How the Bush Stole Summer Vacation

FEDS GONE WILD PART I

The Department of Interior Oil and Gas Royalty Scandal and Its Wyoming Roots

By Laton McCartney and Rone Tempest, WyoFile, Posted by: Guest Writer August 18, 2009, Article Source

Part One: The Wyoming Stage

On a cold, blustery January 28, 2009, the newly appointed Secretary of the Interior of the United States, Ken Salazar, arrived at the headquarters of Minerals Management Service at the Federal Center in the Denver suburb of Lakewood, Colorado.

With him were two men: Interior's Inspector General Earl Devaney, a former Secret Service agent and police officer, and Salazar's chief of staff Tom Strickland, the former U.S. attorney for Colorado.

Minerals Management Service is, to the few people outside the energy industry who've ever heard of it, an obscure Interior Department agency. Yet it has an enormously important mission: leasing out onshore and offshore sites for exploitation by oil and gas companies, and collecting tens of billions of dollars in royalties from those companies. In fiscal 2008, those revenues came to a whopping $23.4 billion. Royalty payments are this country's second largest source of income (the largest, of course, being taxes). And not incidentally, Wyoming, which gets 49 percent of the federal royalties collected in the state, is the largest recipient of these revenues. In fiscal 2008, the Cowboy State received $1.27 billion dollars in federal oil, gas and coal royalties, almost twice as much as any other state.

The Lakewood branch of Minerals Management operated differently from its parent in Washington, D.C. Following the Bush administration's oft-expressed desire to run government like a business, the Lakewood office functioned like a quasi-business, collecting royalty payments not in cash, but in "kind," that is, in actual oil and gas. The Lakewood office then sold this oil or gas on the open market, competing with private sector traders.

Lakewood's operations were unique in another way. The office had become a rogue enterprise, a feds-gone-wild hotbed of sex, payola, cocaine and corruption. Which was why Salazar's visit was no ordinary meet-and-greet. Eight days after taking office, Salazar and his colleagues had come to Colorado to lay down the law.

"We are no longer doing business as usual," the Stetson-wearing secretary told reporters. "There's a new sheriff in town."

"The President has made it clear that the type of ethical transgressions, blatant conflicts of interest, wastes and abuses that we have seen over the past eight years will no longer be tolerated," Salazar warned Lakewood employees. He vowed to re-open a two-year-old investigation into alleged corruption and mismanagement that critics—and former Interior Department employees—claim had cost Americans billions of dollars in lost revenue.

When you read Inspector General Devaney's 2008 report on the office, the word "tawdry" leaps to mind, astonishment not so much that Minerals Management personnel were corrupt, but how cheap they were. Devaney's report doggedly details hundreds of industry gifts to federal Royalty-in-Kind employees: golf games, tacky little sight-seeing tours, luggage, golf bags, silver-plated trays, dip bowls, boozy Christmas parties, visits to bars, ski lift tickets, snowboarding lessons, hotel rooms, country music concerts, tailgating parties, paintball outings, drunken dinners etc., etc. Sure, it all adds up to tens of thousands of dollars, but come on!

The contempt in which the oilmen held the government officials shines up off the pages: references to Minerals Management marketers as the "MMS chicks;" e-mails damp with sexual innuendo, such as the Shell Pipeline Company official inviting the marketing specialist "girls" to "meet at my place at 6 a.m. for bubble baths and final prep. Just kidding…"

Yet the report also has its moments of pathos, as when Minerals Management marketing specialist Stacy Leyshon tells Devaney that, yes, she did sleep with a Shell Oil guy, but she didn't have an improper "personal relationship" with him because a "one-night stand" isn't personal. And what about the hurtful revelation to Minerals Management marketing specialist Crystal Edler? She thought she was dating a man from Hess Corporation, but Devaney found that the guy was putting her down on his expense account when they went out—he was working.

And then there was Greg Smith, the Lakewood office boss of the Royalty-in-Kind program. Devaney's report observes, almost as an aside, that Smith used illegal drugs and had sex with his subordinates "in consort with industry," which brings to mind a fairly unlovely picture. The statement that government was in bed with the oil and gas industry was not, in this case, metaphorical.

The September release of Devaney's report brought a quick response from Wyoming Republican Senator John Barrasso, who with Ron Wyden (D-Oregon) co-sponsored a bill (S.3556) to rein in the agency.

Minerals Management Service "cannot be allowed to carry on like some corrupt Third World bureaucracy from a bad Hollywood movie," Wyden explained in a press release announcing the bill, which would have suspended the royalty-in-kind program unless the Secretary of the Interior implemented all of Inspector Devaney's recommendations within 60 days.

"The recent investigation raises serious questions of public trust and illustrates a total disregard for personal, professional, and programmatic ethics," Barrasso added, accurately if somewhat colorlessly.

"The Department of the Interior will raise the bar for ethics, and we will set the standard for reform," Salazar promised last January. But he also said the scandal at the Minerals Management Service royalty-in-kind office in Lakewood was the fault of a "few individuals"—nearly a third of the royalty-in-kind office was involved—and "special interests" who exploited an "outdated and flawed royalty collection system."

Exactly what was this "outdated" and "flawed" royalty collection system? Will it be changed now that the new sheriff is, so to speak, sitting tall in the saddle? Is the problem really just a "few individuals" in Lakewood, or is it a bigger mess? Since its inception in 1982 under the Reagan administration's Interior Department, Minerals Management Service has not been an especially strict guardian of the people's purse—quite the contrary. So what's up with the billions the nation—and Wyoming—are owed for their precious, rapidly vanishing minerals?

Royalties: In Kind or in Value?

The royalty-in-kind program that Minerals Management Service administers in Lakewood is fairly new on the national scene, although Wyoming saw this arrangement in its trial stages in the mid-1990s and other places—Texas, Canada—have had their own versions for more than 20 years. Still, "royalty in kind" has an economically primitive, barter-ish air about it; writing in the April 2009 Harper's magazine, David Bryant likened the practice to a landlord's leasing a building to a grocer and letting him pay the rent in "fruit and steaks." In this instance, the "landlord" is the citizenry, who have no way of knowing if the "grocer" is paying what's due because he largely determines the quality and quantity of the fruit and beef he hands over.

It's a mechanism designed and promoted by the energy companies to satisfy their obligations to the American people, and to the states where they do their inevitably destructive work of mining, drilling, pumping, and transporting the non-renewable resources that they sell back to us so we can live our lives and run our country. The alternative to royalty-in-kind payment is paying royalty "in value," i.e. money, an old-fashioned method the federal government has been trying—and failing—to handle competently since the passage of the Mineral Lands Leasing Act of 1920.

The scandal at the royalty-in-kind program at Minerals Management Service is certainly not the only ethical problem the agency has encountered. There have been many, so many that one could be forgiven for laughing at the public-relations blurb that today opens the Ethics Office page of the Minerals Management website: "Welcome to the Home Page of the MMS Ethics Office! MMS Employees are Dedicated Stewards for America; demonstrating Integrity and Excellence."

James Watt's Legacy

Minerals Management Service is a creature of James G. Watt, President Ronald Reagan's first Secretary of the Interior. Watt, born in Lusk, educated in Wheatland and at the University of Wyoming, was secretary only two years, but he was a busy fellow during that time, zealously pursuing the anti-conservation, pro-exploitation agenda he pioneered as founding president of the Colorado-based non-profit Mountain States Legal Foundation, a conservative legal group prominent in the anti-environmental protection movement. Until the 2006 appointment of Dirk Kempthorne as the Bush administration's second Interior Secretary, Watt held the 20-year record for the fewest number of plants or animals placed on the Endangered Species list.

James Watt created Minerals Management Service by secretarial order in January 1982 out of the old Conservation Division of the U.S. Geological Survey, which previously had been responsible for collecting and managing royalties.

The Conservation Division had not done well. There had been scandal, theft, massive fraud, waste, and astronomical losses of revenues, particularly for Wyoming Indian tribes. There had been appointment of a special commission, and six months of investigation. There had been the conclusion, as the commission chairman David Linowes reported to President Reagan at a press conference, that "the financial management of the Nation's energy resources had failed to do its job" for more than 20 years.

"As a result," Linowes went on, "hundreds of millions of dollars"—no one knew the exact amount— in federal revenues were lost each year because royalty collections were conducted on an "honor system" that let oil companies decided for themselves what royalties they would pay, without any government verification— only a handful of audits had ever been conducted. In addition, oilfield security was lax and theft of oil was "quite common" throughout the country. All this had been going on for more than 20 years; nothing had been done about it.

