Transcript - May 11, 2007
BRANCACCIO: Welcome to NOW.
We all know what's been happening to the price of oil, but did you know we're supposed to be getting a cut of that? Those fossil fuels under federal lands and waters belong to you, dear citizen, and companies pay royalties to the feds when they take them out of the ground.
In a few moments you'll meet a man who, as a sharp-eyed government auditor, came to believe that one oil company had found a way to avoid paying millions of dollars in royalties. His bosses told him to drop the matter. He refused. Producer Brenda Breslauer and Senior Correspondent Maria Hinojosa have our story.
HINOJOSA: Meet Bobby Maxwell. A 53-year-old Tennessee Native. He's spend his career fighting for the American taxpayer ... but not in the way you might think.
MAXWELL: I go investigate onsite at the oil companies in the field, in their—in their headquarters. But also—way out in the boonies where the wells are. I go and visit those.
HINOJOSA: For 22 years, Maxwell was a government auditor at the Minerals Management Service, or MMS. It's the division of the Department of the Interior that oversees drilling for oil and gas on public lands and waters. Drilling on rigs like these in the Gulf of Mexico.
MAXWELL: This is the great news: You own those oil wells. These are federal lands. As a citizen, you own those.
HINOJOSA: We own the well?
MAXWELL: That's right. That oil and gas belongs to the American taxpayer. We—we've leased it to a company and they have the right to take it and sell it and give us a percentage back.
HINOJOSA: They're known as oil and gas royalties. And they bring in big money for the government. Just last year royalties collected by the MMS totaled 12 billion dollars. But for the 250 MMS auditors like Maxwell, the focus is on what the companies don't pay.
MAXWELL: They always pay us somethin' but they will short us sometimes. That's why you need to look at the books to make sure they are paying us everything.
HINOJOSA: Over the years, Maxwell has audited every major oil company ... Exxon, Shell, BP, Chevron...But it was a routine audit of oil giant Kerr-McGee that would change the course of his life.
Until it was sold to Anadarko Petroleum last year, Kerr-McGee was known as one of the largest producers of crude oil and natural gas in the country, bringing in more than 20 billion dollars in revenue since the year 2000.
Now, in a case that may make legal history, Bobby Maxwell finds himself in a high-stakes battle taking on big oil and his own government agency.
The story begins in 2002. Maxwell was working as a senior auditor in the Oklahoma City office of MMS. Something stumped him. Why would Kerr-McGee be selling its oil for much less than its competitors?
MAXWELL: Could be oil from the same—same lease, but they were sellin' it say six dollars less than someone else.
We knew there was a reason, because Kerr-McGee is a sophisticated, worldwide corporation. So they wouldn't just be off sellin' their oil at a price lower than everyone else unless there's a reason.
HINOJOSA: Remember, cheaper oil means less money in royalties going to the government.
MAXWELL: We started diggin' through the records looking for the reason.
HINOJOSA: Then this internal memo turned up in one of Maxwell's searches.
MAXWELL: This is what we call the smoking gun document.
HINOJOSA: According to Maxwell, Kerr-McGee was selling that oil at a discount in exchange for marketing services. Nothing wrong with that, perfectly legal. But Maxwell says, the company should have been paying royalties based on the full value of that oil.
HINOJOSA: And for regular taxpayers, that means?
MAXWELL: A loss of a lot of money. In this instance we estimated—or analyzed and determined it was over $10 million.
HINOJOSA: As an auditor when you saw this you thought?
MAXWELL: We've caught 'em.
HINOJOSA: So Maxwell prepared this order to Kerr-McGee to report and pay additional royalties in the amount of ten million dollars. But then something odd happened, says Maxwell. Phone calls from high-level department officials in Washington.
HINOJOSA: So this is a big deal when you're getting this kind of a phone call?
MAXWELL: It's a very big deal. Very, very, very important people on the line. And—they dissuaded me from issuing the order. They kept saying, "We don't think this order should go out. We don't want this order to go out."
HINOJOSA: The instructions came from Washington without any explanation, Maxwell says.
MAXWELL: I don't know what was involved with Kerr-McGee. But I know it was my job to issue that order, and I had authority, and I was told not to do it.
The American taxpayers just lost $10 million. Kerr-McGee just made $10 million.
HINOJOSA: So then what do you do?
MAXWELL: Well, at that point, I actually started thinking about early retirement. (LAUGH) And I realized it's not the organization I used to work for anymore. We don't aggressively pursue the oil companies for oil payments.
HINOJOSA: It was part of a pattern of lowering the agency's standards that began after President Bush took office, says Maxwell. The Interior Department reduced the number of auditors and shifted enforcement efforts towards a new computerized system known as "Compliance Review."
HINOJOSA: What were you told about compliance review?
