act under consideration by the U.S. Department of Justice (as the letter indicates) which has the majors sweating. Billions of dollars could be at stake.

Now, the letter, with [third-party inserts for blacked out sections -- not confirmed, but from reliable source]:

"February 26, 1997

[inside address blacked out, said to be Honorable Bob Armstrong, Assistant Secretary for Land and Minerals Management, Department of the Interior, Washington, DC]

Re: API and IPAA Opposition to Proposed Oil Valuation Regulations

Dear Mr. [Armstrong]

On February 20, 1997, I attended by telephone an open, 3-1/2 hour meeting of the IPAA's valuation task force. I did so at the request of my client [blacked out, said to be Gene Wright, a former member of the IPAA Executive Committee]. He had been invited to attend or have a representative present. Although this was an IPAA meeting, lawyers and lobbyists representing Chevron, Amoco, Conoco and other major oil companies attended. At the meeting it was reported [blacked out, said to be "the major oil companies' CEO club] just met and decided that the API must become active in opposing the proposed new market value oil royalty valuation regulations. Every oil producer, without andy question, has an unrestricted right to oppose the government's proposal on its own behalf, on any grounds it deems appropriate.

*****[five lines blacked out, said to read "But it appears to be a violation of the antitrust laws for CEOs of the major oil companies to meet and combine (i.e., conspire) among themselves to try to keep federal royalty oil prices depressed below market values. That is the only possible purpose to be served by combined opposition in the name of the API to the proposed market pricing regulations."]******

The strategy discussed at the meeting was to seek to delay the proposed regulations as long as posssible, and then file suit in the name of the IPAA ("another IPAA v. Babbitt case") to prevent them from becoming effective on whatever *procedural* [*denotes word underlined*] not substantive grounds are available. It was suggested that the IPAA-API should consult with the tobacco industry on legal tactics, since that industry has so much more experience in litigating against government regulations than the oil industry.

The Chevron representative said he was attending the meeting to offer Chevron's financial support to the IPAA to delay and oppose the proposed market value regulations, on procedural, not substantive, grounds. On one or more occasions he said "he did not feel comfortable" with the discussions of pricing, a "substantive" matter, and he cautioned against portions of the agenda on pricing, mentioning that matters discussed here were not subject to the attorney-client or other privilege. He said some of the pricing matters on the agenda would best be taken up at a private meeting the following day.

(Comment by Bill Robinson, not in letter: In other words boys, we can't discuss an attempt to cover up our deliberate underpayments outside of an attorney-client protected meeting, because we could be forced in court to explain our comments and discussions!)

(Letter continued) The Chevron man said they were checking with their Democratic friends on the Hill to see if the recent statements by Senator Boxer (calling the major oil companies "deadbeats") and by Rep. Carolyn Maloney had somehow emanated from the White House, the DNC or Vice President Gore's Office. (This seems an interesting manifestation of apparent paranoia. I wonder whether if I, a Republican, were able to prevail upon Bill Archer and John Kasich to support a federal production tax on Gulf OCS production equalto the Texas or Louisiana production taxes, in order to help pay for Medicare, Chevron would attribute theidea to a Machievellian plot by the DNC or the White House?)

The Chevron man said the strategy would be to fund opposition, including litigation, against the proposed regulations in the name of IPAA, as representative of the "small producers", rather than in the name of the "giants".

(Comment by Bill Robinson, not in letter: There it is, folks. The majors can't openly fight the new valuation regs because they are being sued by many States; so they pay the minor companies to fight the regs!)

Letter continues...

He said this could also provide "a forum for taking political initiatives." There was a whole series of meetings scheduled for that week and this week, including with members of Congress, to lay the groundwork for publicy support oflitigation, and to coordinate the political and litigation aspects of the pricing problem. There was mention of the fact that the Department of Justice had sent out more than 100 letters to different producers. There was speculation that a likely source of the DOJ list of such producers was some list Cynthia Quarterman

(Comment by Bill Robinson, not in letter: high level Minerals Management official in Interior.)

must have, of the 125 producers she apparently mentioned, in Congressional testimony, whose royalty reports MMS would be examining for possible underpayments. I did not volunteer another possible explanation for the source of the DOJ list.

(Comment by Bill Robinson, not in letter: some kind of inside comment not explained.)

Letter continued

A representative of one of the majors present, Conoco I believe, mentioned it was meeting with Dodge Wells at the Justice Department the following week, and it was generally agreed that Dodge Wells must be "The Man" at the Justice Department in charge of royalty pricing matters. Someone mentioned that Shell had filed suit in federal court "in the Northern District of Oklahoma" to block subpoenas.

(Comment by Bill Robinson, not in letter: an apparent reference to DOJ's possible filing of a Fraud Claims Act action.)

Letter continues...

There was talk of using influence on the Appropriations Committee to block the expenditures needed to implement the proposed regulations. There seemed to be a consensus that there will be a coordinated FOIA request to DOI to obtain the underlying data, studies and information used by DOI in preparing the proposed regs, following a simple letter request for the information.

Then there will probably be a federal suit to block the regulations on all procedural grounds devisable.

One of the female lawyers discussed the two meetings scheduled with Cynthia Quarterman the following week, the one on Tuesday to involve other matters besides pricing, but with the Wednesday afternoon meeting to be exclusively on royalty pricing, with Ms. Quarterman and her staff, including "Lucy". When there was a lot of trouble and noise on the conference call, and some of the participants were temporarily cut off, one of the ladies said, to general laughter, "that's Lucy," and I gather these ladies seem to think "Lucy" is one of the industry's main problems. (On behalf of my client, I felt somewhat slighted, but after hearing the discussion I know I would like to meet this mysterious bogey-woman.) Someone (either the IPAA or one or more of its members) has retained Attorney Marshall Doke with the law firm of Gardere and Wynne to advise the group on the False Claims Act. He was introduced as an expert on the False Claims Act, being a Past President of the ABA Section on the FCA and a life-long practioner in the area of government contracts. [three lines blacked out: Before Mr. Doke began reading dull government contracts when he was a younger associate of mine in the Thompson-Knight firm in Dallas, he was experienced at dringking beer aand fair-to-middlin' at touch football]. The eminent Mr. Doke opined that "we think the government will file an FCA case if they think they can make it stick." He alluded to the fact that the FCA provides criminal as well as civil penalties, and he warned that even if the government can't make an FCA case stick, there is a False Statements Act that make [sic] any kind of false statement to the government actionable. Doke was careful not to make any false statements in his short speech, or to openly solicit further business in my possibly competitive presence. I thought you might be interested in some of these matters. Enclosed is the agenda of the meeting. [last line blacked out: I am forwarding a copy of this letter to Mr. Dodge Wells.] Sincerely [signature & name not on copy: said to be signed by Pat Holloway, possibly of Austin, TX]

End of letter.

10 August 1997

Bill Robinson forwarded the May 1997 press release below from Project on Government Oversight (see link below) to illustrate the effectiveness of airing Interior's dirty laundry. Bill first briefed POGO on these issues just after it was created in the early 1980's ...

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Press Release

"SECRET" INFORMATION
SURFACES ON UNPAID OIL ROYALTIES - May 27, 1997

[For further information contact Lisa Baumgartner or Danielle Brian at (202) 466-5539]

WASHINGTON, DC-- The Project On Government Oversight (POGO), today releases its fourth report on oil royalty underpayments, Drilling for the Truth: More Information Surfaces on Unpaid Oil Royalties. It exposes the Department of the Interior's (DOI) violation of the public trust and its hard work to keep the truth hidden.

Danielle Brian, POGO's Executive Director, stated, "One look at the final documents we received from DOI clarifies why they worked so hard to keep information on oil royalties hidden from anyone's view." She continued, "A government agency that refers, internally, to its own actions as `California Royalty Secret Deals,' generally isn't working to protect and further public interests."

