HOUSTON, Sept. 16 - The U.S. will eliminate its scandal-ridden royalty-in-kind program that allows energy companies to pay drilling fees with oil and natural gas instead of cash, Interior Secretary Ken Salazar said Wednesday.
"Today, I am announcing a phased-in termination of the program and an orderly transition over time to a more transparent and accountable royalty collection program," Salazar said in a prepared testimony before the House Natural Resources Committee.
"The royalty-in-kind program has been a blemish, in my view, on this (Interior) department," Salazar told the committee, which was holding two days of hearings on a proposal by the committee's chairman Nick Rahall to revamp the way the U.S. government leases and collects royalties for drilling on public lands.
"Energy leasing and royalty programs have not been working as they should and the American people have not been receiving the full benefits from these valuable assets," he said.
Salazar's announcement came after the Government Accountability Officer (GAO), the investigative agency of Congress, published a report earlier this week revealing that the country lost at least 21 million U.S. dollars in uncollected oil and gas royalties because the Interior's Minerals Management Service (MMS) does not do the necessary auditing and collection.
Another report released this week by the GAO found that energy companies may have underpaid 160 million dollars in oil and gas royalties in fiscal 2006 and 2007 because of inaccurate data supplied to the Interior Department.
It's the same program where last year an Interior inspector general found that 19 employees, nearly one-third of the entire staff of the program, had accepted gifts and gratuities from oil companies or been involved in sex scandals.
The royalty-in-kind program, which began in the late 1990s, is one of the U.S. government's largest sources of non-tax revenues, according to the GAO. Of the more than 12 billion dollars that the MMS collected in fiscal 2008, more than half came from the program rather than cash payments by energy companies.
The MMS had previously defended the program, saying that the government receives more revenues when it sells the commodities rather than collecting cash directly from producers. It also said that the program can simplify royalty collection and avoid legal disputes with energy companies over the value of oil and natural gas produced.
But Salazar said Wednesday the royalty-in-kind program was outdated. The program was set up when people thought it was a good way for the Interior to make more money by "stockpiling oil and natural gas and selling it when prices rise," he said. He noted that the department does not have a similar program for its timber or grazing assets.
Salazar's decision drew mixed response. "Terminating this straightforward method of handling royalty payments runs the risk of raising administrative costs and adding additional layers of paperwork required to determine the value of oil and gas production," said Jack Gerard, president of the American Petroleum Institute, the oil industry's biggest trade group.
However, the Project on Government Oversight, a watchdog group, embraced the decision, calling the royalty-in-kind program a failure.
Salazar said he will issue a secretarial order in the next few weeks to end the royalty-in-kind program. But the eventual phasing-out of the program will take at least one year as there are existing contracts that must be honored, he said.
"Today, I am announcing a phased-in termination of the program and an orderly transition over time to a more transparent and accountable royalty collection program," Salazar said in a prepared testimony before the House Natural Resources Committee.
"The royalty-in-kind program has been a blemish, in my view, on this (Interior) department," Salazar told the committee, which was holding two days of hearings on a proposal by the committee's chairman Nick Rahall to revamp the way the U.S. government leases and collects royalties for drilling on public lands.
"Energy leasing and royalty programs have not been working as they should and the American people have not been receiving the full benefits from these valuable assets," he said.
Salazar's announcement came after the Government Accountability Officer (GAO), the investigative agency of Congress, published a report earlier this week revealing that the country lost at least 21 million U.S. dollars in uncollected oil and gas royalties because the Interior's Minerals Management Service (MMS) does not do the necessary auditing and collection.
Another report released this week by the GAO found that energy companies may have underpaid 160 million dollars in oil and gas royalties in fiscal 2006 and 2007 because of inaccurate data supplied to the Interior Department.
It's the same program where last year an Interior inspector general found that 19 employees, nearly one-third of the entire staff of the program, had accepted gifts and gratuities from oil companies or been involved in sex scandals.
The royalty-in-kind program, which began in the late 1990s, is one of the U.S. government's largest sources of non-tax revenues, according to the GAO. Of the more than 12 billion dollars that the MMS collected in fiscal 2008, more than half came from the program rather than cash payments by energy companies.
The MMS had previously defended the program, saying that the government receives more revenues when it sells the commodities rather than collecting cash directly from producers. It also said that the program can simplify royalty collection and avoid legal disputes with energy companies over the value of oil and natural gas produced.
But Salazar said Wednesday the royalty-in-kind program was outdated. The program was set up when people thought it was a good way for the Interior to make more money by "stockpiling oil and natural gas and selling it when prices rise," he said. He noted that the department does not have a similar program for its timber or grazing assets.
Salazar's decision drew mixed response. "Terminating this straightforward method of handling royalty payments runs the risk of raising administrative costs and adding additional layers of paperwork required to determine the value of oil and gas production," said Jack Gerard, president of the American Petroleum Institute, the oil industry's biggest trade group.
However, the Project on Government Oversight, a watchdog group, embraced the decision, calling the royalty-in-kind program a failure.
Salazar said he will issue a secretarial order in the next few weeks to end the royalty-in-kind program. But the eventual phasing-out of the program will take at least one year as there are existing contracts that must be honored, he said.
