The federal agency cited for an overly “cozy relationship” with the energy industry, which may have contributed to the Deepwater Horizon drilling disaster, has enjoyed extensive Wyoming political and economic connections since its creation in 1982 by then-Secretary of Interior James G. Watt, a native of Lusk in eastern Wyoming.
“For too long, for a decade or more, there’s been a cozy relationship between the oil companies and the federal agency that permits them to drill,” President Barack Obama said on May 14, referring to the Minerals Management Service. “It seems as if permits were too often issued based on little more than assurances of safety from the oil industry.”
With a number of Wyoming people in charge or influential in the agency over the last 10 years, it appears Wyoming intimacy with the oil and gas industry may well have helped create that “cozy relationship.”
Wyoming in 2009 was by far the largest single recipient of royalty monies — $957.2 million– collected by the embattled Minerals Management Service, which is also responsible for regulating drilling on federal lands and waters. Wyoming politicians and bureaucrats have historically played disproportionately large roles in setting the agency’s practices and policy, particularly under Republican administrations.
“When you look at the Minerals Management Service closely, you realize that most of the major players there cut their teeth on Wyoming politics—people who have been friends and worked together in Wyoming and have known each other for years,” said Mandy Smithberger, an investigator with the Washington-based Project on Government Oversight, a non-profit watchdog organization that has reported extensively on Minerals Management.
Wyoming’s extraordinary role in the previously obscure but always powerful minerals agency may stem from the state’s nearly single-industry economy.
With the possible exception of Alaska, Wyoming is the state most dependent on the oil, gas and coal industries for its livelihood. With the country’s smallest population, no state income tax, and very little economic diversity, most of Wyoming’s state and county revenues come from energy company severance taxes and a percentage of royalties paid on federal lands.
The elite among Wyoming’s legal and engineering professions, including several governors (past and present), have worked for energy industry clients.
As a result, presidential administrations seeking an appointee sympathetic to the energy industry can find a plethora of candidates in Wyoming.
The Wyoming connection was especially evident from 2000 to 2008, during the two administrations of President George W. Bush and his vice president, Wyoming native Dick Cheney. A former chief executive of Halliburton, Cheney took an early and very active interest in energy policy and placed several Wyoming political friends in key positions in the Department of Interior.
Before he took office, for example, Cheney selected David J. Gribbin III, a high school and college friend from Wyoming, to be his transitional liaison with Congress. Gribbin previously worked for Cheney as Halliburton’s chief lobbyist in the capital.
Cheney then chose Thomas Sansonetti, a prominent Cheyenne lawyer and GOP activist, to head the team choosing top personnel for the Department of Interior, which oversees Minerals Management Service.
Sansonetti, a member of the conservative Federalist Society, picked Gayle Norton to head Interior. Although not from Wyoming, native Coloradan Norton was a longtime protégée of James Watt in the Mountain States Legal Foundation, of which Watt was the founding director. Like Sansonetti, Norton was a member of the Federalist Society.
Norton, in turn, named former Sheridan, Wyoming, lawyer Rebecca W. Watson as assistant Interior Secretary for Land and Minerals Management. Watson was responsible for the Bureau of Land Management, the Office of Surface Mining and the Minerals Management Service.
Most importantly, from 2002 to 2008, the Minerals Management Service was directed by two former Wyoming GOP legislators, Rejane “Johnnie” Burton of Casper and Randall Luthi, of Freedom.
Burton, who had managed the Wyoming Department of Revenue under former Gov. Jim Geringer, in 2007 resigned under fire from her $168,000-a-year Minerals Management director’s job after the Department of Interior Inspector General found widespread corruption in the agency’s Colorado-based royalty collection office, and questions were raised in Congress about Burton’s handling of offshore leases.
The roots of that scandal, and the history of Wyoming’s role in creating the controversial program called “Royalty in Kind,” are detailed in a three-part WyoFile series, “Feds Gone Wild” published in August and September 2009.