After years of POGO's prodding, in the fall of 1996, DOI sent out bills for $385 million in unpaid royalties to oil companies. Yet, up to $2.4 billion remains unbilled -- and there is no evidence that DOI has any intention to try to collect this money. Despite numerous internal DOI warnings that significant amounts of money owed to the public were being compromised, DOI moved forward with its "Secret Deals," by signing global legal settlements with Mobil, Exxon and Chevron.

Representative Carolyn Maloney (D-NY) stated, "The Department of the Interior owes American taxpayers an explanation. The Congress just clamped down on welfare for the poor. Welfare for rich oil companies should be their next target."

Representative George Miller (D-CA) stated, "Sadly, as the POGO report illustrates, the Department (DOI), while red flags were evident, chose to first ignore the problem and then compound it by negotiating away the ability to collect potentially hundreds of millions of unpaid royalties -- some of which was earmarked for California's schools."

An internal DOI phone log described an "anonymous" phone call to a staff member. The call warned of ongoing "secret deals" with CA oil companies, calling them "not the sort of deals you or I would make." Four days before the Chevron settlement was signed, DOI policy makers met specifically about the CA royalty problem. POGO obtained the notes from this meeting through FOIA, but most of the text had been blacked-out. POGO's latest oil report, however, contains the uncensored version of this document. This proves that top-level MMS policy makers all claimed the government had retained the right to collect money from Chevron. If, in fact, it is now the case that DOI cannot collect this money--the system has completely broken down.

As an interagency task force examined the issue of underpayment of oil royalties, the Director of MMS appears to have tried to curtail the evaluation of how much money was owed by the oil industry--primarily to keep the public from finding out. A November, 1995 memo from a task force representative to the Chair of the task force revealed this effort: "According to your message, her [Cynthia Quarterman's] main concern is preventing disclosure of our findings under the FOIA. . . .The only logic I can put to this is that Ms. Quarterman wants deniability. That is, she wants to be able to say that she and other management never saw what we created. . . .the fact that DOI seems to be attempting to pull down the shades on this issue indicates that the fix may be in again . . ."

The DOI hasn't willingly begun to collect unpaid royalties, and is still not billing for all the money owed to it. In fact, DOI has made a public spectacle of its foot-dragging -- a message that is not being lost on the oil industry. In light of these findings, POGO makes the following recommendations: 1) creation of a new task force to collect the unpaid billions of dollars owed to the public; 2) passage of Rep. Maloney's legislation on royalty collection and management; and 3) enactment of a new rule under which royalty payments will be based on NYMEX spot prices as the primary benchmark.

Danielle Brian, concluded: "We will maintain pressure on the DOI by continuing to release, publicly, as much information as possible. Unfortunately, the DOI has proven that permanent policy changes to correct past wrongs and prevent future handouts to the oil industry will not be enacted without continued scrutiny and public pressure."

For a copy of the report, contact POGO at 202-466-5539.

24 August 1997
Alabama August 25th Hearing on Nationwide Mobil Royalty Settlement
Opposed by Texas
Texas recently collected $17.5 million from one oil company in underpaid oil and gas royalties in Texas alone. In early August of 1997, Texas objected strongly to a proposed "class settlement" in an Arkansas case which would, if approved, settle such claims against Mobil nationwide --including every State except Alaska and California -- for about $15 million. Texas officials and other representatives of trusts in Texas with major oil interests plan to object in person on August 25, 1997 at a "Fairness Hearing" in Alabama.

Some 23 companies, including Mobil, are defendants in a civil case (CV-96-297) in Alabama which argues oil and gas royalty payments have been underpaid to E.M. Lovelace Jr, et. al. While Lovelace, et. al., have chosen not to pursue Texas' claims, it has proposed to "release" them as part of the Mobil settlement! Texas says "That is inherently unfair", and asks the court to both hear their objections and (if the settlement goes through) exclude all Texas Royalty Owners from both the settlement class and the settlement itself. Why other states are not objecting is a mystery, but Texas oil and gas owners represent over one-half of the proposed class of owners according to their written objections.

Texas further points out that it's Permanent School Fund, a key funding source for public education in that State, benefits from oil royalties collected by the General Land Office. Out of 20 million acres managed by the GLO, 13.3 million are dedicated to the PSF, and another two million acres of State lands are dedicated to universities in Texas. Mobil is one of eight defendants in a similar suit in Travis County, Texas, where the claim being made is "paying royalties on less than the market value of crude oil". The suit also addresses underpayment of severance taxes on the same basis. After delays all the way to the Texas Supreme Court, discovery began. Over 900,000 documents and 47 depositions later, with discovery ongoing, Texas and other claimants begin to talk about settlement. One of the companies, Chevron, settled for $17.5 million, and agreed to change the method by which it calculates royalties in Texas.

Not mentioned in the documentation, but learned from informed sources in Washington, DC, is the fact that the new method is virtually identical to the one being considered by the Minerals Management Service of the U.S. Department of Interior for all federal lands. (Unfortunately, misguided efforts in Congress now under serious consideration would eviscerate that new method and force Interior to sell it's royalty share of oil on the market -- a very bad idea that should be fought and beaten.)

Other states have followed in Texas' path, including New Mexico and Oklahoma. (This web site has already identified some 8 or more States with less production which are also suing companies for underpaid royalties -- see the information on the October 1996 Oil and Gas Journal article. Also, in 1996 a federal nationwide antitrust case (McMahon Foundation, et. al., v. Amerada Hess Corporation, et. al.) was filed in the Southern District of Texas. It alleged a "nationwide price fixing conspiracy on behalf of a nationwide class of all royalty owners" who had sold crude oil to any of 24 companies, including the eight in the Travis County suit. However, that McMahon case only addressed federal antitrust laws, while the Alabama case addresses violations of numerous other States' own antitrust acts, including specific claims in New Mexico, Louisiana, Utah and Texas. Texas objects to the proposal as a release of "alleged antitrust conspiracy claims" not only in their own State, but throughout the entire United States.

Texas also points out that the amount of the settlement is entirely inadequate. Not only would the law firms take their cut off the top, but the historic per-barrel payments on which Mobil makes royalty payments have "been lower than Chevron's" in Texas -- and the Alabama settlement would give Mobil's Texas oil royalty owners about one-third of Chevron's average underpayment per barrel. Texas figures that, if Mobil funded a settlement based on the pricing formula that underlay the Chevron settlement, Mobil would have to pay between $36 million and $43 million to its Texas royalty payees alone!

Source: Letter and attachments, dated August 4, 1997, from Susan Godfrey L.L.P., Attorneys at Law, Suite 5100, 1000 Louisiana, Houston, Texas 77002-5096; phone (713) 651-9366; fax (713) 654-6666 -- sent to Rayford L. Etherton, Jr., P.O. Drawer 2607, Mobile Alabama 36602.

[The] Summarization above [was] done by Bill Robinson and does not represent a full summarization. It is, however, completely accurate to the best of his knowledge with regard to the elements summarized. Bill thinks the Texas position is entirely correct; how could an Alabama dispute presume to dictate a nationwide settlement based on the STATE antitrust law claims - current and future -- for one or more oil and gas companies?

More importantly, what is Justice doing about these losses on a national basis. Why are we not hearing that a Fraud Claims Act case is in the courts -- when we understand that serious allegations from whistleblowers are in the U.S. Department of Justice's hands?

19 October 1997
I'll bring this back to 1997, and link it all together, but it's all about

1. recent "scope limitation" in quality control audits
2. to protect a demoted royalty auditor who
3. brought prostitutes and dancers into group parties in motels and private residences (while on the road on official business), and further,
4. about that employee's spotty history for six to 12 years before re-promotion in 1996.