"Mr. President, this is the kind of fraud and waste that we can stop by investigating problems that now exist and installing improved management systems that will prevent fraud and waste in the future," opined the press conference chairman Edwin L. Harper, who headed the President's Council on Integrity and Efficiency.

Secretary Watt also attended this press conference and he spoke up, announcing that his department had adopted all 60 of the commission's recommendations before they were made, and that he had two days previously created the Minerals Management Service agency to take care of the royalty problems.

"And we think that we have already started stemming the loss of funds—the unbelievable loss of funds to the taxpayers —that has been going on for these many years," Watt bragged. "And within the next weeks, we will have really cut that flow off and saved the taxpayers these monies."

He added that the royalties problem was a "tremendous example, unfortunately, of how the Department of the Interior has mismanaged a multi-million dollar problem for 20-plus years," adding that the private citizens of the Linowes Commission had helped save the day, thanks also to his own almost incredible efficiency.

"Not many government reports get acted on like that," he said of his speedy, before-the-fact response. "This one hasn't been sitting around."

"Yes, I know," Reagan agreed. "Most people are cynical and think reports like this go on a shelf someplace."

So the president was prescient; Watt was not.

"Accountability" in the 1980s

The Linowes Commission had strongly recommended that the energy industry be brought to heel by vigorous federal oversight that would include independent audits, internal controls, site security standards, and strong sanctions for failure to pay royalties fully and on time. "Accountability," the commission said, must be the watchword.

Minerals Management Service began its life as the bringer of accountability with an annual budget of $298 million, 1,639 employees, and a mandate to manage federal leases and royalties both onshore and off.

In January 1983, a year after the new agency was born, Congress passed the Federal Oil and Gas Royalty Management Act, a piece of legislation intended to correct the "archaic and inadequate" system of accounting for oil and gas royalties due from leases on federal and Indian lands. Besides admonishing Secretary Watt to "aggressively carry out his trust responsibility," the act noted that "it is essential that the Secretary initiate procedures to improve methods of accounting" for royalty payments. Among other things, the new law gave federal auditors and their agents some police powers, and added a provision allowing citizens to sue recalcitrant mineral companies and force them to pay up, for a share of the take.

The Minerals Management Service started collecting oil and gas royalties, but contrary to Watt's prediction, theft, fraud and gross underpayment continued unabated, and pretty soon another blue-ribbon panel was convened to look into the matter.

The 1989 report of the Committee on Investigations of the Senate Select Committee on Indian Affairs noted that fraud, corruption and mismanagement of Indian natural resources had not significantly lessened during the 1980s. As a result, tribes had lost many more millions of dollars in revenue from their non-renewable natural resource base.

The Senate committee observed that while simple "smash-and-grab" theft–stealing entire tanks of crude oil by force–was rare, "sophisticated and premeditated theft by mismeasurement and fraudulently reporting the amount of oil purchased has been has been the practice for many years." Chief among the victims were the Arapaho and Shoshone tribes of Wyoming's Wind River Reservation.

Wyoming Goes Bust

Wyoming's fortunes were in sharp decline by the end of the '80s, although the 1970s had been pretty good. The 1973 OPEC oil embargo had caused price hikes for all American fuels, not just oil and gas, and in minerals-rich Wyoming employment boomed. Casper, long known as the "Oil Capital of the Rockies," had refineries that processed millions of barrels of oil annually—a drop in the bucket on a world scale, but fairly substantial for Wyoming. Drilling rigs sprang up like sunflowers across the state. Wyoming strip mines produced the most coal in the country.

The strain on the state's ability to house the new workers, educate their children, and even dispose of their sewage was soon apparent. A mineral production tax — a so-called "severance tax" — had been passed in 1969, and to meet the new demands of the 1970s it was increased as fuel mineral prices rose. In 1974, voters approved the Wyoming Mineral Trust Fund, bankrolled by a 1.5 percent severance tax on all minerals extracted in the state. The tax rate on coal rose from 3 percent in 1973 to 10.5 percent in 1979. Rates went up and down, but by 1985, the state of Wyoming imposed severance taxes ranging from 4 percent of gross value for crude oil and natural gas stripper wells, to 6 percent for non-stripper wells, to 10.5 percent for surface coal and 7.25 percent of gross value for underground coal.

Wyoming, without corporate or personal income taxes, became increasingly dependent on natural resources for money to fund government and social services. The percent of state revenues from severance taxes rose from 20.1 percent of total taxes in 1977 to 52.8 percent in 1983. When Wyoming's half share of federal royalties was added, levies on the state's natural resources made up 62.32 percent of the state's income.

In early 1980s, the value of energy minerals began to drop as oil prices headed to a 1986 worldwide crash. The drop in state severance tax income was not immediate (Wyoming's energy tax revenues grew at an annual rate of 61.2 percent from 1977 to '83), but certainly was on the way: from 1982 to 1983, the state's severance tax revenues experienced what bankers euphemize as "negative growth" of -0.1 percent.

Three levels of government—federal, state and local—assess charges on mineral production in Wyoming. Grossly over-simplifying, we can say the feds, through Minerals Management Service, collect leasing royalties and give Wyoming about half the take; the state, through the Department of Revenue, imposes severance taxes at varying rates, as well as Oil and Gas Conservation taxes; and Wyoming's counties, through their Boards of Commissioners, levy ad valorem property taxes on the value of the previous year's production assessed by the state Department of Revenue. Each government entity may offer the industry various tax breaks, bonuses, "royalty relief," and other features designed to let businesses legally pay less than the tax law would otherwise require. Each of the three tax systems gives a financial nod to the existence of the others; taxes levied by one entity may be deductible expenses for another. The taxing governments may also share information, and even some duties, such as auditing or site inspection. The three systems are not supposed to be antagonists, but as it turns out, they often are.

Audits and Bounty Hunters

In the mid-1980s, state Auditor Jim Griffith and state Senator Tom Stroock (R-Natrona County) began looking at state and federal royalties as a means of bolstering Wyoming revenue. Stroock, then Senate chairman of the Joint Appropriations Committee, had been in the oil business in Casper more than 30 years by this time, and had a good idea of how things worked.

"Jim Griffith and Tom Stroock had the foresight to look into mineral reporting at public lands, and later on, we initiated a joint federal-state audit," recalled Rich Ryan, an auditor who worked under Griffith, the first state official in the nation to audit mineral production. Ryan told WyoFile that the two men were particularly interested in the federal leases because the state got "vastly greater" revenues from its 50 percent share of federal royalties than from the state's 100 percent of state royalties, because the feds held "seven to eight times the acreage" owned by the state.

"Fifty million dollars was collected in the first two years of the [joint audit] program," he said.

But the results could have been better. By the end of the decade, some state officials were concerned that Wyoming did not have enough auditors on staff to do the job, and Washington wasn't coming to the rescue. Mike McCune, a senior examiner with Wyoming Department of Revenue and Taxation, observed in a 1988 report that "unfortunately" for Wyoming, taxes on mineral extraction were not being fully collected, so that "enormous amounts of precious minerals have been removed over the years at great benefit to mineral development companies, but at little or no benefit to the citizens of Wyoming." Lost revenues reached "billions of dollars. And the losses continue," he wrote.

McCune suggested that hiring 100 new state auditors "would be just a start, and every one of them could recover many times their cost for the citizens of this state."

The state didn't hire more auditors and the data used to compute a corporation's tax liability continued to be unreliable. The feds were no help. Astoundingly, after all the investigations, the new Minerals Management Service agency still ran the federal royalties program on the "honor system" that had caused so much waste and fraud in the bad old days. Minerals Management let the energy companies tell the state and Management Service how much gas or oil they'd taken from a field—word of honor! —and pay royalties accordingly. Nobody sent auditors out into the field to see if producers were telling the truth.

Counties Cut Their Losses

At this time Wyoming's counties didn't have mineral production auditors on staff, but a pair of private mineral auditing companies had recently appeared on the scene, headed by former state revenue department auditors and ready to take on recalcitrant ad valorem taxpayers. The auditing companies took their fees contingently—that is, upon success. Contingent fee arrangements are popular with tort lawyers and common in personal injury lawsuits, but the idea applied to mineral audits was new and attractive to county government, as the private contractors bore the upfront costs and the risks. Rocky Mountain Auditing Services, founded by Rich Ryan, and Wyoming Royalties, Inc., led by the late Randy Fetterolf, contracted with 18 of 23 Wyoming counties to recover delinquent minerals taxes and interest.

"We were quite successful," Ryan told WyoFile recently. "Collections exceeded $100 million in delinquent ad valorem and severance taxes, and interest for the counties and the state."