Burton now works as a $49,000-a-year aide for longtime friend and former legislative colleague Wyoming U.S. Rep. Cynthia Lummis.
Luthi, a former speaker of the Wyoming House and a former aide to U.S. Sen. Alan K. Simpson, succeeded Burton as MMS director. Luthi left his Minerals Management position when President Obama took office in January 2009.
A little over a year later, on March 1, 2010, Luthi was named president of the National Ocean Industries Association, the main industry trade group for the offshore oil and gas industry.
Luthi testified May 27 before the House Natural Resources committee investigating the Gulf of Mexico disaster. (Complete hearing transcript.pdf) Several of the companies involved in the Deepwater Horizon disaster are members of Luthi’s association. One of the National Ocean Industries’ stated missions: reduce federal regulatory controls.
Congressional critics of the Minerals Management Service have cited Luthi’s seamless transfer from the regulatory agency to the industry he once oversaw as a prime example of the less-than-arms-length relationship that exists between industry and Minerals Management. Secretary of Interior Ken Salazar has ordered the agency broken up and restructured.
Both Luthi and Burton may be called to testify in some of the many upcoming Congressional hearings on the origins and the regulatory history of the Deepwater Horizon explosion and spill that threatens the ecologically sensitive Gulf Coast stretching from Texas to Florida.
Other Wyoming characters who figure in the Minerals Management Service saga include Casper oilman and GOP kingmaker Diemer True, former Gov. Jim Geringer, former state lands director Jim Magagna, Riverton oilman and current state Sen. Eli Bebout, former Wyoming U.S. Rep. Barbara Cubin, and current U.S. Rep. Cynthia Lummis.
Profiles of some of the key Wyoming players and their role in the royalty policy can be found in an earlier WyoFile story, “RIK’s Wyoming Connections” published on August 9, 2009.
As chairman of the House Resources Energy and Minerals subcommittee, Cubin was Congress’ most strident champion of the now-abandoned “Royalty-in-Kind” program that had allowed energy producers to pay Mineral Management Services royalties with gas or oil instead of cash.
While serving as state treasurer in 2005, Lummis pushed a proposal through the state Board of Land Commissioners to commit Wyoming’s 50 percent share of federal natural gas royalties to the Minerals Management Royalty-in-Kind program. In 2008, Royalty in Kind accounted for more than half of the $543 million in federal gas royalties dispersed to the state.
Following WyoFile’s articles on the royalty policy, Wyoming Gov. Dave Freudenthal on September 10, 2009, asked Michael Geesey, director of the Wyoming Department of Audit, to investigate revenues remitted to Wyoming, to see if the state got its fair share.
In an interview this week (June 1), Geesey told WyoFile “it is still far too preliminary” determine if the state is owed money because of failings in the Royalty-in-Kind system.
State auditors are looking into production and revenues from the Lost Cabin-Madden and Jonah-Pinedale gas fields. Geesey said he expected a preliminary report of the smaller of the fields, Lost Cabin-Madden, by the end of the December. The whole process, Geesey said, could take three years.
Geesey cautioned the cash-strapped state and counties against being overly optimistic about receiving additional revenue after the audit.
However, audits of the offshore Royalty in Kind natural gas program, conducted by the federal Government Accounting Office, reported the loss of tens of millions of dollars in “foregone revenue” under the Royalty in Kind program.
“We examined gas leases in the Gulf of Mexico,” the September 15, 2009, GAO report stated, “and found that, about 5.5 percent of the time, lease operators reported production, but royalty payors did not submit the corresponding royalty reports, potentially resulting in $117 million in uncollected royalties.”
At a press conference on Wednesday (June2), Gov. Freudenthal ruled out ordered a partial or sample audit like that conducted by the GAO. However, the governor did not rule out adding more staff if the initial audit shows substantial amounts of uncollected royalties owed the state.
“If I thought there was a motherlode there,” Freudenthal said, “I would send in more miners.”