It's about Interior MMS failure to manage its own workforce, a workforce that collects about four billion in oil and gas royalties per year.

Back in '89-90, there was a group of Minerals Management Service auditors in Texas who called themselves the Royalty Rangers. Information coming in from readers of this Rogue Bureaucracy indicates that the "Rangers" had a manager named John Kirkpatrick (JK) who allegedly brought some 'dancing ladies' and prostitutes (Source: Dallas Morning News) into the group's motel rooms or homes. This got poor John demoted in 1990, but he got his job back in 1996. Some of his co-workers and one quality control auditor have been deposed (under oath, in the late summer of 1997, in front of an Assistant U.S. Attorney) expressing some concerns with the process, questioning JK's qualifications relative to others who applied, and stating in one important regard that JK's superior Mr. Johnson asked a Mr. Leggett to exclude JK's audit effort for one Indian tribe from the internal quality control audit. With apologies to anyone who might mistake the following for poetry...

The Ballad of the Royalty Rangers

Come gather 'round boys,
& I'll tell you a story
'bout a Ranger named John
and his ride back to Glory

Now, John's said to be
an irascible 'cus
But he cheered up his Rangers
by bringin' girls in on the bus

Word got out about the dancing
and prancing and stuff
Right there in the motels
Right there in the buff

Poor John got demoted
& sat there for six years
no entries in the log book
but no quality audits, so no tears

Now he's back in the saddle
repromoted and smiling
Right over the head of the best, good ole' Allen

Now, you might want some further explanation. Why is this important in the broader inquiry into why Interior has suppressed audit findings and promoted auditors who "find nothing" over those who find millions lost?

Because this is indicative of the pattern of *organizational* malfeasance which I have identified for the past decade. Because it clearly points to protection of auditors who find no losses and possible suppression of auditors who find many losses.

Let's go to the record, from some depositions which recently fell into my hands:

"From the period from August, 1990, through March 1996, Mr. Kirkpatrick had not one entry in the "Reference Log" as required by the Department of Interior. Mr. Kirkpatrick had far less experience than Plaintiff with contract settlements. Further Mr. Kirkpatrick had performed significantly fewer company audits, audit exceptions, and net profit share leases than Plaintiff.

"Mr. Kirkpatrick was well known for his lack of self-control. He is considered infamous for his temper tantrum-like outbursts and is known to bear a great deal of animosity to others in the office."

"Mr. Kirkpatrick had previously been demoted from an identical position in 1990 due to his lack of professionalism and for having embarrassed the Department of Interior in the media."

Robert Leggett tesitfied under oath recently about "scope limitation". He was formerly of the General Accounting Office (70-77); worked for the Energy Department for about two years; went into private insurance for about three years; worked for Army Audit Agency for about a year; went to work for the Interior Minerals Management Service from 1982 to 1983; & back to Army Audit from 1983 or '84 until 1990, and then went back to Interior Minerals Management Service in October 1990. At that time, Leggett was a GS-13 Auditor.

In midsummer of 1995, Leggett was working on internal quality control review, a sort of internal quality control audit to determine if MMS auditors' audits of oil and gas lease operations were on track. Peer review is supposed to be done on some kind of random selection basis. The questioning mentions to a "Mr. Johnson" who talked to Leggett outside a meeting and "indicated to (Leggett) that (Leggett) should not review or Mr. Kirkpatrick's work should not be reviewed in any internal audit". Answer: "There was a discussion relating to a portion of the work that Mr. Kirkpatrick was responsible for supervision." (sic)

Leggett goes on to say in the formal deposition that he was leaving a meeting where they had been discussing a pilot project, in Denver, and he (Johnson) "...stated to me as we were walking out the door, he stated to me -- he said something to the effect would you mind not looking at the Jicarilla audits." Johnson was Kirkpatrick's superior in Dallas.

Asked to respond as a "human being", Leggett commented that "...it was unusual..." Pushed to respond as to who was in charge of the Jicarilla project audit, Leggett responded that Mr. John Kirkpatrick was.

Asked to explain why Johnson might have asked him that, Leggett sort of floundered (in Bill Robinson's opinion), but he went on to say on page 36 that he knew what the term "scope limitation" meant -- "...something or someone coming in and trying to limit the scope of your review unjustifiably". Leggett also indicated that the request by Johnson was a scope limitation, "a no-no". This statement was made in front of an Assistant United States Attorney, Irma Carrillo Ramirez, phone (214) 767-1699; on August 8, 1997, starting at 8:55 o'clock a.m., before Patti R. Ludwig, a Certified Shorthand Reporter in and for the State of Texas.

Ms. Irma Carrillo Ramirez, Assistant United States Attorney, works in the U.S. Federal Building and Court House, 1100 Commerce Street, Third Floor, Dallas, Texas 75242-1699. As noted, she was present at the August 1997 allegation of potentially inappropriate activity by an MMS official. One wonders whether she has referred it to the proper Federal investigative office?

Gary Johnson made the appointment, or re-promotion, of Kirkpatrick, and is apparently the same Mr. Johnson mentioned in the Leggett deposition on pp. 28-30 et.seq. who asked Leggett "...something to the effect would you mind not looking at the Jicarilla audits." and John Kirkpatrick is named on page 32 of that oral deposition (witnessed by a certified Shorthand Reporter, Patti R. Ludwig; and by Ms. Irma Carrillo Ramirez, Assistant United States Attorney, in Dallas, Texas on August 8, 1997 -- oh, have I mentioned them before? Sorry.) as being in charge of the Jicarilla project.

Leggett also said in a sworn deposition in August 1997 that he was aware that "...there are some comments made by some tribal groups throughout the period of time that there have been some problems." Several pages later... "It's my understanding that the report addresses the undervaluation of crude oil, which has been an item that MMS has been aware of for many years. My understanding is that the primary problem has been with interpretation and application of existing regulations and not with the fact that we have just omitted or not found the problems." After asking if Leggett has heard allegations concerning MMS' complicity or at least a lack of control over the oil companies, which Leggett acknowledges (page 25, lines 20-21), Leggett says on page 26 that "...I believe there are substantial monies owed to the federal government and possibly Indians as a result of crude oil premiums, the pricing of crude oil as is stated here."

So seven of these fine men of the Royalty Rangers ("some of our finest employees, said Ed Cassidy, the deputy director of MMS) were disciplined in 1990. Three were demoted, three suspended without pay for a month and another reprimanded. Now one of those demoted has been repromoted. Whew, these MMS folks sure know how to slap wrists, don't they?

And John Kirkpactrick is back as of 1996, over part of the audit function of a major share of the nation's oil and gas royalty revenues. He may not be as well qualified as those he's supervising. His superior tried to get (succeeded in getting?) JK excluded from internal audit while demoted, in at least one case, according to an internal auditor's sworn deposition. It appears to Bill Robinson that Johnson re-promoted Kirkpatrick after allegedly attempting to shield him from internal quality control review by Leggett -- somewhat questionable, no??

This all supports Bill's analysis, which points to elevation of auditors who do less than others and flout the standards of conduct most of us would require, while devaluing and pushing aside those auditors who push for real reform.

Again, why is this important? Well, Kirkpatrick had not one entry in the "Reference Log" from 1990 to 1996, the period he was demoted, according to the 1996 depositional information. No auditing activity *recorded in the log*; perhaps he was so busy with the Jicarilla and other projects that he just forgot... anyway, John's back as supervisor now -- and the Rogue Bureaucracy continues to exhibit signs of advancing those who may be doing less than others; in other words, favoring those who may take the less aggressive approach to auditing that seems to be in vogue, and finding irasible nature and poor judgement to be marks of managerial potential, and shielding them from internal quality control.

Bill Robinson believes that we need to disband Minerals Management Service and start over.

