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Week of 6.16.06

Crude Awakening

Kevin Gambrell was the director of the Federal Indian Minerals Office in Farmington, New Mexico from 1996 to 2003. He spoke to NOW's Maria Hinojosa about what he describes as widespread abuse by oil and gas companies in their efforts to avoid royalty payments. Gambrell accuses some of these companies of lying and cheating, which he says could cost American taxpayers billions of dollars as a result. Gambrell also says that the Minerals Management Service, the governmental bureau in charge of collecting such royalties, "fail in their duties to protect taxpayers."

Gambrell was fired in 2003. He reportedly said the Interior Department told him it was because he destroyed records. Gambrell sued for wrongful termination and said he and the department have reached a confidential settlement.

NOW contacted the Department of Interior to discuss Gambrell's allegations, which they deny, but they turned down our request for an interview. This is an edited transcript of our interview with Gambrell.

MARIA HINOJOSA: Can you explain what you did for the office?

Kevin Gambrell KEVIN GAMBRELL: My job was to manage Indian allotments in the Four Corners [area of the American Southwest] to make sure that the Indian people were getting what they were entitled to, royalties.

HINOJOSA: How did you see your role in the greater scheme of working on behalf of the American taxpayer?

GAMBRELL: ... I had the responsibility to make sure that the companies pay correctly and that the taxpayers get everything that they're entitled to.

HINOJOSA: Did you witness a time when the oil companies were not trying to pay their royalties?

GAMBRELL: Oh many times. I think oil and gas companies were always trying to figure out how to not pay royalties or to pay as little as possible.

HINOJOSA: How much do you think that the American taxpayer is losing from your understanding of what oil companies are not paying in terms of their royalties?

GAMBRELL: I think the American taxpayers are losing billions of dollars.

HINOJOSA: How did they do it?

GAMBRELL: They would take deductions that they could not legally take. They would price their oil to gas using artificial pricing mechanisms that weren't true to the market. They would get bonuses, premiums and other considerations that were not visible to the royalty collectors ...

HINOJOSA: How easy is it for an oil or gas company to essentially underreport the royalties that are due?

GAMBRELL: It's easy ... In the past it was much easier ... I had an example probably three years ago where an oil and gas company was producing oil and gas from a well site and they never reported anything to the federal government. And I found out through a transporter that transports oil and gas that they had been producing. There was no way to really know that they were paying correctly until we've got the third party verification.

HINOJOSA: Is this a systemic problem? Is it all of the oil and gas companies that are trying to get out of paying royalties or is it just a few bad companies?

GAMBRELL: I would never say that all oil and gas companies are trying to get away without paying royalties ... I would say that it's more that oil and gas companies are underpaying royalties, probably a majority of them. And there are some that actually do pay correctly, but most of them don't.

HINOJOSA: So are Americans then to walk away [knowing] the oil and gas companies are purposely trying to take advantage of the American taxpayer?

GAMBRELL: I don't think the American people should walk away from this. I think they need to really question the government that is currently auditing oil and gas royalties and make sure that they do it correctly. I think there needs to be independent review, I mean separate from the government, a review of the agencies that collect royalties, manage the oil and gas properties. There needs to be better oversight and there needs to be independent audits of these agencies.

HINOJOSA: With respect to your job collecting royalties from the oil companies, did things change at all when the Bush administration came into power?

GAMBRELL: There was a specific mandate to the executive level people within the government to push oil and gas, to get oil and gas development domestically everywhere. And it became a priority over everything else. It was almost like a tunnel vision. The issues that were being dealt with under the Clinton administration had just basically been pushed to the side and things like Indian Trust became secondary to oil and gas. And oil and gas just became the priority. And if it meant jeopardizing the health and safety of people, such as Indian people, it was secondary. It was almost ignored. It became just a low priority, and oil and gas became the priority ...

I think that when the Bush administration came into power it changed our way of taking care of a lot of the audits. It became a priority to get rid of the legacy audits -- audits that had been pending or had not been completed from many years. And our focus became solely on getting the past cleaned up and getting a situation where oil and gas could pay the royalties without a lot of complications. And Minerals Management Service (MMS) could do the compliance work without a lot of work involved and the detail that it required in the past.