MAXWELL: I was told that...that under the compliance review we would do—be doing a lot less detailed audits. And that we would not be botherin' the oil companies as much. We wouldn't be requesting records as before or be intruding on their personnel's time.
HINOJOSA: But isn't that the job of an auditor?
MAXWELL: It is the job of the auditor.
But we were told that, you know, we were being reengineered. It's a new process and it's moving away from detailed audits. And we would support it. As we managers we were told, "You will support this change."
HINOJOSA: And that change had consequences. The agency's watchdog, the Inspector General, found that the number of audits at MMS had indeed declined under the new system.
That may explain why the money collected by the auditing division has plummeted in recent years. For most of the 1990s, audits and compliance review brought in an average of $172 million a year. But since 2002, that's dropped to an average of $48 million a year, despite soaring energy prices.
MAXWELL: The oil companies didn't just turn honest overnight. We just quit enforcing the laws and regulations.
HINOJOSA: That's also the opinion on Capitol Hill.
NICK RAHALL: When it comes to collecting the payment due the people, the agency has stalled.
HINOJOSA: Uncollected royalties are merely the tip of the iceberg when it comes to problems plaguing the Interior Department. In a congressional hearing last fall, its own Inspector General blasted the department.
EARL DEVANEY: Simply stated, short of a crime, anything goes at the highest levels of the Department of the Interior.
HINOJOSA: In fact, just last week, a top official resigned after breaking federal rules by sharing internal documents with a lobbyist. And in March, J. Stephen Griles, the former number two at Interior, pleaded guilty to lying about the special access he gave convicted lobbyist Jack Abramoff.
The non-profit Project On Government Oversight, or POGO, says government regulators are simply too cozy with industry. Just take a look at this awards lunch last month in Houston, POGO says. It's an annual bash for hundreds of oil industry executives...hosted by...MMS. Pogo asks, "Why is the government spending taxpayer time and money to throw a big shmooze party for the industry it regulates?"
And Bobby Maxwell agrees. A lifelong conservative, he served in the military, as did his father who was a coal miner and then a steel mill worker. He says his sense of public service came from his parents.
MAXWELL: They always—were—were just glad to be an American. My father was always—always happy to pay his taxes. He said, "It shows you made money and that, you know, this country's workin."
HINOJOSA: And that sense of duty followed him as he took on a bigger job at MMS. In October of 2003, Maxwell moved to the Denver office to be the program manager for audits, in charge of 120 people. But he couldn't get the Kerr-McGee case out of his head.
MAXWELL: I felt very strongly that the American taxpayers just had $10 million stolen out of their pocket. And that needed to be remedied.
HINOJOSA: So Maxwell made a risky move. In June of 2004, while still working for the government, he filed a lawsuit to force Kerr-McGee to pay those missing royalties. Under the false claims act, a law designed to encourage whistleblowers, a citizen can sue on behalf of the government. For their time and effort, these people can get up to 30% of the money recovered.
But Maxwell's move came at a cost. Two weeks after the lawsuit became public, he was called into an early morning meeting in his Denver office.
MAXWELL: The associate director flew in from Washington. They basically told me that they hadn't—were implementing a reorganization. And my job was eliminated and my services were no longer required.
HINOJOSA: And at that moment you're thinking—
MAXWELL: I was just fired.
HINOJOSA: It was an abrupt end to a career marked by success and recognition for bringing in millions of dollars of unpaid royalties.
HINOJOSA: So all of these awards, did they mean anything when you were reorganized, when you were essentially fired?
MAXWELL: Didn't mean a thing. I was the only one fired in the reorganization.
HINOJOSA: That was in January of 2005. Since then, the lawsuit has become his new full time job. He was flooded with documents from Kerr-McGee. 60,000 in all. He read them each three times he says.
For two years, the Kerr-McGee fought the lawsuit. And they weren't alone. Eight major oil companies also tried to stop Maxwell, arguing that if the case went forward "the floodgates will be opened" to suits by government auditors. But the courts allowed Maxwell to proceed. In January of this year, Bobby Maxwell had his day in court.
MAXWELL: It—it's quite daunting to walk in because every day the judge says, "This is Bobby Maxwell versus Kerr-McGee Worldwide Corporation." And you think, "Oh, what am I doing here?" This is a worldwide corporation.
And you look at all of these lawyers they have with them in the halls, And then they got a table full of lawyers. And you fell really insignificant.
HINOJOSA: Ian Cole, an IT professional, was the foreman of the Jury.
COLE: Just a few days into it, it was clear that there was something not right with the accounting practices of Kerr-McGee.
HILB: This case just involved what we felt was an oil company that felt they didn't have to pay
HINOJOSA: Susan Hilb, a real estate developer, was also on the Jury.
HILB: they found a very good way of writing, selling their oil at below market price and reducing their royalty payments.