Future Info: Watch for a Freedom of Information Act request from two watchdog groups on the Holloway letter to Armstrong mentioned in August 1997 postings to Rogue Bureaucracy.

21 October 1997
On October 21, 1997, Bill Robinson was called at work by the Assistant U.S. Attorney (AUSA) mentioned in the Leggett deposition. Bill had questioned the Interior Inspector General hot line about the alleged "scope limitation" re Mr. Johnson's request that Leggett avoid auditing Kirkpatrick on Jicarilla. The erstwhile AUSA told Bill that she told the person on the hot line staff that she (the AUSA) "knew" that the agency planned to limit internal quality control on certain types of audits, was not concerned about scope limitation, and had so advised Interior's Inspector General hot line person. Bill told the AUSA that he was not comfortable in discussing specific cases over the phone, but he talked to the AUSA because he had reported the case to the hot line -- as required of any federal official who suspects wrongdoing. Bill then called the IG hotline and asked if she had requested documentation. She had not. She bought the AUSA's assertions without documentation. Bill objected, and she agreed to accept Bill's copy of the Leggett deposition & Bill's analysis -- which should show that the Interior MMS staff did NOT push the Leggett audit away from the specific tribal audit records as a matter of "policy", but as a specific target audit. More to come.

23 October 1997
Why the Assistant U.S. Attorney Was Wrong

Herein we find the Assistant U.S. Attorney's comments to Bill Robinson by telephone this week do not bear the weight of cold logic and analysis...

During the week of October 20-24, 1997, Bill Robinson received a call from Ms. Irma Carillo Ramirez, Assistant United States Attorney, based in the Dallas Federal Building, 1100 Commerce Street, third floor. Bill had called her from home, but had also called the Interior Inspector General's Hot Line to convey his concern -- not about a case, but about a deposition by Mr. Robert Leggett which Ms. Ramirez attended on 8 August 1997, alleging "scope limitation" by an MMS official (Mr. Gary Johnson) in a matter involving the Jicarilla audits. Ms. Ramirez was joined at the August 8, 1997 deposition by Ms. Patti R. Ludwig, a Certified Shorthand Reporter in and for the State of Texas, and Richard C. LaFond, a Denver Attorney. A plaintiff in a case related to the deposition also appeared, but Bill Robinson's concerns are with the probable scope limitation issue. He also contest's Ms. Ramirez' statements this week by phone that she knew something about the issue that (as of the date of the deposition), Mr. Leggett did not know. Bill Robinson asks that Interior's Inspector General review the attached deposition to determine whether further investigation is warranted.

The key points are these:

(1) Robert Leggett was asked (page 28; lines 20-23) whether he had any conversation with a Mr. Johnson (believed to be Gary Johnson, an official who had selecting authority in hiring) that "...indicated to you (Leggett) that you should not review or Mr. (John) Kirkpatrick's work should not be reviewed in any internal audit?" Ramirez objected to the compound question. Attorney Lafond told him he could answer. Leggett answered, "There was a discussion relating to a portion of the work that Mr. Kirkpatrick was responsible for supervision (sic)."

Legget goes on to say the conversation occurred approximately in July of 1995, a best guess.

LaFond, on page 29, lines 21-23, asked Leggett what was said.

Leggett: "We were leaving a meeting where we had been discussing the pilot project. And once again, I'm trying -- I know it was the meeting in Denver. I'm not for sure as to the contents. But based upon the statement he made to me as we were walking out the door, he stated to me - - he said something to the effect would you mind not looking at the Jicarilla audits."

LaFond: "And what did you say? Again, if you could just carry me through the conversation as best you can."

Leggett: "I made no response back to him."

LaFond: "Did he say anything further?"

Leggett: "No."

LaFond: "Did you formulate an opinion as to why he was asking you that?"

Ramirez: "Objection, vague in time."

LaFond: "You may answer."

Leggett: "I have no basis to formulate an opinion even now."

<<Bill Robinson's note: When Ramirez called me this week, in October 1997 she said she did not have any question about this matter in August 1997 because she knew that there had been a policy decision to exclude certain types of audit from Leggett's quality review. How did she know, when Leggett to that day did not know?>>

LaFond: " That's not my question. We're all -- like it or not, we seem to always make opinions or come to opinions or judgements about things. And I'm not asking you for an official opinion or one that's within your job description. I'm just asking you, as a human being, did you come to any kind of <continued on page 31> conclusion or opinion as to why Mr. Johnson was asking you that?"

Leggett: "Other than it was unusual for such a request, I did not know the basis for the request."

On pages 33 and 34, there is a remarkable exchange when Leggett is attempting to answer a question as to why Johnson might have been requesting him not to look at the Jicarilla audits, and Ramirez objects -- breaks Leggett's chain of thought twice, in Bill Robinson's opinion -- to tell him he's being "nonresponsive". LaFond tells Ramirez that's his objection, not hers, and that it is improper for her to make it. LaFond says "You are attempting to cut off the witness, and I do not appreciate it." Finally, Leggett gets to say that "I did not think that -- I did not know if Mr. Johnson's comment was in regard to the quality of Mr. Kirkpatrick's <auditor in charge> work."

LaFond, on page 35, asks Leggett if he can think of any other possible motivation that Mr. Johnson would have to ask Leggett to not look at the Jicarilla audits other than the fact that he was concerned that they would not pass. Leggett opines that it might have to do with those audits not being "...reflective of the normal type audit approach."

Then Leggett further undermines Ramirez's statement this week by phone to Bill Robinson. He deposed under oath that "In fact, we were also looking at the pilot project at this time. And it was later decided by the division chiefs that we would exclude from the pilot project all Indian leases, which would include the Jicarillas, all contract settlements, all other special audits, and I think there's one other area I can't remember."

<Later decided. Yet Ramirez can say in all confidence that she knew, as of the conversation between Johnson and Leggett, that such a policy decision had been made when Johnson asked Leggett to back off. Remarkable judgement, Ms. Ramirez.>

Leggett went on, on page 36, to say that he had never heard, in his professional career, of any auditor being asked a similar type of question. Asked to define "scope limitation", Leggett said it "...refers to something or someone coming in and trying to limit the scope of your review unjustifiably. On the top of page 37, LaFond asks "I take it that is an agency and professional no-no?" Leggett answered "That is correct."

Lafond: "Would you describe the request by Mr. Johnson as being a scope limitation?"

Leggett: "At the time, yes."

Leggett went on, on page 38, to say that "At the time, I didn't know if it was improper or not. But the subsequent results of the meetings we had with the managers were to exclude all Indian audits, contract settlement audits and such." Again, the decision to exclude such audits was made well after the scope limitation discussion between Johnson and Leggett.

On page 41, lines 15-21, LaFond asks Leggett to draw a distinction between managers selecting certain cases for you to look at as compared to a manager asking you not to look at a specific case. Asked "Do you draw a similar distinction?", Leggett said "Yes".

On page 43, Leggett acknowledges he never saw any of Kirkpatrick's work, so he obviously did not review the Jicarilla audits. He also says, at the bottom of page 43 and the top of page 44, that "...I may ahve been somewhat suspicious as to the statement that Mr. Johnson made to me."

Leggett also acknowledges that several staff people in Dallas think Kirkpatrick appears to be held to a different standard concerning performance and conduct.

Note that Kirkpatrick was among 7 employees disciplined for having parties with prostitutes and dancers at motels and private residences in 1990, after pictures and other documentation surfaced. He was re-promoted in 1996.