The energy companies resisted vigorously and tenaciously with legal challenges both before the Board of Equalization and in the courts—one case lasted more than 16 years, according to Ryan.

In 1992, independent auditors Ryan and Fetterolf were witnesses for Uinta County against Union Pacific Resources, which was suing the county and the state, claiming the county had no right to hire minerals production auditors for contingent fees, and disputing the taxes on the company's oil and gas production in the county. Ryan told WyoFile that when he and Fetterolf showed up to give their depositions in the case, he was shocked to find that state Senator Cynthia Lummis, a Laramie County Republican, was the company's lawyer.

"Cynthia, are you here to represent your constituents or Union Pacific?" Ryan says he asked.

"I represented Union Pacific Resources Co. in a declaratory judgment action that went to the Wyoming Supreme Court," Lummis told WyoFile, adding that the court made no decision on the merits of the case, but sent it back to the Board of Equalization.

Cynthia Lummis, who is now Wyoming's sole U.S. Representative in Congress, has been a politician for more than 30 years, and a lawyer for nearly a quarter of a century. When she was working for Union Pacific Resources in the 1990s, she was a partner in the Cheyenne firm of Wiederspahn, Lummis & Liepas PC. Her husband and law partner, real estate developer Alvin Wiederspahn, is a former state representative and senator on the Democratic side of the aisle. In the '90s, the firm's clients included Amoco Production Company and Union Pacific Resources. Wiederspahn was also a leader of the Wyoming Taxpayers' Association, a group with a populist-sounding name that is an energy industry lobby.

The companies also sought direct legislative relief from their political allies, of whom they had many. For example, Representative Eli D. Bebout of Riverton, a "hereditary" Democrat who became a Republican in the 1990s, in the 1995 session of the Legislature introduced a bill, HB225, to ban private auditors from working for counties for contingent fees. At the time, Bebout was president of Nucor Oil and Gas, Inc., and his 1994 campaign had been 60-percent financed by mineral interests. His Senatorial co-sponsor of the bill was one of his business associates in the uranium industry and the radioactive waste disposal business, Riverton newspaper publisher Robert Peck.

Bebout likened the private auditors to "headhunters."

"Can you imagine the IRS coming in and getting a salary based on what they can get out of you?" he asked. "The IRS would be after all of us."

Ron Trowbridge, an auditor with Rich Ryan's Rocky Mountain Energy, told Casper Star-Tribune reporter Joan Barron at the time that "contingent fees are the only practical way to pay for audits, as counties strapped for cash don't have the money" to pay the private auditors up front.

"Fetterolf acknowledged that he and other private sector mineral auditors are not popular with industry," Barron wrote in January 1995.

"They call us bounty hunters and mercenaries, but we wear the badge proudly because the beneficiaries of the findings are school kids primarily," Fetterolf told her.

"We were called everything under the sun, including 'opportunists,' 'odious mercenaries,' and 'bounty hunters,'" Rich Ryan recalled recently for WyoFile.

Unpopular as the auditors were with the industry, Bebout's bill was even less popular with county governments, and was firmly squashed in a committee-of-the-whole vote, 43-14.

But 1994 had been a watershed year in Wyoming politics, when twenty years of Democratic governorship ended with the election of Republican Jim Geringer, who followed two-term Democrat Michael J. Sullivan. Sullivan, a petroleum engineer by education and an oil-and-gas lawyer by trade, definitely knew the industry well when he took office after more than two decades of law practice in Casper. Although not hostile to the industry, Sullivan vetoed several measures that the oil and gas interests had backed in the legislature. In his campaign, Geringer promised to make Wyoming "friendlier" to operators.

Just a couple of months into his first term, Geringer signed into law four measures lowering taxes on energy companies, including some that Sullivan had vetoed in 1993. Sullivan also signed SB-96, a bill giving mineral companies an environmental "self-audit" privilege that granted the companies immunity from Department of Environmental Quality fines and penalties if they reported their environmental violations and filed cleanup plans.

In a March 1995 article by Nancy Moore, Platt's Oilgram noted that besides quickly signing the drilling incentives into law, Geringer also scheduled an April 20-21, 1995 meeting in Casper "to get the industry's ideas."

Moore wrote that Karen Kennedy, then the executive director of the Wyoming Independent Producers Association, had observed that "Wyoming's legislature has always been friendly to the oil and gas industry, but the state's former Democratic governor had stopped many initiatives in their tracks."

"Oil and gas producers in Wyoming are saying 'what a difference an election makes,'" wrote Moore.

One of those differences was Geringer's cabinet appointment of Rejane Medinger "Johnnie" Burton to head the Wyoming Department of Revenue, where she served from January 1995 through early March 2002. Burton, a staunch Republican, had a background that oil industry lawyer Gale Norton, George W. Bush's first Secretary of the Interior, described as a "solid mix" of experience in state government and the oil and gas industry.

Born of French parents in colonial Algeria, Burton fled the country during its independence struggle, arriving in the U.S. as a 22-year-old refugee in 1963. She began her career in the petroleum industry as an oil scout in Casper for Rinehart Oil News of San Antonio, Texas, then started her own oil industry news service, Hotline Energy Reports Inc., which later merged with Dwights Energydata Inc. She and her husband, geologist Guy C. Burton, Jr., also owned a Casper-based oil exploration company, TCF Inc. Guy Burton also partnered with Bill Hawks, a Republican politician from Casper, in Burton/Hawks, Inc., an oil and gas exploration and drilling company. Johnnie Burton served in the Independent Petroleum Association's Mountain States Speaker's Bureau from 1977 through 1979, then in the Wyoming state House of Representatives from 1982 to 1988.

Taking up her appointment in 1995, Burton as director of the Wyoming Department of Revenue was supposed to ensure that the department established a "fair market value" for minerals taken from state lands. She also believed, according to transcripts of administrative hearings, the department was supposed to make policy decisions on implementing mineral valuation laws. Inevitably her department clashed with the county governments, because her interpretations of the laws seemed to favor the energy companies. At times, she even surprised her own employees with her pro-industry enthusiasm.

"I recall one informal administrative meeting with an oil company taxpayer to discuss audit findings," Richard J. Marble, who at the time was Department of Revenue's Mineral Tax director, told WyoFile. "I was conducting the meeting when Johnnie walked into the room, interrupted the meeting, and told the taxpayer that under her leadership the Department would bend over backwards, within the limits of her fiduciary responsibility, to support the taxpayer [i.e., the oil company]. Everybody in the room just kind of looked at each other."

The Geringer administration early in its life started hearing complaints from the energy industry about Marble, who was promoting in the Department new auditing practices similar to those employed by Ryan's and Fetterolf's private auditing companies, according to the Casper Star-Tribune. The Ryan-Fetterolf method was not a field audit, but a fairly straightforward comparison of reported figures. Instead of just accepting the energy company's data as fact, however, the auditors compared sales numbers the companies reported to the Wyoming Oil and Gas Conservation Commission with the numbers given to the counties.

Johnnie Burton fired Marble within a month of taking office, and Marble told WyoFile he was "kind of expecting it."

"I always felt it was Geringer's call," he said.

The industry "got some help … with the administration of the royalty program when Geringer's new director of revenue, Johnnie Burton, fired Rich Marble," Platt's Oilgram observed at the time.

Witness for the Oil Companies

Chevron U.S.A., Inc. in its long dispute of an audit assessment by the Mineral Division of the Department of Revenue, was one of several companies during this period that actually presented Burton as a witness against her own department.

Chevron's case involved the "proportionate profits formula" used to compute taxes due on natural gas taken from the Painter/East Painter fields in Uinta County in 1996-98. State auditors believed that under a 1990 mineral valuation law, Chevron's "direct costs" of production should include production taxes and royalties, which would have increased the company's ad valorem taxable value by over $18 million— $18,270,508.00 to be exact. If, as Chevron argued, the production taxes and royalties were excluded as direct costs, then a natural gas producer-processor could take a processing deduction three to four times the actual costs the company had incurred.

Burton, in a memo dated August 6, 1996, at first agreed with her auditors, basing her decision at least in part on legal advice from a senior assistant attorney general. But the oil and gas industry, as the Board of Equalization observed, "reacted sharply," and Burton began looking for a way to accept the companies' view.

During the summer, Burton—who as a Republican state representative from Natrona County had served on the House Revenue Committee with Rep. Cynthia Lummis—consulted Lummis and former state Sen. Dan Sullivan, who were co-chairmen of the legislature's Joint Interim Revenue Committee that had reported on the 1990 law. Sullivan, the Republican brother of former Democratic Gov. Michael Sullivan, was by 1996 working for Chevron. He assured Burton that Chevron was correct, the production taxes and royalties should be excluded. Burton met with Governor Jim Geringer three times on the subject, and he finally told her, she said, "Do what you think is right."