HINOJOSA: Throughout the trial, Kerr-McGee focused on how much money Maxwell stood to gain. Under the false claims act, companies that defraud the government typically pay triple damages and penalties. If he won, the government could make millions and so could Maxwell.
MAXWELL: This is a—a side story, what I stand to gain under the False Claims Act, because nothin' would be collected by the federal government if I did not file this lawsuit.
And we were in trial six days. Laid out all the evidence. And—then it went to the jury for a decision. And within hours, within hours the jury came back with a guilty verdict against Kerr McGee.
COLE: We, the jury, determined that Kerr-McGee failed to report earnings—that resulted in royalties underpayment of $7.5 million.
HINOJOSA: And at that moment you're thinking?
MAXWELL: I was overwhelmed, 'cause the emotions. I was like so happy. (LAUGHS) It's 'cause you realize everything you said was right. And when you take it to the American public and they listen to the evidence they said, "Kerr McGee is guilty of withholding information from the federal government and not payin' royalties due the American citizens."
HINOJOSA: We requested an interview with Kerr-McGee, but the company declined. It said the suit was without merit. As for the Minerals Management Service, the day after the trial, it said it "Maintains its original position that Kerr-McGee paid the royalties it owed" to the U.S. Government.
MAXWELL: Yeah, and—and that's ridiculous. MMS just puts its hands over its face and says, "No royalties due. No royalties due." And yet, we have a federal court decision stating that Kerr-McGee did underpay royalties on purpose.
HINOJOSA: Citing the ongoing legal case, the MMS declined our request for an on-camera interview. But yesterday, in Denver, we tracked down the Agency Director, Johnnie Burton, at a meeting with industry.
HINOJOSA: You could have ordered, ah, with one order you could have signed off and the American government would have gotten ten million dollars from Kerr-McGee, can you tell us why you didn't do that?
BURTON: I'm sorry, ah, did..did we have a scheduled interview here
HINOJOSA: But it's just one question, can you just tell us why didn't you sign that order?
BURTON: Because I don't have the authority to do so.
HINOJOSA: As the head of Minerals Management, Burton is the ultimate authority in the agency. She's also responsible for how much money is collected.
HINOJOSA: And ... We're talking about Kerr-McGee
BURTON: I don't know anything about Kerr-McGee
HINOJOSA: Can you tell us why under your leadership Johnnie Burton the royalties collected by auditors have dramatically decreased by MMS?
HINOJOSA: And one more question.
HINOJOSA: Why don't you join the decision now to bring that money to the American taxpayer collected by Kerr-McGee? The jury has said that Kerr-McGee owes millions of dollars to the American taxpayer.
SECURITY: You guys are gonna have to take it downstairs
HINOJOSA: So where does all this leave Bobby Maxwell?
HINOJOSA: So the jury says, "You won."
HINOJOSA: Case closed?
MAXWELL: Not exactly. (LAUGHS)
HINOJOSA: Two months after the jury verdict, an extraordinary development. The judge changes his mind about whether Bobby Maxwell, as a federal employee, could even bring this lawsuit. The judge dismisses the case.
Kerr-McGee issued a statement saying it was a vindicated.
COLE: The defense team has—has come out and said that, "Oh, this means that we didn't do anything wrong." Well—you know, that's like me going out and getting a speeding ticket and going to trial and showing the judge that the wrong date is on the ticket, so I don't—he throws out the ticket, me running out and saying, "I wasn't speeding."
HINOJOSA: Bobby Maxwell has filed an appeal. And now the government might actually get involved. The Department of Justice is weighing whether it will take the case forward.
Since Maxwell decided to take on the oil industry, others have been inspired. Three former colleagues, all still employed as auditors by MMS, have filed similar lawsuits. In total, they're suing more than two-dozen oil companies for failing to pay tens of millions of dollars in royalties.
HINOJOSA: What do you think about the fact that you have now become this government whistleblower?
MAXWELL: It is what it is. You know I'm a—I'm a quiet personality person. I don't like the spotlight. But I've been cast in it. But I think the public will benefit from it because I think when the government fails to perform someone needs to stand up and let it be known.
BRANCACCIO: Now a word about the environment...without changes it's going to be a total drag, right? But does discourse about the environment have to be?
Enter Grist.org, an online magazine that offers news on the big global warming issues, plus advice for living green ... delivered with wisecracks, sometimes obnoxious headlines, and not a whiff of sanctimony.
Chip Giller founded Grist in 1999, hoping to lighten up a movement that often takes itself too seriously.
BRANCACCIO: Chip, thanks for doing this.
GILLER: Thanks so much for having me on David.
BRANCACCIO: Not your parent's environmental movement. What do you mean by that?