28 October 1997
The following is the full text of a letter sent via certified mail on October 15, 1997, from the Government Accountability Office -- jointly with the Project on Government Oversight -- to the U.S. Department of Interior's Freedom of Information Act officer, requesting an unexpurgated copy of the Holloway letter:

15 October 1997

Sue Ellen Sloca
FOIA Officer
Office of the Secretary
Department of the Interior
1849 C Street, NW
Mailstop 1414 (MIB)
Washington, DC 20240

RE: Freedom of Information Act Request

Dear Ms. Sloca:

Pursuant to The Freedom of Information Act, 5 U.S.C. Section 552, as amended, the Government Accountability Project (GAP) and Project on Government Oversight (POGO) request an unexpurgated copy of the following document:

A letter, dated February 26, 1997 addressed to Bob Armstrong, Assistant Secretary for Natural Resources, Department of the Interior, from Pat Holloway, attorney-at-law. The letter references a meeting between major oil companies and small independent companies about the proposed new market value oil royalty valuation regulations. Attached is a piecemeal approximation of the letter, which may assist you in its discovery.

GAP and POGO request that all fees be waived, because "...disclosure of the information is in the public interest...and is not primarily in the commercial interest of the requestor" (5 U.S.C. Section 552 (a)(4(A)). We will, however, agree to pay a nominal fee ($20 or less) if this request is denied, avoiding any subsequent delay. We cannot anticipate any higher cost, as we are aware that numerous requests for this same document have come to Secretary Armstrong's attention.

Disclosure of the above requested information is in the public interest because it would contribute significantly to the public understanding of the operations and activities of the oil industry vis-a-vis the federal government. Disclosure is in no way connected with any commercial interest of the requestors in that GAP and POGO are non-profit, non-partisan public interest organizations concerned with honest and open government. Moreover, GAP and POGO are non-profit, tax-exempt organizations under Chapter 501 (c)(3) of the Internal Revenue Code.

Please be reminded that under the Freedom of Information Act, we are entitled to a response to this request within ten working days. Should this request be denied for any reason, we ask that a detailed explanation be provided along with the name of the person to whom administrative appeals should be addressed.

Thank you in advance for your time.

Sincerely,

Louis Clark Danielle Brian Executive Director, GAP Executive Director, POGO

End of letter

FYI, GAP's national office has a website, www.whistleblower.org/gap, and an email address, gap1@erols.com, and is located at 1612 K Street, NW, Suite 400, Washington, DC 20006. The telephone number for GAP is (202) 408-0034; Fax is (202) 408-9855. GAP's West Coast Office is at 1402 Third Avenue, Suite 1215, Seattle, WA 98101; telephone number there is (206) 292-2850, & Fax there is (206) 292-0610.

POGO can be reached through a link at the end of Rogue Bureaucracy.

Note also -- the 10-day response period to this FOIA request is almost up, as of tonight 10/28/97.

23 November 1997
For an enlightening look at how a major river's flow will be disrupted by back-flow of it's acquifer -- when 13 mines stop pumping water out and the open mines fill up -- check out this information from a hearing:

Dr. Tom Myers says that he's glad he doesn't own any water rights below the mines on that river, and he agreed to my referring to it here in Rogue Bureaucracy.

20 February 1998
Bill Robinson is told by a solid source that the Justice Department issued a press release today which announces a long-anticipated Fraud Claims Act action against selected oil and gas companies. The charges are said to include undervaluation of product with the intent to defraud the Federal government (and certain States, I would expect) of a portion of royalties owed.

This fits nicely with the OIL AND GAS JOURNAL article noted in August 1996, indicating some 100 oil and gas companies were being sued by some 15 States and other interested parties on the same basis.

Bill's Comment: It's about damn time!!

8 March 1998
Bill Robinson has in hand the full text of the fraud claims, or "qui tam action" lawsuit by the U.S. Department of Justice against (initially) four major oil and gas firms and their affiliates and subsidiaries. Received FEB 16, 1998, by the Clerk, U.S. District Court, Eastern District of Texas, Lufkin Division. The term "relators" refers to the five individuals and one organization who as plaintiffs initiated the lawsuit, before Justice took it over as provided by law in the name of the United States of America. In the INTRODUCTION, beginning on page 4 and ending on page 6, the following information is provided, with footnotes marked but not provided herein. This excerpt is typed from the document; refer to the document for full text:

"1. The causes of action alleged herein arise from a nationwide conspiracy by some of the world's largest oil companies to shortchange the United States of America ("United States") of hundreds of millions of dollars in revenues -- known as royalties -- derived from the production of crude oil (1) from federal and American-Indian owned lands spanning more than 27 million acres of off-shore and on-shore tracts located in, or off the coasts of Texas, Louisiana, Mississippi, California, Alabama, Alaska, Oklahoma, Arkansas, Colorado, Arizona, Florida, Kansas, Michigan, Montana, North Dakota, Nebraska, New Mexico, Nevada, South Dakota, Utah and Wyoming.

2. Specifically, the Relators, in the name of the United States, have brought this action to recover damages and penalties attributable to, among other things, a pattern and practice of carefully developed and coordinated schemes targeted to defraud the United States of its lawful share of oil royalties (2) owed by the Defendants for crude oil produced from United States-owned and/or controlled lands (including American-Indian owned lands). Defendants' unlawful conduct is continuing in nature and and Plaintiffs-Relators file this Complaint to ensure that the United States' rich oil reserves are not further converted and/or diverted to Defendants' use without the payment of full compensation as required by contract and law.

3. The Defendants, all of which are major oil companies operating in the United States, have underpaid oil royalties to the United States by calculating the royalties based on fraudulently deflated wellhead prices. Defendants have filed reports with the United States, citing these fraudulently deflated wellhead prices, as a basis for representing the value of the United States' entitlement to royalties.

4. Through their positions in the oil industry and/or their unique access to information, the Relators have knowledge of the unlawful conduct, including the schemes and practices alleged herein, which include Defendants' misrepresentation and underpayment of oil royalty payments to the United States by, among other things:

(i) misrepresenting that the first sale of oil under buy/sell agreements between themselves and/or other parties is the actual value received for the oil;

(ii) buying and selling crude oil at the wellhead (to and from each other non-Defendant oil producers) at values less than otherwise available to the Defendants with the implicit understanding that, as long as approximately equal volumes are bought and sold, the net financial impact upon any Defendant is neutral;

(iii) using sales to affiliated companies to mask the actual market value of the oil;

(iv) using an artificially low price for valuing oil when it is refined by the defendants and never finally sold;

(v) falsely classifying oil as lower-priced "sour" crude oil, or as oil subject to quality penalties, when such oil is/was in fact higher valued "sweet" crude oil, or oil not subject to any quality penalties or oil subject to a lesser amount of quality penalties than represented by Defendants;

(vi) paying royalties on the basis of lower-priced "sour" crude oil, and then commingling such "sour" crude oil with higher-priced "sweet" crude oil and selling the commingled mass as all "sweet" crude oil commanding a higher price not shared with the United States as royalty owner;

(vii) paying royalties on the basis of API gravity penalties, when in fact such oil has been commingled to yield a mixture of oil not subject to API gravity penalties, or oil subject to offsetting API gravity penalties (i.e., 46 degrees API gravity oil commingled with 39 degrees API gravity oil, when the non-penalty range is 40 degrees to 45 degrees), and selling the commingled oil without API gravity penalty, but charging the United States as royalty owner for such non-existent gravity API penalty.

5. Defendants have knowingly employed these schemes in a calculated and concerted effort to cheat the United States out of its royalty income by deflating the base price of oil upon which royalties are to be paid."

end of INTRODUCTION...

First line under JURISDICTION AND VENUE

6. This action arises under the False Claims Act, 31 U.S.C. Sections 3729-3732.

Who is bringing these charges?

Well, there is J. Benjamin Johnson, Jr., a resident of Plano, Texas. Relator Johnson is a petroleum engineer by background with an expertise in crude oil marketing, financial evaluation, petroleum reservoir engineering and petroleum management. He was Atlantic Richfield Company's (ARCO) Area Manager for Crude Oil Marketing from 1/91 until his departure in 1993, being one of three managers responsible for ARCO's nationwide crude oil marketing operations...

