U.S. Offshore Drilling Czar ‘Not Thoroughly Familiar’ with Billions in Lost Royalties from Offshore Drilling

By Penny Starr | March 21, 2011 | 5:27 PM EDT

Michael Bromwich, right, testified at a House appropriations hearing on March 17, 2011 about the budget for the Bureau of Ocean Energy Management Regulation and Enforcement, which he directs. Other panelists were, from left, Deborah Gibbs Tschudy, deputy director of the Office of Natural Resources Revenue and Gregory Gould, director of the Office of Natural Resources Revenue. (CNSNews.com/Penny Starr)

(CNSNews.com) – The head of the federal agency responsible for overseeing offshore oil drilling could not directly answer questions posed by Rep. Jim Moran (D-Va.) about billions of dollars in lost revenue from offshore oil and natural gas wells that are not paying royalties to the federal government for operating in U.S. waters.

Michael Bromwich was questioned last week at an appropriations hearing to consider a $358.4-million budget request for the Interior Department's newly created Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE), which he heads.

“I am not thoroughly familiar with these issues, but hearing you describe it and hearing the magnitude of the dollars, it’s a serious problem, and I will learn more about it and get back to you with fuller answers,” Bromwich said at the March 17 hearing.

According to a 2007 Congressional Research Service (CRS) report, offshore leases put in place by the Department of the Interior in 1998 and 1999 did not enforce royalty payments based on production levels and the cost of crude oil.

The report estimated that the error could cost the government $10 billion in lost revenues, but one official put the estimate at $15.21 billion, a figure he said his staff had reached after “working closely” with Bromwich.

“The estimate that we’re getting – working closely with Director Bromwich and his staff – we have estimates of $15.21 billion,” Gregory Gould, director of the Office of Natural Resources Revenue, said when Moran questioned him about the unpaid royalties.

Gould added that there was “no legal mechanism” at present to change those 1998-99 lease contracts.

“So this is going to continue,” Moran said, adding that because oil prices are now over $100 a barrel, taxpayers and not oil companies should reap the benefits.

Shortly thereafter, Moran turned to Bromwich, saying, “All right, earn your pay, such as it is, Mr. Bromwich,” and asked him about the royalties. As noted, Bromwich said he was “not thoroughly familiar with these issues.”

Rep. Jim Moran (D-Va.) questioned the panel at a March 17, 2011 hearing on the budget for the Bureau of Ocean Energy Management Regulation about the loss of royalty fees for the production of oil and natural gas in the Gulf of Mexico. (CNSNews.com/Penny Starr)

Bromwich said he did not have the answer despite the testimony of Gould, who said he had worked closely with Bromwich and his staff on the royalty estimates.

The amount of unpaid oil and gas lease royalties stemmed from what the CRS report described as an “error” by the Department of the Interior’s Minerals Management Service – the agency that was replaced by BOEMRE and which President Barack Obama appointed Bromwich to direct.

Moran called that $15.2 billion error “an expensive mistake.”

In his opening statement, Bromwich cited BP’s Deepwater Horizon oil rig explosion in April 2010 as a driving force behind his agency and its goals.

“My staff and I have been aggressively pursuing reforms that directly relate to many of the drilling safety, environmental protection, and regulatory oversight issues recently identified in the final report of the National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling (Commission),” Bromwich said.

“We have been moving forward with the fundamental reforms and new regulatory measures necessary to improve the safety of offshore drilling, as well as enhance protection of the ocean and coastal environments,” Bromwich added.

“At the same time, we are working every day to allow safe drilling and production operations in the Gulf of Mexico to continue in order to keep production flowing and people working in an industry that is crucial to our nation’s economy and energy independence,” Bromwich said.

Since the moratorium on drilling permits that was put into place following the BP oil spill was lifted on Oct. 12, 2010, BOEMRE has only approved three new well permits. Three others were approved because they meet requirements within the moratorium framework.

Bromwich said that mid-February was more accurate as a time frame for permit-issuance since that was when the oil and natural gas industry had new safety equipment and measures in place ordered by the Department of the Interior following the BP oil spill.

When asked about the slow pace of permits being approved at the hearing, Bromwich said there were “more to come” in the near future.

Bromwich is a Harvard-educated lawyer who served as an associate counsel in the prosecution of Oliver North in the Iran-Contra case before becoming inspector general at the Justice Department from 1994 to 1999, where he investigated FBI misconduct, according to a profile published by The Washington Post.

The profile touted Bromwich’s “lack of experience” as a selling point for his appointment to head BOEMRE.

“Bromwich's biggest selling point appeared to be his lack of experience and ties to the oil industry, which has badly tarred the scandal-plagued agency in the past,” the article states.