What she thought was right (Burton consulted the state attorney general to see if she was about to break the law; he said no) was to accept Chevron's view of the matter, overrule her auditors and herself, and exclude production taxes and royalties from the direct cost formula. She issued a new memo in October 1996 to "supercede" and "cancel" her previous memo. The Equalization Board later found this October memo to be "contrary to law."

"The Department is never free to ignore the proper interpretation of the statute simply because the Department's Director prefers a result other than that required by the statute and the Department's regulations," the Board ruled. "Ms. Burton was not free to ignore the statute and regulations because she preferred an alternative result."

In one of the many interim appeals in the case as it made its way through the administrative process, the Board of Equalization had in 2001 ruled against Burton. The Board noted that she decided not to appeal (the companies tried to insist that she do so) because, after discussing the matter with the governor and his staff, "Ms. Burton felt an appeal would not be appropriate, would not be a politically 'good thing to do.'"

The oil companies, of course, had no such political qualms and continued the fight in the state court system, at the same time seeking the help of sympathetic lawmakers.

Sen. Robert Peck (R-Riverton) who earlier had sponsored the Senate version of Rep. Eli D. Bebout's bill to curtail private auditors working for the counties, in 2002 introduced Senate File 69, which would have made into law the valuation formula favored by Chevron, RME (formerly known as Union Pacific Resources, Cynthia Lummis' client,), Amoco (a client of Lummis' husband, Alvin Wiederspahn) and other energy companies. SF-69 failed on a tie vote on third reading, in part because, according to a Chevron spokesman, the industry lobbyist stopped pushing the bill because Geringer was "probably going to veto" it if it passed.

The issue in all these legal and legislative fights, and the issue in the battle over Royalty-in-Kind, is "value," and how it is to be determined for tax purposes. There are other issues—the reliability of industry self-reporting, for example—but value comes first, and brings with it the hardest feelings and most intense struggles. Value, one could say, is where the money is.

In early 2000, Johnnie Burton as head of Wyoming's Department of Revenue observed at a meeting of the Select Mineral Taxation and Valuation Committee (co-chaired by Sen. Bill Hawks, her late husband's business partner) that "the relationship between counties and the state administration has deteriorated over the years due to a conflict of jurisdiction on valuation of minerals." No one disagreed. State-county relations remained strained through the remainder of the Geringer administration, but the spotlight was shifting now to the players on the federal stage, where soon enough Johnnie Burton would make her entrance.

True Value

On the morning of August 13, 1996, at a ceremony at the Teton Science School in Jackson Hole, President Bill Clinton signed into law the Federal Oil and Gas Simplification and Fairness Act. The bill had had strong bipartisan support, the backing of the Clinton administration, and the agreement of 33 state governors—including Gov. Geringer—as well as wide support in the energy industry.

"I hope that this is an omen of things to come, " the president said, "because this is the way America moves forward. When we tone our rhetoric down and work together and roll up our sleeves and try to meet our legitimate interests and protect our values, come to grips with these challenges, we can do it."

The president's hope that rhetoric would tone down and people would work together with their sleeves rolled up did not come to pass. The Republican victories in the legislative elections of 1994 had meant that the Democratic administration's policies met stout resistance from a Republican-controlled Congress that was, most definitely, feeling its oats. Implementation proposals from the Clinton administration, attempting to address the touchy issue of mineral value—which the new statute had not resolved—met stout resistance from industry.

Basically, the new law simplified the way royalties were collected by reducing paperwork and accounting obligations associated with the tax collection process. Most of the law's provisions became effective on September 1, 1996, but the critically important question of developing regulations from the law was, as is usual, assigned to the agency in charge, Minerals Management Service. The agency was then headed by Cynthia L. Quarterman, an engineer and oil-and-gas lawyer whom Clinton had named Management Service deputy director in 1993 and then appointed director in March 1995.

Minerals Management was smarting from yet another negative Congressional assessment, this time from the Republican Congress—the House Government Reform and Oversight Committee's 1996 report, Crude Oil Undervaluation: the Ineffective Response of the Minerals Management Service, which had concluded that undervaluation of federal royalties had seriously shortchanged the United States Treasury, with millions of dollars in royalties undervalued and up to $2 billion unpaid. Responding, Minerals Management in 1998 under Clinton's appointee Quarterman issued revised rules for valuing oil and gas to reflect "true market value."

Previously, the Department of the Interior had based royalties on a value defined as "the gross proceeds realized by … lessees under arm's-length sales." The enormous changes in the world petroleum market made this method unworkable. Then there was a period of "posted prices" as a value yardstick, but that quickly became a way for the industry to game the system, since the "posted price" in reality was a starting price, which no one in the business paid. In the years following passage of the "Simplification and Fairness Act," Minerals Management Service proposed several different methods—none were "simple" — to determine "fair valuation." Finally in 1998 the agency determined that royalty payment would be based on a "price determined between an oil producer and a willing buyer"—in other words, market value.

The oil and gas industry resisted fiercely, and for the next two years a prolonged, acrimonious debate between the industry and Minerals Management Service played out in meetings and hearings in the House and Senate, while implementation of the new valuation rules was delayed at the behest of the oil and gas industry, usually through a legislative bit of budgetary legerdemain.

The focus of the issue became the choice of collection system, whether to take royalties "in kind" or "in value," and here Wyoming's Congressional delegation stepped into the national spotlight.

Correction: This story has been altered to correct the Colorado town Secretary Ken Salazar visited earlier this year and talked to employees about the royalty in kind program.

 

FEDS GONE WILD PART II

How the ‘Royalty in Kind’ Scandal Went From Wyoming to the National Stage

The second of a two-part investigative series from WyoFile detailing the Wyoming roots of a national Department of Interior scandal.

By Laton McCartney and Rone Tempest, WyoFile, Posted by: Guest Writer, September 3, 2009, Article Source

When President Bill Clinton signed the Federal Oil and Gas Royalty Simplification and Fairness Act of 1996 into law in Jackson Hole, his Washington, D.C.-based Minerals Management Service director, Cynthia Quarterman, came out to attend the August ceremony.

Her summer had been busy and, one might assume, stressful. She had appeared several times before different Congressional committees investigating her agency's work collecting oil and gas royalties. At one vituperative hearing in mid-June, she had been grilled by a New York Democratic Congresswoman, Carolyn B. Maloney, who clearly did not believe Minerals Management Service was doing its job. At the hearing, Quarterman had been confronted by Maloney's own hostile report, issued jointly with the private nonprofit Project on Government Oversight, that accused Minerals Management in its entirety, "including its politically appointed leadership over several administrations," of "bad faith," and said the Interior Department had such a "dismal record of negligence, misfeasance, and incompetence" that there was no hope Minerals Management could improve.

"The Department of the Interior is institutionally unwilling to aggressively collect the money owed to the American people by the oil industry," stated Maloney's report, titled A Wink and A Nod: How the Oil Industry and the Department of Interior are Cheating the American Public and California Schoolchildren. The report said that "for decades" Interior had given "loyal and devoted service to the petroleum industry" and had a record "replete with mismanagement, duplicity, evasions, and outright lies."

When the subcommittee chairman, Los Angeles Republican Stephen Horn, asked Quarterman if she wished to respond to POGO and Maloney's report, she said "I do like the title" and added that their "heart is in the right place."

So maybe it was nice for Quarterman to visit Wyoming at the summer's end and, in the grand wilderness setting, issue her own congratulatory press release on the signing of the Federal Oil and Gas Royalty Simplification and Fairness Act of 1996.

In the release, Quarterman applauded the passage of the new law and offered her personal thanks to its architects. She observed that the act fulfilled the president's one-year-old "pledge to the natural gas and oil industry" to "improve and streamline" the federal royalty program. She listed a few of the good things the act brought to industry—a seven-year statute of limitations on royalty collections; interest payments by government to industry on overpayments; refunds to companies for the same—and went on to note that Minerals Management Service had itself "embarked upon a series of continuous- improvement initiatives" in the spirit of the new law. One of the fresh launches she listed was "piloting an offshore royalty in-kind program."