Another Relator is John M. Martineck of Carrollton, Texas. He was manager of ARCO's Crude Oil Marketing Organization from 4/86 until 12/93..

A third is Harrold E. ("Gene") Wright of Tyler, Texas. He has more than 49 years of experience in oil production, marketing and sales, has been an officer of independent oil and gas companies, and was previously a member of the Executive Committee of the Independent Petroleum Association of America.

A fourth is Leonard Brock of Palm Desert, California. He has a degree in petroleum engineering and has served as Director of Oil Properties for the City of Long Beach, CA. In addition, he has served as director of several independent oil producer associations. {{long-time readers of Rogue Bureaucracy will recall that Long Beach/CA collected over $300 million in underpaid royalties from some 15 companies}}

The fifth Relator is Danielle Brian of the Commonwealth of Virgina, who is Executive Director of the Project on Government Oversight. That organization is the sixth Relator/Plaintiff.

Defendants, initially, with named subsidiaries and affiliates, are Amoco Oil Company, Burlington Resources Inc., Conoco Inc. and Shell Oil Company. Justice's press release said that the United States has advised the court that it has not decided whether to intervene in the allegations involving the other 10 oil company defendants, but intends to continue its investigation of those assertions.

7 April 1998
Bill Robinson now calls for private email from responsible parties, in and outside of Federal government, who have personal knowledge &/or documentation of:

(1) why Interior did not launch a multi-company lawsuit before the qui tam "fraud claims act" lawsuit noted above (given that 10 to 15 States and private owners saw the patterns years earlier, and that AK and CA settled for just under 1/2 billion $$ each, and that Texas had started to get settlement money)?;

(2) why Interior refused (returned?) the underpaid royalties offered unilaterally by the one major oil company as noted above-- and how that is documented & who authorized the refusal or return & what was signed (& can you get a copy)?;

(3) why some Federal officials in the past have apparently continued, over time, to condone or gloss over major losses -- what was in it for them, jobs when they retired?; there's no evidence that Bill knows of that anyone took money to avoid major, comprehensive audits -- there is just those give-away "global settlements" as any evidence of massive underpayments.

Time to fish or cut bait, fellas. You are on the Titanic, that iceberg is dead ahead, and the water is *very* cold.

15 April 1998
As we all pay our taxes today, let's reflect on how 16 oil and gas firms have retained a single Dallas, Texas lobbying firm (paying the firm $320,000 in 1996 alone) to fight improved regulations which would return fair royalties based on actual federal oil and gas product value.

An article, excerpted in part below, from the ROLL CALL newspaper of February 9, 1998, entitled "New Ruling Fuels Big Lobby Campaign" (by Juliet Eilperin -- now with the Washington Post) detailed very well how that is happening.

The 16 firms were reported to be actually drafting alternative oil and gas royalty "valuation regulations" for presentation by Representative Mac Thrmberry (R-TX), a House Resources Committee member. (Comment by Bill Robinson: Attaboy, Mac, and all for that measly $2,750 the article says they gave you last year!!)

The article goes on to say that the hundreds of thousands being spent on the direct lobbying effort, the industry has also given $4.2 million to federal candidates in political action, "soft money" and individual contributions. More than $3.1 million went to Republicans, with the Dems getting $1.1 million.

The article pointed out that POGO, the Project on Government Oversight (BR Note: faithful readers will recognize one of the 2/98 Fraud Claims Act plaintiffs) claims that the industry "...owes the government $3 billion in back royalties and interest since 1990 ...(and) are likely going to have to start paying a lot more for the right to profit from public oil". Danielle Brian, POGO executive director (BR Note: and a direct plaintiff as well in the FCA lawsuit recently endorsed by Justice) was quoted in the article as saying "It's worth it to them to invest a few million now, hoping to avoid paying hundreds of millions later." The article links Thomberry's proposed legislation to a draft drawn up by the industry "royalty task force," which it said included companies such as Chevron, Exxon and Shell.

One other Representative pointed out what he called industry's "180-degree turn" from what they were seeking during the last Congress.

(A closing note on this update by Bill Robinson: Friends and neighbors, your Congress is indeed the best one that money can buy; write to them and explain that you don't want to see Mac Thomberry's bill, or any bill that dilutes the MMS effort to base royalties on market index prices, even leave committee. Industry still thinks it can lie and cheat the American taxpayer out of hundreds of millions of dollars each year in our share of the oil and gas value from Federal and Indian lands ... and even discusses using tobacco company legal tactics in it's private sessions, we are told! States are suing and winning; now individuals are suing with full support from the U.S. Department of Justice; the only important federal entity which is not suing is the U.S. Department of the Interior. ASK YOURSELF -- WHY?)

For more information on who is getting what money from whom in Congress, go to the Center for Responsive Politics.

29 April 1998
The Washington Post, April 29, 1998, reports that one of the four companies currently targeted under the False Claims Act lawsuit has reported to the Securities and Exchange Commission this week that it (Burlington Resources Inc.) is also the target of a federal grand jury criminal investigation on the same royalties issue.

Bill Robinson hopes that makes some other sources nervious enough to come forward and discuss Rogue Bureaucracy tactics for under-cutting royalty audit findings, etc.

Furthermore, one individual company, Atlantic Richfield, paid Texas $584 thousand in back royalties "voluntarily" (i.e., on it's own determination -- after Texas computed interest and penalties) in 1993. Over the past decade alone, the States of Texas, Arizona, California, Alaska and a few others have collected around $1 billion in "underpaid" oil and gas royalties, penalties and interest through lawsuits.

However, under this False Claims Act lawsuit by Justice, the companies continue to indicate that they are simply misunderstood, that this is only about accounting and valuation practices.

One of the plaintiffs in the Fraud Claims action, Gene Wright, was quoted by the Post as saying "The more you study it, the more you see that with the expertise of the oil companies and their lawyers, and their super-accountants, they can really put the pencil to all these things."

Does this remind anyone of how Big Tobacco ran all its studies of nicotine levels and targeting children through its attorneys, to gain a shield from outside review? And remember, the Holloway letter mentioned here in Rogue Bureaucracy (and still not released under that FOIA request to Bob Armstrong of Interior from two public interest groups) indicated that big oil intends to adopt tobacco company tactics ... hmm, perhaps like pretending to negotiate for a while, then refusing, I wonder? It's amazing how much bank interest can be earned on several billion dollars while contending one doesn't owe it, disputing it in court, discussing it with Congress... Atlantic Richfield did the right thing. It's time for more companies to 'fess up and pay up.

---

Coming right on the heels of the Washington Post article today that mentioned a criminal investigation by a Federal grand jury (related to the SEC by one of the defendant companies in the FCA lawsuit), we have this word from the Hill here in DC:

A reliable source says that a House and Senate "conference committee" meeting on a disaster preparedness appropriations bill met this morning (April 29, 1998) and appended a requirement in the language which would block Interior's Minerals Management Service from implementing new regulations for assessing the true value of Federal oil and gas.

Those are the exact regs which the Industry said they'd fight in the Holloway letter (see earlier updates last fall), and this is *exactly* the way they said they'd do it -- by lobbying their pals in Congress to block funding!

How appropriate that they put such language in a "disaster preparedness" appropriation bill. Blocking those regs would be a disaster for the American taxpayers' interests. It isn't final, though, so let's try to get it changed or vetoed.

We hear the conference commmittee vote was right along party lines. Senator Barbara Boxer (D-CA) opposed the amendment, but lost the vote by about 24 to 19. Kay B. Hutchinson and Ralph Regula were the ones pushing the blocking language.

Kay, Honey -- did'n you know thet yore dear ole' Texas is suing companies (and winning, ay God) on 'erl' royalty losses? Where's yore State Pride, gal? Lose it in your pocketbook, among those campaign donations?