HINOJOSA: What did your superiors say when you wanted to push to make sure that the oil companies were paying the royalties that were due?

GAMBRELL: During the time that I was trying to push to get oil and gas companies to pay correctly, there were a lot of changes in the way that management thought that we should take care of the past audits. They try to push a lot of short cuts in doing the audit process. In fact it became ... no longer an audit process. It became almost a review, a simple review and there wasn't really any audit any longer. Just pretty much ignore the audit process.

And the collection of royalties, from my experience, I was able to collect eight times the amount of royalty in terms of back-paid dollars than what the new process that the management had bantied (SIC) up for me to do.

HINOJOSA: And do you believe that MMS was in fact working the hardest they possibly could to collect the royalties from the oil and gas companies?

GAMBRELL: No I do not. I think if you go back to a 2003 report by the Inspector General [2MB - Requires Adobe Reader], that reviews some of MMS's work, they found that there was I think out of 14 audits that [10] audits were substandard or not done correctly ...

HINOJOSA: When you would realize that perhaps a company was underreporting, when you were auditing and you wanted to push forward to get this company to kind of step forward and explain the problems with their paperwork. What happened?

GAMBRELL: I got a lot of resistance. I've had companies basically divert the issue to my authority and question what authority I have to go after them for a particular issue. I had them telling me in court. They often bring in their attorneys. I mean there's never been a situation that they didn't bring in their attorneys. They try to negotiate. Since it's very difficult they'll sometimes contact a congressman and have their congressman contact me or contact my supervisor and try to circumvent me. That's happened many times ...

...sometimes I would get a call from my boss, who was talking to that oil and gas company, that oil and gas executive would contact my boss. And my boss would call me and say, "What are you doing? Why are you doing this? We don't want you pushing this issue on this oil and gas company."

HINOJOSA: When you witnessed that happening to you, what went on for you?

GAMBRELL: I was shocked ... I thought industry would fess up to the mistakes and pay correctly. I didn't think they would do something underhanded like contacting their congressman to ... hit me from basically from the side. I thought they would be direct with me and try to work with me. I think after they realized that I wasn't really responsive to Congress in the sense that I would actually change my decision I think they then realized that they would have to you know work with me. I mean they did take a lot of putting the pressure on them to pay correctly.

HINOJOSA: Did you go speak to your superiors?

GAMBRELL: I spoke to my superiors. I sent memos. I contacted the courts in [Washington] D.C. ... and explained to them some of the problems I was having. And I felt that no matter what I said, no matter how much I was able to provide documentation to support my conclusions that we were going to damage the taxpayer's interest, they continued to push that. They continued to push that directive. And when I wasn't willing to participate I felt that I was retaliated against.

All of a sudden I became like the bad guy. Who was I to question the management? ... the objective was to remove me from government once I started refusing to ... violate the collection of royalties for taxpayers.

HINOJOSA: And how would you grade the governmental organization, the MMS, in charge of collecting those royalties?

GAMBRELL: I would actually probably give them an F. I think they fail in their duties to protect the taxpayers.

HINOJOSA: Do you believe that oil and gas companies are lying sometimes to avoid paying royalties?

GAMBRELL: I think some oil and gas companies do lie in order not to pay royalties. I think in the past, I know in the past that, if you look at a lot of the things that they did, they did lie. You couldn't trust the oil and gas companies to do what was right.

HINOJOSA: From somebody who's been on the inside, who knows how the agencies and the oil and gas industries work, what's the solution when the American taxpayer says, "What are we supposed to do?"

GAMBRELL: I think a lot of the solution is to have a person who manages these agencies that collect royalty that is independent of oil and gas, that has nothing to do with oil and gas, has been a person who understands regulation and how to protect the taxpayer. I think what we have now is a lot of people who understand profit. And they understand money. And they understand oil and gas influence. But they don't understand the responsibility to the taxpayer.