Quarterman did not mention improvements in Minerals Management's valuation system, because those were still pending. But she had noted earlier in the summer that "valuation, determination, and collection procedures have been subject to debate and litigation for years" and that the offshore gas Royalty-in-Kind pilot was an effort to "streamline these processes without sacrificing royalty revenues." The current valuation problem was that Minerals Management Service's proposed new rules tied royalty payments directly to the market, so that as oil prices rose, so would royalties. The oil and gas industry did not want to pay more royalties. Implementation of the new rules had so far been successfully delayed in Congress by the attachment to appropriations bills of little-noticed riders barring implementation. While the rules pended, the industry geared up to have in-kind royalties substituted for cash payouts.

Quarterman had been named director of Minerals Management in March1995, when the royalty-in-kind pilot program was already three months old. The idea was not new, and the practice was already suspect in some quarters, although Republicans championed it as an easy way out of the valuation problem. .

In June 1996, the House Committee on Government Reform and Oversight had heard testimony on undervaluation of crude oil taken from federal leases. Quarterman had testified. Royalty-in-kind crude oil transactions, the committee's report observed, "may have left U.S. financial interests unprotected." The committee cited a May 1996 inter-agency task force report that had pointed out:

In concept, royalty-in-kind oil is taken by the Department of the Interior and sold directly to a refiner. In practice, the Department relied on the Federal leaseholder [the royalty-paying company] and the refiner-purchaser to arrange the terms of sale and transfer to the refiner's facility. The Federal Government then received payment from the refiner. Typically, this was the posted price, which has been determined to be undervalued. … [T]he Federal Government may not have received all of the fair market value of the crude oil which it was due since some of the value may have been retained by the leaseholder through excessive transportation charges.

Yet, Republican legislators liked royalty-in-kind and supported it at this hearing. One who testified was the House sponsor of the new Federal Oil and Gas Royalty Simplification and Fairness Act, Republican Ken Calvert of California, chairman of the House Subcommittee on Energy and Mineral Resources. He was a strong early supporter of taking royalties in kind, as was his fellow Republican committee member, Barbara Cubin of Wyoming.

"When we get to the point of valuation, that is going to be a continuing problem," Calvert told the House Reform and Oversight committee. "And I think royalty in kind is an interesting way of taking care of that problem. In effect, the Government would be selling its share of product at the marketplace and that forevermore will take care of that problem."

Quarterman in 1996 described the pilot program, which involved offshore gas, as a "dramatic effort by MMS to do business in a different manner" since 1992 deregulation had created a new, highly complex market. In the Royalty-in-Kind gas pilot, she wrote, Minerals Management, "is testing the concept of removing itself from the complex practice of determining the appropriate value of production and auditing whether companies have paid royalties based on an appropriate value."

Having the government "remove itself" from the complex tasks of valuation and auditing was exactly what attracted Republicans to the idea of taking royalties in kind. Democrats were not quite as generally enthusiastic, but had lost control of Congress and were, with the Clinton administration, busily "reinventing government." Almost everyone was talking about "streamlining" and "reducing administrative burdens" and "simplifying" procedures for energy producers. Almost no one—except perhaps the obstreperous New York Rep. Carolyn B. Maloney—was talking about protecting America's revenues.

Successful Money-Loser

At the conclusion of the 1995-96 gas royalty-in-kind pilot, Quarterman declared the program an "operational success." Unfortunately, she added, it lost the taxpayers money and she could not quantify any savings in administrative costs. But those facts intimidated no one who really liked the idea of royalty in kind.

The "operational success/financial failure" of the first pilot led to a 1997 Minerals Management feasibility study to continue and expand the program, a study undertaken partly in response to a "congressional directive" included in MMS's Fiscal Year 1997 Appropriations Committee Reports, urging Minerals Management "to consider additional RIK pilot projects for both onshore and offshore Federal oil and gas leases."

When it came to the on-shore business, Wyoming was front-and-center. The feasibility study had concluded a royalty-in-kind program had the best chance to succeed in Gulf of Mexico natural gas; crude was problematic.

"For crude oil RIK, the information is equivocal and the revenue and administrative implications are uncertain," the report said. "However, there is significant interest on the part of producers, marketers, and the State of Wyoming in taking crude oil in kind from Federal leases in Wyoming. Thus, we recommend that a small-scale crude oil RIK pilot— developed in concert with all affected parties – be instituted in Wyoming to test revenue and administrative effects."

Upon taking office, Wyoming Governor Jim Geringer had pledged that his administration would be "friendlier" to the energy industry than his Democratic predecessor's. His early actions—naming Rejane "Johnnie" Burton head of the Department of Revenue, signing industry-backed legislation, firing aggressive auditors—certainly looked friendly. When the industry went for royalty-in-kind, Geringer was on board.

The 1997 Minerals Management feasibility study conducted hearings and workshops, including one in Casper on March 25, to solicit public comment on the idea. Minerals Management reported that public statements from "essentially all parties" supported taking royalties in kind. These parties were oil companies and industry associations—Total Minatome, Marathon Oil, Coastal Oil and Gas, Devon Energy, Burlington Resources, Shell, Giant Refining, Vastar, Independent Petroleum Association of Wyoming, Independent Petroleum Association of America, 88 Oil, Nance Petroleum, Enron Oil and Gas, Merrion Oil and Gas—and the State of Wyoming.

"Industry urged MMS to be bold and move forward as fast as possible to implement not pilot programs but actual 'live' operations for substantial volumes," the agency reported. This echoed Enron's earlier suggestion to MMS after the first pilot lost money: if the feds wanted Royalty-in-Kind to achieve "higher value or more bang for the buck or whatever you want to call it, […] take some more risk in the marketing efforts.

So in this brave new world, where mammoth industry urges government bureaucracy to boldly take big financial risks as quickly as possible, Wyoming was ready with citizens' cash. The state distinguished itself by putting forward a novel proposition to let Wyoming take in-kind royalties for "all federal production and pay MMS its 50 percent share." If such bold action were not authorized (and it wasn't), Wyoming proposed to take its share of federal production in Campbell County during the life of the pilot project, combine it with its state lease production, and sell the oil via competitive bidding.

In his original version of the Royalty Fairness and Simplification Act, California Republican Ken Calvert had tried to remove the Department of the Interior from nearly all aspects of royalty collection in order to, as he said, "unleash the 'junkyard dog' that is the States in search of a royalty bone." During the Geringer administration, Wyoming hardly had the look of a dangerous, royalty-hungry dog. Johnnie Burton, Republican Gov. Jim Geringer's head of the Department of Revenue, a part of the oil and gas business, was more like the industry's faithful companion.

Geringer himself wrote and testified in favor of instituting royalty-in-kind, and also sent Jim Magagna, Director of the Office of State Lands and Investments, to speak on his behalf before Congress. Magagna appeared at a 1997 House Resources Subcommittee Oversight Hearing on Royalty-in-Kind for Federal Oil and Gas Production, chaired by Wyoming's own at-large congresswoman, Barbara Cubin.

"The State of Wyoming, under our Governor Jim Geringer, has assumed a leadership role, we believe, in seeking development and implementation of a cost-effective and efficient royalty-in-kind program," Magagna began, after applauding "the initiative of Chairman Cubin in providing this important dialog for the royalty-in-kind issue."

He explained that Wyoming had suffered "frustrations" with the value-based federal royalty program. He observed that "many in the oil industry support a royalty-in-kind system." Although Minerals Management Service regulations allow the agency to take royalties in-kind, he said, the "agency is reluctant to take all royalties that way, especially in remote regions and from low-yield marginal wells.

"But Wyoming is driven every bit as much by the opportunities for revenue enhancement that we see in the royalty-in-kind program," Magagna continued, "and we recognize that with those opportunities comes risk. We as a state are prepared to assume those risks that are associated with the private sector in the marketplace and that are necessary if you are to achieve the rewards that can be associated with that."

Magagna went on to explain that Wyoming did not feel a mere pilot program would be enough to show how much money could be made in royalty-in-kind. Wyoming wanted to "aggregate large volumes" and this would require a bigger royalty-in-kind program than Minerals Management was suggesting in 1997.

There is something very strange about the taking of royalties in kind, something that makes sober-sided conservatives suddenly eager to jump in! Jump in deep! Politicians who ordinarily would not credit the federal government with enough sense to get in out of the rain suddenly want to partner up with the feds and rush into the oil business together. Why? At this point, royalty-in-kind had been a money-losing proposition. Instead of saying, "Oh, hey, wait a second, this might be a bad bet," Republicans in Wyoming and Washington, D.C. could hardly wait to put even more money into the pot, take bigger risks, and hope for a giant payout.

A Concerted Effort

Industry's motive for pushing royalty-in-kind is no secret, according to both contemporary oil executives' testimony and a post-facto chronology prepared by David T. Deal. Deal, now a consultant, was then a leading petro-lobby lawyer who for more than 30 years moved between positions with the federal government and his job at the American Petroleum Institute. Deal pointed out that in 1997, when Minerals Management Service began its "protracted and contentious" attempt to make new oil valuation rules, industry responded with a concerted effort to substitute royalty-in-kind for valuation.