As we look over the shoulder of our great Rogue Bureaucracy, we are still waiting for Interior to release that Holloway letter which the Government Accountability Project requested months ago. Bob Armstrong certainly knows by now that Pat Holloway's client at the time he wrote that letter was Gene Wright, one of the plaintiffs or "relators" on the Fraud Claims Act lawsuit.

14 May 1998
TO: Editorial Page Editor
The Washington Post
Dear Ms. Greenfield:

This past week's two articles on oil and gas royalties, by Martha M. Hamilton in Business on Wednesday, April 29th (Business; "Lawsuit over Royalties Poses Threat to Oil Firms") and by Juliette Eilperin on Saturday, May 2nd (Front Page: "How an Oil Industry Favor Wound Up in Tornado Bill") were both accurate, balanced and on point.

Please consider publishing, as an OP ED article, this analysis of the oil industry planning behind the assault on the royalty valuation regulations -- and the amazing, acknowledged parallel with big tobacco tactics noted in the attached document.

The first $850 million out of every billion dollars in Federal oil and gas goes, under legal contract terms, into the pockets of the major and independent oil and gas companies who lease the wells. That is fair, considering the risks and the cost of exploration. The royalty value debate is over how much of the remaining $150 million of each such billion dollars ends up in the bank accounts of those who own the property leased, under the same legal contracts.

The Wednesday article told us that current oil and gas royalty practices by industry have led to a February 1998 Fraud Claims Act U.S. civil lawsuit by the U.S. Department of Justice against four large oil and gas firms (and possibly 10 more) which may put more than $2 billion in underpaid royalties in contention -- plus triple damages, interest, and attorneys fees. It also mentions a U.S. Department of Justice criminal investigation by a Federal grand jury against one of the current four company defendants, as indicated in a filing with the Securities and Exchange Commission earlier the same week.

Such actions by the U.S. Justice Department are not taken on a whim.

Furthermore, one individual company, Atlantic Richfield, has paid Texas $584 million in back royalties on it's own determination, and Texas, Arizona, California and Alaska have collected around $1 billion in "underpaid" oil and gas royalties through lawsuits in recent years. The Saturday article indicated that this week's activity in Congress (as part of an emergency appropriation bill for tornado victims and troops in the middle east) de-funded new oil and gas royalty valuation regulations proposed by the Department of the Interior. Those prospective regulations would begin to assess royalty payments, the owners' shares, based on measures which would be more independent than the current one (in which oil companies tell us what is owed after the fact -- a really sweet deal). The new measure would be based on market prices of oil. Eilperin noted that the change would net a "...modest $66 million..." in government revenues this year.4 This blocking of the royalty regulations was literally done in the dead of night, in Congress this past week. Eilperin noted that Senator Kay Bailey Hutchison (R-TX), Ralph Regula (R-OH) and Bob Livingston (R-LA) were supported in nightly briefings by an oil industry lobbyist, Joel Saltzman. The article indicated that the night-time blocking action was viewed by those who follow Congress as a "... classic exercise in frenetic legislating, where a determined member can write into law a provision that never appeared in either chamber's version of the bill and received little debate."

The Saturday article indicated that Senator Hutchison insisted she wasn't contacted by the oil and gas industry on this, so one wonders, how did it occur to her? Was she suddenly struck with a vision that she should rush to these poor companies' assistance? Did it suddenly occur to her that oil royalties are an obvious form of disaster and that her help through that disaster bill was badly needed? Or, more likely, was it the $165,000 which the article showed Hutchison got from the oil industry in the recent election cycle, when she was not even up for re-election?

One also wonders, were Regula and Livingston responding in good faith to the receipt of some $4.65 million in overall oil industry political contributions to Republican political coffers (75% of the total from that industry during that cycle)? One wonders, one really does.

There was also a brief reference in the Saturday article to a three and a half-hour telephone conversation where members of the Independent Petroleum Association of America discussed how to block the pending (oil royalty value) regulation. The letter documenting that conversation is attached. That letter was never provided to two public interest groups during the past year, despite a number of informal calls to Assistant Secretary of Interior Bob Armstrong and at least one FOIA request to his office. The letter clearly indicates that not only did the large and small oil company representatives discuss tactics -- and that they indicated their intention to use the Appropriations Committee to block the regulations, as the article states -- but also that the small companies were influenced and even funded by the larger companies.

And that enclosed letter states "It was suggested that the IPAA-API (meaning the small and large oil and gas companies) should consult with the tobacco industry on legal tactics, since that industry has so much more experience in litigating against government regulations than the oil industry."

There you have it. Right now, the new (and much-needed) oil and gas royalty value regulations are on hold until at least the end of September. If the plans laid out in that attached letter continue to hold true, the industry will not only seek to delay them but will then file suit to do so.

It is also instructive to note that the letter mentions the "Chevron man" who participated was not "feeling comfortable" with those open discussions of pricing oil and gas ... that he mentioned that "matters discussed here are not subject to attorney-client privilege". Does that remind you of current disclosures that the tobacco industry used such privilege to block public knowledge of their plans and actions to target young people and to tamper with nicotine levels to enhance addiction?

In my view, the oil and gas industry is now about reap the rewards of emulating tobacco company tactics, which will include the documented, intense Federal legal actions noted above. Those are designed to recover lost billions, money owed this country's taxpayers. Also, at least one oil and gas firm is yielding industry secrets to investigators, as did at least one big tobacco firm.

The parallels are clear. I would warn those who are now busy carrying water for both industries to be aware that the public is now watching them. We are no longer willing to turn a blind eye to the excesses, the lies, the late-night political chicanery and the huge financial losses which those industries have imposed on the American people.

Regards,

William E. Robinson, Jr., wrob@erols.com

---

Attachment Mentioned in Letter to Meg Greenfield

FROM:

PAT S. HOLLOWAY
Attorney and Counselor
105 E. Austin, Suite 204
P. 0. Box 56
GIDDINGS, TEXAS
78942
Office: (409) 542-4061 Fax: (409) 542-4179

February 26, 1997

TO:

Mr. Bob Armstrong
Assistant Secretary, Land and Minerals Management
United States Department of the Interior
Washington, D.C.
20240

Re: API and IPAA Opposition to Proposed Oil Valuation Regulations

Dear Mr. Armstrong:

On February 20, 1997, 1 attended by telephone an open, 3-1/2 hour meeting of the IPAA's valuation task force. I did so at the request of my client, Gene Wright, an active member of the IPAA and a former member of its Executive Committee. He had been invited to attend or have a representative present. Although this was an IPAA meeting, lawyers and lobbyists representing Chevron, Amoco, Conoco and other major oil companies attended.

At the meeting it was reported that the major oil companies, CEOs' Club had just met and decided that the API must become active in opposing the proposed new market value oil royalty valuation regulations.

Every oil producer, without any question, has an unrestricted right to oppose the government's proposal an its own behalf, on any grounds it deems appropriate. But it would appear to be a violation of the antitrust laws for the chief executive officers of the major oil companies to meet and combine (i.e., conspire) among themselves to try to keep federal royalty oil prices depressed below market values. That is the only possible purpose to be served by combined opposition, in the name of the API, to the proposed market value pricing regulations.

The strategy discussed at the meeting was to seek to delay the proposed regulations as long as possible, and then file suit in the name of the IPAA ("another IPAA v. Babbitt case") to prevent them from becoming effective on whatever procedural (not substantive) grounds are available. it was suggested that the IPAA-API should consult with the tobacco industry on legal tactics, since that industry has so much more experience in litigating against government regulations than the oil industry.