GILLER: You know, if you think of the historic image of an environmentalist, I think it's something of a scold, a self-righteous person. You know, recycle this, do this, get a worm bin. You know, sort of an extremist. And what we're trying to do with Grist is we're trying o have some fun with the subject matter to—to mock some of the conventions. And to make—go—take steps to make green more normal. You know—not something that is—you have to be a pure person to—to achieve.
BRANCACCIO: It's hard to be pure.
GILLER: It's entirely hard to be pure. One can't be pure. There's always gonna be imperfections. Everyone's gonna have an environmental impact.
BRANCACCIO: But it's interesting. I mean environmentalism is about—our lives. This is a—life and death issue really.
GILLER: Sure. Sure.
BRANCACCIO: Is—is it appropriate to fool around with it a little bit?
GILLER: Really, for quite a while, the environment's been thought of as a—a place to visit. Sort of other. Different from humans. Go to the wilderness. Care about species. And what we're trying to do is bring it back to everyday life. To connect it to, you know, other topics that you're—you're often reporting on. Healthcare. The economy. Jobs. And, actually, in the last two years, we've seen a real shift. You know, we're seeing green issues of "Vanity Fair." We're seeing, you know—the—Hollywood get behind "An Inconvenient Truth"...
BRANCACCIO: What did you do right? What do you think?
GILLER: You know, here I am talking to you. I'm a pretty earnest guy myself. But what the approach we took this—we call it gloom and doom with a sense of humor. We describe ourselves as a beacon in the smog. And—(LAUGHTER) so—so—I—I think it really is this almost "Daily Show" approach to the environment. And—and we've attracted hordes of readers in their 20s and 30s.
I mean I'd love to—recite the official GRIST haiku as an example. It goes something like this, "A frog in water doesn't feel it boil in time. Dude, we are that frog." (LAUGHTER) So it's ridiculous. But, you know, people love this stuff. We have an advice columnist who lives in the library stacks at GRIST magazine who answers all manners of questions. And some of them are very serious. But some of them are a little—silly. Like—we got a recent one—"Can you recycle a beer bottle with a lime wedge stuck in it?" And, you know, in a sense, it's kind of irrelevant, who cares? Well—
BRANCACCIO: Well, actually, I'm interested in that.
GILLER: You can. I'd like to—I'm here to tell you that you can. But the greater point is, you know, you gotta meet people where they're at ... So what we see ourselves doing is kind of taking—people along the spectrum from light green to darker green. But our target audience are people who are—on that cusp. Sprouts. Light green.
GILLER: You know, original—people who've been environmentalists for—for years and years and years—that it was almost like a religion. I mean I will say that I—personally came from that camp. So in college I was learning to—I had—I had longer hair. And I—walked around campus, and I did a little personal protest where I carried around my trash, every bit of trash I generated that week in a—in a clear plastic bag.
BRANCACCIO: Did that get you dates?
GILLER: It—it—(LAUGHTER) it—believe me, it did not get me dates. But it also didn't win any converts to the cause. That's not—that's not how you're gonna bring in the mainstream. It's not about fanaticism. It's—it's about, you know, GE, the eco imagination campaign. Wal-Mart getting on board. That's the type of change that's gonna need to happen if—if progress is to be made. And—at—these companies need to be held accountable—for their environmental misdeeds. But they should also receive credit for the—for the positive things they're doing around the environment. That's my perspective at least
BRANCACCIO: Chip, what made you an environmentalist do you think?
GILLER: I had a wonderful mentor growing up—a journalist named Bill McKibben who was an early babysitter of mine. We both grew up in Lexington, Massachusetts.
BRANCACCIO: Yeah, he's a legend.
GILLER: He's a legend.
BRANCACCIO: He was your babysitter.
GILLER: He was my babysitter. So, at his knee, I was learning about global warming.
BRANCACCIO: Chip's one-time babysitter's been busy. One of the foremost environmental thinkers, McKibben worked with young activists this spring to gather people in 1400 places nationwide on a single day. The idea was to collectively get up into the face of congress...
BRANCACCIO: Do you ever worry that the environmental movements, time is right now? I mean—2007 is when it all came roaring back, but it peaked?
GILLER: Right. Right.
BRANCACCIO: I mean it's very in right now.
GILLER: Right. It's—it's trendy, it's hip. You know, I think—this can't be like another dot com bust. What I would hope is that green eventually becomes, and what we're trying to do with this is make green normal, pervasive. So no one thinks of hygiene anymore, right? But everyone washes their hands. So it—I want it—we want green to be almost like second nature. Pardon the pun.
BRANCACCIO: Well, Chip Giller, president and founder Grist, environmental news and commentary, thank you very much.
GILLER: Thanks so much David.
BRANCACCIO: And that's it for NOW. From New York, I'm David Brancaccio. See you next week.