US Inaction on Oil Royalties Suit Could Have Cost Millions

Published on
by
McClatchy Newspapers

US Inaction on Oil Royalties Suit Could Have Cost Millions

by
Greg Gordon and Marisa Taylor

A Kerr-McGee offshore platform is seen in the Gulf of Mexico in an undated publicity photo. Kerr-McGee Corp. U.S. Attorney Troy Eid said Washington overruled his request to enter the case against the Kerr-McGee Corp.

WASHINGTON - Senior Justice Department
officials blocked the U.S. attorney in Colorado from supporting a
whistleblower's suit last year, jeopardizing the government's prospects
for recovering as much as $40 million from a major oil company for its
alleged underpayment of royalties.

U.S. Attorney Troy Eid
said Washington overruled his request to enter the case against the
Kerr-McGee Corp. A lawyer for the whistleblower said he was told that
decision was made "at the highest levels" of the Justice Department,
then run by former Attorney General Alberto Gonzales.

"I recommended strongly that we intervene," Eid said. "My view did not prevail."

Moreover,
McClatchy found that the Justice Department has participated in only a
handful of the 80 whistleblower cases brought against the oil industry
since 1995.

Whistleblower suits are generally less
successful without the Justice Department's intervention, and if a
whistleblower prevails on his own, taxpayers get a smaller share of the
damages.

The disclosures come in the wake of scathing
reports from internal watchdogs this week over the Interior
Department's mismanagement of oil leases and are likely to fan
criticism that the Bush administration has ignored allegations that oil
companies have cheated taxpayers out of tens of billions of dollars in
fees for the rights to drill on federal lands.

In three
reports released this week, the Interior Department's inspector general
disclosed that officials of the agency's Minerals Management Service
had engaged in illicit sex and drug use with oil company employees and
had accepted thousands of dollars in gifts, golf and ski outings, meals
and drinks while overseeing the leasing and royalty payments.

Meanwhile,
former MMS auditors have alleged in some of the 80 lawsuits that
high-ranking Interior Department officials blocked them from issuing
routine subpoenas seeking company records that could document the
fraudulent underpayment of royalties.

Justice Department
spokesman Charles Miller said the agency routinely investigates False
Claims Act suits and intervenes as warranted, but that he could not
comment on the pending Colorado case.

However, the
allegations have prompted some to call on the Justice Department, which
so far has charged only one lower-level MMS official, to form a task
force and conduct a broad criminal investigation of the leasing and
royalty-collection program.

At issue in Colorado was
whether the federal government would join in a suit filed by a former
senior auditor for MMS under the federal False Claims Act, which gives
whistleblowers a share of any cash they recover for taxpayers. MMS
collects as much as $10 billion in royalties each year from federal oil
and gas leases.

In January 2007, a federal jury ruled that
Kerr-McGee owed $7.5 million to former senior MMS auditor Bobby Maxwell
and the federal government because the company had understated the
proceeds of oil sales to hold down royalty costs.

After
the jury's verdict, the presiding judge signaled he might overturn the
verdict on grounds that Maxwell did not meet the law's strict
definition of a whistleblower.

As a result, Richard
LaFond, a Denver lawyer for Maxwell, said he urged the Civil Division
chief in the U.S. Attorney's office, Lisa Christian, to intervene to
protect taxpayers' interests by keeping the case alive.

LaFond
and co-counsel Michael Porter estimated that the U.S. Treasury would
lose as much as $40 million if the Justice Department did not intervene
and they lost on appeal.

LaFond said that Christian agreed and she later told him she got approval from Eid, the U.S. Attorney, to take on the case.

His bosses in Washington, however, reversed him.

Eid
told McClatchy that he did not know who in Washington made the decision
or why. LaFond said that Christian told him the decision was made "at

the highest levels . . . It was clear that this case had political
stuff written all over it."

At the time, Gonzales was
facing a firestorm of allegations that he was improperly firing U.S.
attorneys and politicizing sensitive cases.

Kerr-McGee's
lobbying registration filings show that the company spent $1.5 million
in 2006 lobbying federal agencies, including the Justice Department and
MMS. The filings do not specify the issues on which the company lobbied.

A
spokesman for the former Kerr-McGee, which agreed in 2006 to a takeover
by Houston-based Anadarko Petroleum Corp., did not respond to requests
for comment Friday. The company has fought the allegations in court.

On
March 30, 2007, U.S. District Judge Phillip Figa threw out the Colorado
case, ruling that too many MMS officials knew about the allegations for
Maxwell to qualify as a whistleblower under the False Claims Act. Even
then, the judge still gave the Justice Department a few weeks to
intervene.

On Wednesday, a federal appeals court in Denver reinstated Maxwell's suit against Kerr-McGee.

Justice
Department spokesman Miller declined to comment about the failure to
intervene, but he noted that the department filed a brief in the 10th
U.S. Circuit Court of Appeals in Denver supporting Maxwell's jury award.

While
the verdict was for $7.5 million, the law provides for the tripling of
jury damage awards, plus penalties. Porter said the penalties could
range up to $15.2 million.

When asked about criticism that
the Justice Department has been too passive with respect to oil
industry whistleblower suits, Justice's Miller pointed to two cases in
which the department intervened, recovering a total of nearly $600
million.

However, the decision to intervene in the largest
of those cases, against more than a dozen oil companies, was made
during the Clinton administration.

Porter and LaFond
asserted that last week's inspector general's reports reflect "the tip
of the iceberg" in the oil-leasing scandal.

Jack Grynberg,
the owner of a Colorado petroleum company with an extensive science
background, said he has identified 68 ways in which companies "steal"
natural gas and oil by underreporting the amount pumped. Grynberg has
filed more than 70 False Claims Act suits accusing other oil companies
of $200 billion in theft, but said the Justice Department intervened in
only two.

State officials have voiced concerns, too. In
2003, a year before Maxwell sued Kerr-McGee, a Louisiana official
analyzed the company's sale prices and emailed an MMS agent that that
they were "far below" the market. The MMS agent said he was aware of
the discrepancy.

 

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