The Chevron representative said he was attending the meeting to offer Chevron's financial support to the IPAA to delay and oppose the proposed market value regulations, on procedural, not substantive, grounds. On one or more occasions he said "he did not feel comfortable" with the discussions of pricing, a "substantive" matter, and he cautioned against portions of the agenda on pricing, mentioning that matters discussed here were not subject to the attorney-client or other privilege. He said some of the pricing matters on the agenda would best be taken up at a private meeting the following day.

The Chevron man said they were checking with their Democratic friends on the Hill to see if the recent statements by Senator Boxer (calling the major oil companies "deadbeats") and by Rep. Carolyn Maloney had somehow emanated from the White House, the DNC or Vice President Gore's office. (This seems an interesting manifestation of apparent paranoia. I wonder whether if 1, a Republican, were able to prevail upon Bill Archer and John Kasich to support a federal production tax an Gulf OCs production equal to the Texas or Louisiana production taxes, in order to help pay for Medicare, Chevron would attribute the idea to a Machievellian plot by the DNC or the White House?)

The Chevron man said the strategy would be to fund opposition, including litigation, against the proposed regulations in the name of IPAA, as representative of the "small producers," rather than in the name of the "giants." He said this could also provide "a forum for taking political initiatives." There was a whole series of meetings scheduled for that week and this week, including with members of Congress, to lay the groundwork for public support of litigation, and to coordinate the political and litigation aspects of the pricing problem.

There was mention of the fact that the Department of Justice had sent out more than 100 letters to different producers. There was speculation that a likely source of the DOJ list of such producers was some list Cynthia Quarterman must have, of the 125 producers she apparently mentioned, in Congressional testimony, whose royalty reports MMS would be examining for possible underpayments. I did not volunteer another possible explanation for the source of the DOJ list.

A representative of one of the majors present, Conoco I believe, mentioned it was meeting with Dodge Wells at the Justice Department the following week, and it was generally agreed that Dodge Wells must be "The Man" at the Justice Department in charge of royalty pricing matters. Someone mentioned that Shell had filed suit in federal court "in the Northern District of Oklahoma" to block subpoenas.

There was talk of using influence on the Appropriations Committee to block the expenditures needed to implement the proposed regulations. There seemed to be a consensus that there will be a coordinated FOIA request to DOI to obtain the underlying data, studies and information used by DOI in preparing the proposed regs, following a simple letter request for the information. Then there will probably be a federal suit to block the requlations on all procedural grounds devisable.

One of the female lawyers discussed the two meetings scheduled with Cynthia Quarterman the following week, the one on Tuesday to involve other matters besides pricing, but with the Wednesday afternoon meeting to be exclusively on royalty pricing, with Ms. Quarterman and her staff, including "Lucy." When there was a lot of trouble and noise on the conference call, and some of the participants were temporarily cut off, one of the ladies said, to general laughter, "that's Lucy," and I gather these ladies seem to think "Lucy" is one of the industry's main problems. (On behalf of my client, I felt somewhat slighted, but after hearing the discussion I know I would like to meet this mysterious bogey-woman).

Someone (either the IPAA or one or more of its members) has retained Attorney Marshall Doke with the law firm of Gardere & Wynne to advise the group on the False Claims Act. He was introduced as an expert on the False claims Act, being a Past President of the ABA Section on the FCA and a life-long practioner in the area of government contracts. (Before Doke began reading dull government contracts, when he was a younger associate of mine at the Thompson Knight firm in Dallas, he was expert at drinking beer and fair-to-middling at touch football).

The eminent Mr. Doke opined that "we think the government will file an FCA case if they think they can make it stick.,, He alluded to the fact that the FCA provides criminal as well as civil penalties, and he warned that even if the government can't make an FCA case stick, there is a False Statements Act that make any kind of false statement to the government actionable. Doke was careful not to make any false statements in his short speech, or to openly solicit further business in my possibly competitive presence.

I thought you might be interested in some of these matters. Enclosed is the agenda of the meeting. I am forwarding a copy of this letter to Mr. Dodge Wells.

Sincerely,

Pat S. Holloway

2 June 1998

As of June 2, 1998, the "settlement" of $45 million by Mobil has not really materialized (under the Fraud Claims Act lawsuit).

Word is, even that much would be a serious under-recovery by Justice for that one firm. Typical! What is needed is oversight by a watchdog group of States' top audit officials (e.g., Gary Mauro of TX) to compare each company's total royalties paid over the lawsuit period against average percentage underpayments -- and use that as a benchmark against settlement offers.

Correction: Earlier entries in this webpage overstated ARCO's voluntary settlement with Texas in 1993. The actual amounts paid were as follows: Underpaid royalties paid TX - $395,180.22; Interest paid TX - $150,023.29; and penalty paid TX - $39,518.02; total $584,721.53 voluntarily paid to Texas alone by one company.

Incidentially, ARCO is one of the few oil and gas companies NOT targeted by the Fraud Claims Act. Word is, ARCO offered the U.S. Government a large sum "voluntarily" about the same time, but Interior turned down the payment. Hmmm... did that make Interior somehow culpable for losses after 1993, since accepting that would have encouraged Interior to investigate (as the Texas payment encouraged Gary Mauro to investigate - and to file a suit agains 8 major oil companies).

15 June 1998

Insider information from Interior's Minerals Management Service, and some questions for the Rogue Bureaucracy:

FACT: ARCO did make a voluntary offer to pay a large sum to the U.S. government on a voluntary basis, within about one year after it paid Texas over $584,000 in back royalties, penalties and interest in 1993. Interior's Dallas Texas office is said to have handled the offer, accepting part and leaving other "issues" open. ($$$ unknown, yet)

We know that Texas (Gary Mauro - State Land Commissioner) was prompted by ARCO's voluntary payment to Texas to investigate other firms' possible underpayments, considering the same patterns and methods of underpayments which the ARCO offer revealed -- and to initiate civil lawsuit against some 8 major companies operating in Texas; He later recovered $17.5 million from one of those alone.

WHY was Interior not moved --by the same fact picture -- to take the same sort of civil legal action (in 1994-1995, or 1996, or 1997) on a nationwide basis?

WHY did Interior hesitate so long that a group of private individuals with insider knowledge (some from ARCO, as Bill recalls) finally filed a 'qui tam' Fraud Claims Act lawsuit, which Justice took over in February of 1998?

WHAT complicity in nationwide losses, since that ARCO offer to Interior, might be laid directly at the door of our Rogue Bureaucracy (and at what levels) because of that Department's failure to perform its trustee and fiduciary responsibilities to the American people?

And that failure of trusteeship is *so familiar* to American Indian Tribes and individuals!!

Certainly Interior initiated 'global settlements' with some firms, but on a questionable basis which some in Congress felt 'gave away the farm'. Will the basis of those settlements ever see the light of day?

Certainly Interior went after over $400 million in underpaid royalties in California alone, but that target seems to have been lowered to a little over half of the original -- a marked pattern for decades. Can we see the details on that CA activity now, and the basis for reducing the claimed underpayments there alone? How about all the other unilateral reductions of audit findings in the past decade?

And, is Justice considering that California information in it's current investigations?

Certainly Justice is looking at at least one company's offer to settle the 'qui tam' Fraud Claims Act lawsuit against it. But is the $45 million settlement rumored in a Wall Street Journal article (but not finalized) going to be adequate for one of those companies alone to 'skate' -- in light of FCA provisions for tripple damages, and for several thousand dollars in assessed penalties for each instance of fraudulent reporting (that's one per lease per month for about six years)?

Wondering citizens want to know.

Bill Robinson would be delighted to try to convene a forum on these questions with a panel of States' auditors and land officials, right after his current FOIA efforts to obtain more details on the ARCO voluntary offer (and its partial acceptance) receive prompt Interior attention. His emailed initial FOIA to the Lakewood Colorado MMS office on the ARCO voluntary offer to Interior is about to be shifted to the Dallas office.