"The oil valuation program gave tremendous focus and tremendous impetus within the industry to please find a simpler way, and R-I-K particularly became the simpler way," said Larry Nichols, president and CEO of Devon Oil, in his Congressional testimony for mandatory federal in-kind royalties. Fred Hagemeyer of Marathon Oil Company testified at the same hearing that "the industry has pulled together to focus on this particular issue [royalty-in-kind]" and that valuation was a "catalyst." Casper independent oil baron and former politician Diemer True, speaking for himself and the Independent Petroleum Association of America, wholeheartedly agreed.

Wyoming oil-and-gas men and women who were also state legislators in 1997 quickly made royalty-in-kind an option for the state. To empower Gov. Geringer to accept the state's share of federal royalties "in kind," Riverton oilman Eli Bebout (Nucor Oil and Gas, NEW Corporation), then a Republican state representative, sponsored the Federal Mineral Royalties Taking in Kind Act in the House. The bill's Senate sponsor was Casper oilman Bill Hawks, who had been a partner of Guy C. Burton, Jr. in the drilling company Burton/Hawks Inc. Guy C. Burton was the husband of Rejane "Johnnie" Burton, whom Geringer had appointed head of the Wyoming Department of Revenue in charge of minerals valuation and severance tax collection. Geringer signed the bill, one of the first of its kind in the country, into law in March 1997, the same month Minerals Management came to Wyoming to workshop Royalty-in-Kind.

Cynthia Quarterman, director of Minerals Management Service, by this time had doubts about taking oil royalties in-kind, although the Wyoming oil program was going ahead anyway thanks to the enthusiasm of state officials.

"Considering that lessees cannot deduct marketing costs under the federal in-value system, we believe that implementation of an oil RIK program would actually lose revenue," Quarterman testified to the House Resources Subcommittee that summer, "because MMS would need to pay these costs under an RIK program […] In summary, we are not convinced that crude oil RIK is in the best interests of the United States."

Nevertheless, Minerals Management Service soon announced that its new royalty-in-kind program comprising three "demonstration pilots," would begin

in October 1998 and last up to September 2004, taking in-kind oil in Wyoming and in-kind gas from two areas in the Gulf of Mexico. MMS said it expected the pilots would provide "operational experience" in running such a program and in "evaluating the feasibility of a permanent royalty-in-kind program."

This less-than-whole-hog approach did not satisfy RIK's proponents in Congress. In March 1998, U.S. Representatives Mac Thornberry of Texas and co-sponsor Barbara Cubin of Wyoming, both Republicans, introduced the Royalty Enhancement Act of 1998, H.R. 3334, requiring Minerals Management Service to take all oil and gas royalties in kind. Cubin, chairwoman of the House Resources Subcommittee on Energy and Mineral Resources, conducted numerous hearings on the bill.

"Did we take advice from the oil and gas industry in the preparation of this bill? Absolutely. Yes, we did," Cubin announced in opening remarks at a mid-March hearing on the bill before her subcommittee.

Born in Salinas, California and educated as a chemist at Creighton University, a Jesuit institution in Omaha, Nebraska, Barbara Cubin won election to the U.S. House in the Republican landslide of 1994. At the time she touted term limits and the Contract with America and announced, at a House Republican newcomers' party honoring Rush Limbaugh as a "Majority Maker," that she was not a "femiNazi."

Cubin had served in the Wyoming House from 1987 to 1993, and in the State Senate the year after. Her long career—she broke her term-limits promise and successfully ran seven times for the U.S. House—clearly demonstrates that Wyoming voters do not mind a little raunch in their politicians. She said she owed her political life to Diemer True.

"Were it not for Diemer," Cubin told Cheyenne's Wyoming Tribune-Eagle when she announced her seventh Congressional campaign in 2006, "I wouldn't be here."

Undoubtedly, she spoke the truth. Diemer True of Casper was almost synonymous with the Wyoming Republican Party in the 1990s, and his support was–and some say still is–critical to any GOP member seeking an important nomination. He was himself a veteran of the hustings: True was a state representative (1973-76) and spent 16 years in the senate, retiring as president in 1992. He chaired the state Republican Party committee from 1992 to 1996, and has been Wyoming Republican National Committeeman since 1998. He has been friends since boyhood with Dick Cheney, and most of the lower-wattage Wyoming players in this drama—Barbara Cubin, Johnnie Burton, Cynthia Lummis—claim True not only as a political ally, but as a personal friend.

"I have known Diemer True since the late Sixties/early Seventies," Johnnie Burton wrote in an e-mail to WyoFile. "I have interacted with him and his wife in many settings: social, business, educational and political. I value the Trues' friendship."

True Story

Diemer True is an oilman, one of Wyoming's biggest, a son of the legendary Wyoming wildcatter, H.A. "Dave" True. Diemer True joined the family business in 1968 after taking a business degree at Northwestern, and became a partner four years later. In the late '90s, when royalty-in-kind was emerging as the oil industry's solution to the inconvenience of federal valuation rules, the True Companies approached complete vertical integration, with a vast portfolio of oil and gas exploration, development, drilling, marketing, and pipeline companies, as well as in agriculture and financial services. Among these were Black Hills Trucking Inc., Belle Fourche Pipeline, Cambria Europe, Inc., 88 Oil LLC, Equitable Oil Purchasing Company, Midland Financial Corp., Toolpushers Supply Company, True Environmental Remediating LLC, and True Geothermal Energy. The family property also included True Ranches LLC; The LandReport Magazine listed the True family of Casper as the nation's 27th largest landholder, with nine ranches and two feedlots totaling 255,000 acres. True Oil had its own private FAA-approved heliport nine miles northwest of Casper's business district.

The True companies run their own Political Action Committee, the True Responsible Government Committee, to collect and donate money to pro-business candidates (True Company workers can have a payroll department check-off give part of their wages to the True PAC) and Diemer True, his wife Susie, and the large extended family all contribute generously to the national and state Republican Party organizations and candidates. True is a member of the board of BIPAC, Business Industry Political Action Committee, a group that, according to its website, creates "grassroots" support for corporations' political agendas by "using political communication tools" to "communicate with employees and in turn have them communicate with policy makers."

But perhaps most importantly for the nation, Diemer True is an activist oilman, a tireless worker in his industry's political pressure groups.

"Diemer True has been one of the energy industry's strongest advocates for many years," said Joe Alvarado, presenting to True the 2008 Chief Roughneck Award for lifetime achievement as a petroleum industry leader. "His dedication, perseverance, ingenuity, leadership and integrity in every situation remind us all of what it takes to be successful and ensure the continued growth and prosperity of our industry."

Diemer True had of course worked in the Petroleum Association of Wyoming, but he also led one of the nation's largest and most powerful industry groups. True was chairman of the 7,000-member Independent Petroleum Producers Association from 2001-03 (today he is the treasurer), but in 1998, when royalties were the issue of the day, he chaired of the IPAA's Land and Royalty Committee. Thus, he was perfectly placed to carry forward the industry push for royalty-in-kind.

Diemer True liked the idea of paying federal royalties in kind. Eighty-Eight Oil Company, a marketing outfit, was one of the "essential parties" that attended the 1997 federal RIK workshop in Casper and pressed Minerals Management Service to boldly implement royalty in kind.

"IPAA intends to begin working to reform current valuation rules by 'taking our advocacy to the Hill,'" True told the Energy Report on March 9, 1998. "We want to introduce legislation and we will be supporting the legislation."

A late March storm held True snowbound in Wyoming, unable to appear and testify for his protégée Barbara Cubin's Royalty Enhancement Act of 1998, but he sent a representative and his thoughts and exhibits were entered in the record, along with those of the IPAA, numerous individual energy company executives, and the Domestic Petroleum Council, which all strongly supported the bill.

As the American Geological Institute observed, HR 3334 "quickly became the rallying call for the oil industry and other pro-RIK supporters." Several took the opportunity of the Congressional hearings to deplore Minerals Management Service's proposed oil valuation rules or Minerals Management itself, and one Wyoming outfit accused the agency of driving it into bankruptcy by demanding back royalty payments.

Cynthia Quarterman was also called to testify March 19, and she did not mince words either. The Clinton administration did not want mandatory royalty in kind.

"RIK is unproven and risky for royalty collection in the U.S.," the Minerals Management director began. "As stewards of public assets, we must have assurance that the revenue and administrative effects of RIK are decidedly positive before moving to implementation. Anything less is a gambler's folly with the taxpayers' money."

