Gov Seeks Fed Royalty Program Accounting

Did Public Receive Fair Share from Gas Leases?

By Rone Tempest

Wyoming Gov. Dave Freudenthal has asked the federal Minerals Management Service to let the state conduct an audit of three years of natural gas royalties collected under the controversial federal Royalty-in-Kind program.

In fiscal year 2007-2008, Wyoming received $290 million through the federal program, in which the government accepts lease payments in natural gas or oil instead of cash. The Wyoming RIK project is the largest onshore program in the country.

Mike Geesey, director of the Wyoming Department of Audit, said “based on the volumes we saw, we decided we needed to take a look at this.”

Freudenthal, a longtime critic of Royalty in Kind, made his request in a September 10 letter to Minerals Management Service director S. Elizabeth Birnbaum (pdf). The governor described the audit as “an effort to ultimately enhance our shared responsibility for protecting the public’s interest in the management of this nonrenewable public resource.”

Earlier this summer, two federal Government Accountability Office reports said Minerals Management failed to collect as much as $160 million in royalties owed the public because of failures of the RIK program.

On September 8, House Committee on Natural Resources chairman Nick Rahall (D-WVA) filed HB 3534, titled the Consolidated Land, Energy, and Aquatic Resources (CLEAR) Act of 2009, that would end the regular use of Royalty in Kind as a means of collecting royalties on federal lands and offshore leases.

Rahall scheduled hearings for September 16-17 to discuss the latest Government Accountability Office findings and his bill.

“These GAO investigations add weight to the pile of previous reports verifying the urgent need to reform the federal royalty collection system,” Rahall said in a September 15 press statement. “The CLEAR Act, which I introduced after a series of hearings in my committee earlier this year, would eliminate the scandal-ridden Royalty-in-Kind program to help prevent to loss of even more money owed to the American people.”

The result of intense lobbying by the oil and gas industry, Royalty in Kind first came into prominence in the late 1990s, with numerous Wyomingites– including Riverton oilman Eli Bebout, Casper oilman Diemer True, US. Rep. Barbara Cubin, and Gov. Jim Geringer– playing key roles.

At Geringer’s urging, Wyoming participated in the first large RIK pilot for oil from 1998 to 2004. The pilot program was dropped after state and federal officials said the results were negligible.

However, in 2005, Wyoming again jumped into the RIK program, this time at the urging of state Treasurer Cynthia Lummis and Minerals Management director Rejane “Johnnie” Burton.

The state land commission, composed of the five statewide elected officials, voted 4-1 to commit Wyoming’s share of federal natural gas royalties to the federal RIK program. Gov. Freudenthal was the lone dissenter.

Geesey said Wyoming will ask the federal government to pay for the audit that Freudenthal has requested.

“They may not agree, but we are going to ask,” Geesey said. He said state audit teams will begin with the Lost Cabin gas field and move from there to the larger Pinedale and Jonah fields.

He said the audit will be conducted even if the feds end RIK as national policy, to ensure the state gets its fair share.

“If we determine there is any additional revenue out there for the state of Wyoming, “ Geesey said, “we certainly want it.”

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