Blowing the Whistle on Big Oil

Great article in the New York Times about the malaise of Washington’s over sight of the oil industry and how it has taken a retired federal auditor to expose the comfy collusion between the industry and its regulators.

For years Bobby Maxwell scrutinized the books of major oil producers that pumped billions of dollars worth of oil and gas from land and waters owned by the American public. Along the way, the auditors recovered hundreds of millions of dollars from companies that short-changed the government on royalties.

In 1988, Maxwell visited a coal mine on federal land in Montana even though his supervisors said the mine was too small. Within months, the company agreed to pay $43 million in back royalties, and it eventually paid more than $100 million.

In 1993 he managed to get ARCO executives to pay $20 million. He also recovered $20 million for the Jicarilla Apache Tribe in New Mexico, which had long complained that companies were underpaying them for natural gas extracted on their tribal lands

In 2003 he was cited for his great work. “Mr. Maxwell’s career has been characterized by exceptional performance and significant contributions,” wrote Gale A. Norton, then the secretary of the interior. Less than two years later, the Interior Department fired him. That was one week after a federal judge in Denver unsealed a lawsuit in which Mr. Maxwell contended that a major oil company had spent years cheating on royalty payments.

Maxwell is at the center of an escalating battle with both the oil industry and the Bush administration over how the federal government oversees about $60 billion worth of oil and gas produced every year on federal property. In the process, the New York Times describes him as “one of the most nettlesome whistle-blowers Big Oil has ever encountered, a face-off that offers an inside look at how the industry and the government do business together”.

Invoking a law that rewards private citizens who expose fraud against the government, Mr. Maxwell has filed a suit in federal court in Denver against the Kerr-McGee Corporation. The suit accuses the company, which was recently acquired by Anadarko Petroleum, of bilking the government out of royalty payments. It also contends that the Interior Department ignored audits indicating that Kerr-McGee was cheating. Three other federal auditors, who once worked for Mr. Maxwell and still work at the Interior Department, have since filed similar suits of their own against other energy companies.

Several of the nation’s biggest oil producers, including Exxon Mobil, Chevron, Shell and ConocoPhillips, failed in an effort to block Mr. Maxwell’s suit, arguing before an appellate judge that his case would “open the floodgates” to suits by other federal auditors. But the court rejected their pleas, and a trial is set to start on January 16.

If Maxwell wins Kerr-McGee could be forced to pay more than $50 million in unpaid royalties and penalties, and Maxwell and his lawyers could be entitled to keep as much as 30 percent of that.

Maxwell’s case comes at the same time as others have questioned the Interior Department’s methods. Investigators say they have found evidence of myriad problems at the department: cronyism and cover-ups of management blunders; capitulation to oil companies in disputes about payments; plunging morale among auditors; and unreliable data-gathering that often makes it impossible to determine how much money companies actually owe.

In February, the Interior Department admitted that energy companies might escape more than $7 billion in royalty payments over the next five years because of errors in leases signed in the 1990s that officials are now scrambling to renegotiate. The errors were discovered in 2000, but were ignored for the next six years and have yet to be fixed.

The Interior Department “clearly doesn’t view their responsibility as maximizing revenue to the American people for resources that belong to the American people,” said Representative Darrell E. Issa, a California Republican who oversaw hearings on the flawed leases. “We don’t have a system that accurately tells us how much oil is being taken out of the ground.”

Run that last sentence past me again…