The Royalty Enhancement Act was, she said, "weighted heavily in favor of the oil and gas industry" and would force the United States to give up many of its rights, while relieving energy companies of many of their obligations.

"We must seriously ask ourselves how it is to the advantage of the citizens of the United States to give up these rights, and […] a substantial part of the value they receive for the production of their non-renewable resources," Quarterman said, noting that the effect of HR 3334 would be "an unjustified major economic gift" to the industry.

"We can only conclude that this legislative initiative is primarily designed to enhance the interests of oil and gas producers, at the expense of the American taxpayer," she stated. "[The bill] clearly represents a dramatic transfer of costs and obligations from the oil and gas industry to the American taxpayer. … [T]he revenue loss would be … on the order of hundreds of millions of dollars at a minimum. … Because of the disastrous effect this bill would have on the taxpayer and the budget, the Department is prepared to recommend a veto."

At a March 31 hearing, Cubin–who had said she would not support RIK legislation unless government economists did–requested that the Interior Department and the petroleum industry each submit an analysis of the economic impact of her bill. In late April, the Department of Interior turned in a report saying, as expected, that mandatory royalty-in-kind would lose millions. On May 4, Diemer True, speaking for the IPAA, disagreed, as did the industry's report.

"With only just a quick examination of the Interior Department's report on HR 3334, already we see a great deal of the alleged revenue loss from a royalty in-kind program is based on an inaccurate interpretation of the bill," True said in a press release. "In fact, when you take a closer look, you also realize that DOI completely ignores aspects of the bill that will increase revenue for the federal government."

True said that "industry looks forward to working with members of Congress and the Department of the Interior's Minerals Management Service … to develop the best possible royalty in-kind program for the U.S. taxpayer."

Cubin's subcommittee easily approved the bill on June 18 and sent it on to the entire House Resources Committee. There it died, killed by an August 1998 General Accounting Office report's strongly negative assessment of a mandatory, national royalty-in-kind program.

Taking royalties in kind, the GAO reported, would not be "feasible" except under certain conditions: relatively easy access to transport pipelines; leases that produce relatively large volumes of oil and gas; competitive arrangements for processing gas; and expertise in marketing oil and gas. "However," the report said, "these conditions are currently lacking for the federal government and for most federal leases."

The Accounting Office noted that although most of the states that receive federal royalty disbursements supported MMS's proposed valuation regulations, "oil industry representatives generally oppose them [and] believe that oil companies should not pay royalties on higher prices." The new valuation rules that Minerals Management was proposing tied royalties due to prices received in the marketplace; taking royalties in-kind avoided this.

The death of mandatory federal royalty in kind was not the end of industry opposition to new valuation rules, still pending three years after they were proposed, or of efforts to impose RIK nationwide or at least greatly expand the existing RIK programs.

Nor was it the end of political efforts to do something generous for the oil and gas industry. Barbara Cubin carried on with a bill, her Federal Oil and Gas Lease Management Improvement Act of 1999, to give tax breaks to the corporations. This bill didn't have the sex appeal of mandatory RIK, and got only one co-sponsor, Rep. Joe Skeen of New Mexico. Perhaps part of the problem was the speech Cubin made when she introduced the bill on the House floor in May 1999. Potential supporters, even true lovers of the oil and gas industry, might have been put off by Cubin's tender sympathy for the agony of the oil industry, and her dismissive contempt for the selfish American consumer.

"Mr. Speaker, production of oil and gas from our public lands is fast becoming a rarity," she began. "The 'oil patch' in the United States is in tough shape. Consumers blissfully enjoyed record low gasoline prices until very recently, but producers have suffered immeasurably from the diminished proceeds they have received for their crude oil …. Our bill will provide some incentives to federal oil and gas lessees to 'stay the course'' when prices drop…."

The bill went to the Resources Committee, was referred to Cubin's own Subcommittee on Energy and Mineral Resources, and died there without a hearing.

A Change at the Top

The Democratic Party lost the presidency in 2000, and George W. Bush and his running mate Dick Cheney were sworn into office on a wet, cold, gray Saturday in January 2001, after long weeks of legal wrangling over who actually had won.

Bush's transition to power was conducted by his vice-president, Dick Cheney. Cheney had left his $25-million-a-year job as CEO of Halliburton, the oil-field services and construction giant co-headquartered in Dubai and Houston, to run for office in 2000. Cheney was an active executive. In an unheard-of move, he "seized the initiative" to staff much of Bush's Cabinet during the hiatus provided by the Florida recount. Cheney, not Bush, announced the appointment of several key transition team officials.

He selected David J. Gribbin III, a faithful friend from their days together in high school in Casper and at the University of Wyoming, to be the transitional liaison with Congress. To follow his mentor back into politics, Gribbin left his job as chief lobbyist for Halliburton. With Gribbin in place, Cheney took charge of negotiations with lawmakers about the legislative agenda.

Cheney chose Thomas Sansonetti, the Cheyenne lawyer and GOP activist, to head the inner-circle team choosing top personnel for the Interior Department.

Sansonetti, who has never held elected office is a well-known quantity in the Wyoming party and preceded Diemer True as the state's Republican organizational powerbroker: he was Republican National Committeeman, 1996-2001 (True took over in 2002) and chairman of the state Republican Party from 1983-87 (True was chair 1992-96). When Craig Thomas won the 1989 special election to replace Cheney, who had left his seat to become George H.W. Bush's defense secretary, Sansonetti became Thomas' aide. A member of the Federalist Society, Sansonetti was also a lobbyist for the coal industry.

Although the energy industry was represented at all important levels within the incoming administration, industry lobbyists continued their own efforts. According to Newsweek, oil and gas lobbyists met at the American Petroleum Institute offices nine days before the Inauguration to draw up a "wish list" for a Bush energy plan. The list was sent over to the Bush Energy Department transition team. The expansion of the royalty-in-kind program was near the top of the list.

Membership on the Energy Department team was a political plum, and the incoming administration rewarded generous supporters with seats at the table. Men who had given the Bush campaign more than $100,000, like Tom Kuhn, head of the Edison Electric Institute, or more than $200,000, like Enron's Kenneth Lay, became Energy transition team players. Some transitional heavyweights were not among the largest contributors, but were important in themselves, as high-level industry lobbyists. Diemer True, at this time chairman of the Independent Petroleum Producers Association, was a team member in Energy, although he and his family had given only $125,000 to state and national Republican parties and candidates in recent election cycles.

The Bush transition team, prevented from occupying the customary federal transition team quarters by the long dispute over who had won the election, had raised its own transition office money and rented a 20,000-square-foot office in a southern Virginia suburb. There it began the work of accepting résumés for 6,125 federal jobs within the new Republican administration's gift.

To head the critical Department of the Interior, Sansonetti's team chose Denver oil- and-gas lawyer Gale Norton, a protégée of Reagan's first Interior Secretary, James G. Watt. Sansonetti had worked with Norton in Watt's Interior in the '80s. Like Watt, Norton was a Mountain States Legal Foundation attorney, and like Sansonetti, she was a member of the Federalist Society. Norton was confirmed almost immediately after Bush's inauguration.

But her department was not fully staffed for months. The expansion of the royalty-in-kind program, near the top of the energy industry's wish list, was going to have to take place in Interior's Minerals Management Service, which lacked a new leader for some time. Thomas R. Kitso, who had replaced Cynthia Quarterman in February 1999 and stayed on after January 2001, resigned that November. Deputy secretary of Interior J. Steven Griles announced that Lucy Querques Denett of the Minerals Revenue Management division would be Acting Director until "further notice."

Burton Heeds the Call

Notice, and Rejane "Johnnie" Burton, arrived in March 2002. She left behind her cabinet position as director of Gov. Geringer's Department of Revenue, but old friends were ready to welcome her to Washington. As soon as her name was announced in February 2002, Diemer True, chairman of the Independent Petroleum Producers Association of America, issued a press release saying that his organization "commended" the appointment.

"Johnnie Burton is a knowledgeable and experienced administrator, who has been very successful as the director of Wyoming's Department of Revenue," True said. "She has been successful in her own business, successful as a state legislator, successful as a state administrator, and, I believe, will serve with distinction as MMS Director."

True did not just speak warmly, he acted. On March 28, Burton's official calendar shows that at 6:45 AM she was to meet Deputy Secretary Griles in Room 6117 so the two could be driven to 1400 M Street, the Wyndham Hotel. There, from 7:00 AM to 8:30 AM, they would eat a "Welcome to Washington" breakfast with True and his colleague Ben Dillon, a vice-president of the IPAA.

