(Telephone Interview with WyoFile editor Rone Tempest, June 3,2009)

WyoFile: On October 6, 2005, the then Wyoming Board of Land Commissioners (Gov. Freudenthal; Treasurer Cynthia Lummis; Sec. of State Joseph Meyer; Auditor Max Maxfield and Supt.  Of Public Instruction Jim McBride) voted 4-1 to dedicate its 50 percent share in natural gas royalties on federal land to a Royalty in Kind Natural Gas program. (Letter to Minerals Management Services director Johnnie Burton (pdf)).  You voted against it. What was your thinking?

Gov. Freudenthal: I lost that one.  It was really pushed pretty hard by the state treasurer (Lummis) and by Johnnie Burton. (The former Wyoming legislator who was director of the federal Minerals Management Service and who attended the Oct. 2005 meeting in Cheyenne) .

I have always been uncomfortable with Royalty in Kind.

I understand you get some buyer pressure because they think they can get a better deal by buying though Minerals Management Service than they can by buying it from some of the majors, maybe some of the refineries.  That has always bothered me in that if you had the end purchasers who believed they were going to get a better deal out of Royalty in Kind and therefore they wanted the program, then maybe somebody was going to get a lesser deal. It’s just a practical matter.

That was a reservation of mine. I also had general reservations that the government could ever perform what it is in reality a proprietary private sector function.

Thirdly, I’d had experience with Minerals Management Service back when I was United States Attorney  (1994-2001) on a variety of cases and had serious reservations about MMS ‘s general relationship with industry. That’s about as far as I can go on that. I felt like they were too close.  The rest of it is all covered under the great rule 60 (Fed. R. Civ. P 60 (b) covering grand jury secrecy) and I think (U.S. Dist.  Judge Clarence A.) Brimmer would still throw me in jail today if I violated it.

You can say that during  my tenure as US Attorney  that during that time  through the grand jury  process  I’d become exposed to things about MMS that I wasn’t comfortable with seeing brought forward as a guiding principle for disposition of what I consider a state resource, which our royalty share is.

The other reservation I had about it is that it seemed like in general MMS was looking for ways to give royalty reduction benefits of various kinds to industry.

At the end of the day,  I was not comfortable that it was a good business proposition for the state . It lined up on a partisan vote (all the other members of the board were Republicans. Freudenthal is a Democrat)  and the discussion was fairly partisan. The treasurer wanted it. Johnnie Burton wanted it. And they did it.

WyoFile: Do you remember the presentation Burton and her staff made in support of the Royalty in Kind natural gas program?  It was in executive session so we don’t have a public record for it.

Gov. Freudenthal: “I thought it was weak.  They pitched their program to us and I didn’t like their answers. I probed pretty hard on the question of what assurances do you have that you are going to be as competitive in your pricing as a private company would be because ultimately that seems to me to be the best. It wasn’t a compelling case to me…

WyoFile: Would you advocate stopping the Royalty in Kind program for Wyoming’s royalty share? You obviously opposed it back in 2005 but since then  other things have happened, as you know.

Gov. Freudenthal: “I think it goes to a broader question and I’ve looked at a couple of these stories on the bills to kind of overhaul the Bureau of Land Management and Minerals Management Service.  Generally, I feel they may throw the baby out with the bathwater if they are not careful. I would not tie the Mineral Management’s essentially royalty collection function and the leasing function together.  Now we do that with state lands but it is pretty clear that the obligation on state lands is to generate revenue. But when you start dealing with public lands that the federal government owns and they are not trust lands they are public lands and there is a whole other set of priorities that they have to meet in terms of multiple use, environmental obligations and other things that the BLM considers in its process.

The MMS’ sole  function is cash management  and to make sure that you are getting the right amount of value. I think the part I would agree with is that I would make the head of MMS more high profile an appointment. I don’t know if that means it ought to be presidential and confirmed by the Senate but probably. I think that’s how you raise the profile of that appointment. So you make sure that they understand that their main function is to protect the public welfare, the public weal in terms of are we getting the right amount, is it comparable to what’s available in terms of deductions and other stuff we do.

So I’m not convinced that I would house those two functions together because then you are going to ask an agency to serve two masters, one being all of rules and regulations and stuff regulating public lands which is broader than just revenue generation. But I would make a change in that I would probably do more quantitative analysis of environmental consequences of letting leases. Because what we are doing now is letting leases and then coming back later and coming back and saying ‘oh, we didn’t do enough environmental analysis at the time so you now you can’t develop it and you’ve got operators saying ‘no  I’ve got existing rights and I’m entitled to develop it.’

To some degree the government creates its own problem by not having thought through the leasing decision before they do it.  But I’m not sure I would want the leasing decision driven in an agency  in which the other part of its function to be maximization of revenue from public lands.  think they both need to be articulated as objectives but I wouldn’t put them in the same bailiwick because at that stage one or the other is going to dominate.  They should be of equal stature in terms of the argument.

WyoFile: The Inspector General investigations of the Minerals Management Service Royalty in Kind program show federal bureaucrats who appear to have lost their bureaucratic demeanor and became infatuated with wheeling and dealing?

Gov. Freudenthal: I would say I was not surprised by the outcome of the Inspector General’s reports. I think it goes to the point that you need to elevate that (Minerals Management Service) appointment. I like some of the ethics reforms that some of the people are talking about in terms of the relationships of those employees with industry and gifts and so on.

But it also goes to the point that when you start doing Royalty in Kind all of a sudden those relationships are going to be exponentially larger. Because remember you are asking the government to perform a private sector function but it has none of the private sector  discipline that comes from profit and loss and that allows it to become more relational and less business.

What’s that old rule about good fences make good neighbors? And the fences were gone. And I think you need them.  I also think you need a fence between the land planning function and the dollar maximization function.  What’s that old Biblical thing about a man can’t serve two masters?

WyoFile: With regard to the state’s participatin the the natural gas Royalty in Kind program you could say the Land Commissioners have a fiduciary responsibility to make sure we are getting as much as we can from our resources. Should the royalty in kind program for gas be reviewed? Should the board take it up?

Gov. Freudenthal: To tell you the truth. I hadn’t  thought about it a lot until you brought it up and maybe it is a good idea to go back and review it.

WyoFile: Since 2005 we have been doing  most of  our federal share of gas in Royalty in Kind. What we don’t know is whether that has gained us or lost us money.

Gov. Freudenthal: Basically, as I sit here today, I don’t

WyoFile: So would you say it is a good idea to review it?

Gov. Freudenthal: Yeah, I made a little note to myself here “what’s going on.” Your story triggered the notion that maybe I better go look at this, which is true. Doesn’t make me look real farsighted, but it is true. I’ll talk with (Wyoming director of Lands & Investments) Lynne Boomgaarden and maybe we’ll take another look at it.

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Published on June 15, 2009

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