Bernie J. "Ben" Dillon, a petroleum engineer from Montana, was the IPAA's first director of public resources, a position the group created in 1996 as IPAA began "stepping up efforts" to increase "access to the nation's public lands and waters." Dillon came to the IPAA from his majority (Republican) staff Congressional fellowship on the House Resources Subcommittee on Energy and Minerals, where he worked on the Federal Oil and Gas Royalty Fairness and Simplification Act and on "reinventing government." Before his Congressional position, Dillon spent 12 years in the Interior Department.

As the director of public resources, Dillon was tasked with promoting royalty-in-kind payments on public lands.

During her first months in office, Burton maintained a hectic calendar of meetings, meals, and socials with the oil and gas companies. She attended their conventions and even their political strategy sessions. The Independent Producers and American Petroleum Institute, for example, briefed Burton on royalty issues on April 5, preparing for her attendance at the IPAA's Royalty Strategy Taskforce meeting in Houston on April 10. The vice chairman of IPAA's Land & Royalty Committee, David Blackmon, led the a discussion of "the importance of royalty-in-kind," according to the group's newsletter, including "challenges facing gas RIK, piloting RIK onshore with a new state, RIK and the current energy legislation debate in Congress, and the need for building a successful business model for the long-term growth of RIK."

The IPPA newsletter quoted Blackmon as saying that the Task Force was "honored" by Burton's presence, and that "She is obviously working hard."

Are you better off than you were before Bush and his Republican Cronies
were appointed by a Shameful Supreme Court?

Fraud Traced to the White House
How California’s energy scam
was inextricably linked to a war for oil scheme
by Katherine Yurica
http://www.yuricareport.com/PoliticalAnalysis/FraudinWhiteHouse.htm

WHY IRAQ INVADED KUWAIT

On August 2, 1990, Iraq invaded and captured Kuwait.  Although this invasion and the accompanying human rights violations are inexcusable, it is helpful in understanding the Gulf War to know why Iraq invaded.

When Britain drew the national borders in the Persian Gulf in 1922, they deliberately deprived Iraq of a seaport in the Gulf in the hope that Iraq could never threaten British dominance in the Gulf.  Iraq has never recognized the British borders.

In 1975, the Kurdish rebellion in Iraq, with $16 million in U.S.-provided arms and supplies, forced Iraq to capitulate the Shaat al Arab waterway, Iraq's only access to its upriver port of Basra, to Iran. In 1980, Iraq invaded Iran in hopes of regaining control of the estuary, thus starting the eight-year war.

More recently, Iraq accused Kuwait of waging "economic war" with Iraq. Kuwait has nearly depleted the huge Rumailah oil field, 90% of which lies in Iraq, and 10% of which lies in a disputed border region which Kuwait invaded during the Iraq-Iran war.

Furthermore, Kuwait and Saudi Arabia gave Iraq massive financial assistance in the war against Iran, since they had much to lose if Iraq failed to block the spread of Islamic fundamentalism.  After the war, Kuwait's assistance became "loans," for which they demanded repayment.

Meanwhile, Kuwait (under U.S. pressure) continued oil production far beyond the limits established by OPEC, thus lowering the price of oil.  For Iraq, which relies on oil for 95% of its income, this made it very difficult to rebuild a near-bankrupt country with huge debts after years of war.  It is interesting to note that many Kuwaitis have investments in the U.S. - the Emir of Kuwait alone is rumored to have invested perhaps a quarter of a trillion dollars, far greater than his oil assets - and these investments tend to profit most when the price of oil is low.

Iraq has also accused Kuwait of using its enormous foreign reserves to manipulate and weaken Iraqi currency.  Iraq invaded Kuwait in response to these deliberate attempts by Kuwait to undermine the Iraqi economy.  Frighteningly, these acts by Kuwait were planned by the U.S., as demonstrated by a Kuwaiti memo describing a meeting between Brigadier Ahmad Al Fahd, head of Kuwaiti security, and CIA director William Webster in November of 1989:  "We agreed with the American side that it was important to take advantage of the deteriorating economic situation in Iraq in order to put pressure on that country's government to delineate our common border.  The Central Intelligence Agency gave us its view of appropriate means of pressure, saying that broad cooperation should be initiated between us...."

HOW THE U.S. ENCOURAGED THE INVASION

In April, the Assistant Secretary of State for the Middle East, John Kelly, testified before Congress that the U.S. had no commitment to defend Kuwait.  On July 25, with Iraqi troops massed on the Kuwait border, the U.S. Ambassador to Iraq, April Glaspie, met with Hussein.  To the embarassment of the U.S., Iraq provided minutes of the meeting to the Washington Post, which have not been disputed by the State Department.

The Ambassador told Hussein that Secretary of State James Baker had instructed her to emphasize that the U.S. has "no opinion" on Iraqi-Kuwait border disputes.  She then asked him, in light of Iraqi troop movements, what his intentions were with respect to Kuwait.  Hussein replied that Kuwait's actions amounted to "an economic war" and "military action against us."  He said he hoped for a peaceful solution, but if not, he said, "it will be natural that Iraq will not accept death."  The Ambassador's response to this clear warning was, "I have a directive from the President personally that I should work to expand and deepen relations with Iraq."  She also apologized for the condemnation of Hussein's regime as a dictatorship by a journalist of the U.S. Information Agency.  Glaspie later made another remark: "What we don't have an opinion on are inter-Arab disputes such as your border dispute with Kuwait...and James Baker has directed our official spokesman to reiterate this stand."

On the same day, John Kelly killed a Voice of America broadcast that would have warned Iraq that the U.S. was "strongly committed" to the defense of its friends in the Gulf.  During the following week, until the invasion, the Bush administration forbade any warning to Hussein against invading, or any warning to foreigners in Iraq.  According to Senator David Boren, head of the Senate Intelligence Committee, the CIA predicted the invasion four days in advance. Two days before the invasion, John Kelly again testified before Congress that the U.S. had no commitment to defend Kuwait.  The U.S. made no attempt to put together international resistance to an invasion.

Ambassador Glaspie later remarked to the New York Times, "I didn't think - and nobody else did - that the Iraqis were going to take ALL of Kuwait."

IS THE U.S. IN THE GULF TO DEFEND FREEDOM?

When George Bush condemns Hussein for "naked aggression," he must think that the world has no memory of U.S. history.  Just a few weeks before the start of the war, while the attention of the press was averted, the U.S. took over sovereignty of Palau, a tiny country in the Pacific.  After many failed efforts by the U.S. to make Palau remove the anti-nuclear clause from its constitution, they simply moved in.  U.S. timing and hypocrisy were both perfect.

When Iraq attacked Iran in 1980, our response was to support Hussein with arms.  The U.N. remained strangely silent about Iraq's use of chemical weapons against Iran.

The U.S. has a bad habit of supporting cruel dictators when it is congruent with U.S. economic interests.  The U.S. occasionally helps an oppressive dictatorship overcome a popular democratic movement (Nicaragua and Chile are good recent examples,) because dictatorships are easier to control.  A U.S. supported dictator will receive aid while he cooperates, and will be replaced when he gets out of hand.  Witness Noriega in Panama, or Marcos in the Philippines. Saddam Hussein is just another chapter in a novel.

In 1974, the island of Cyprus was invaded by Turkey with the help of U.S. tax dollars.  The atrocities committed by Turkish soldiers resemble those committed by Iraqi soldiers in Kuwait, and 2000 people were killed.  Forty percent of the island is still under Turkish domination.  Although the U.N. condemned the invasion, no action was taken.  Israel invaded Lebanon, killed 20,000 people, and still occupies southern Lebanon.  The U.N. condemned the invasion in numerous resolutions, but no action was taken.  In spite of overwhelming international support for the U.N. resolutions against Israel's occupation of the Palestinian and Arab territories, no action has been taken.  Every U.N. response to Indonesia's rape of East Timor was blocked by the U.S., although 200,000 people were slaughtered. The U.S. still gives Indonesia aid.  The list goes on and on.  U.S. justice is very selective.

History shows us that ethics have no weight in U.S. foreign policy, except as a line to convince U.S. citizens that a war is just.  The real motives of U.S. foreign policy are always economic.  To quote Dr. Joanna Santa Barbara, "This is how superpowers and regional powers operate, not in sporadic spasms of moral aberration, but all the time."

Historically, an almost infallible method of finding out which of two almost equally vile groups is the worst is to look for which one the U.S. government is supporting.  If this is not the case in the Gulf (and this is not clear,) then it is purely by chance.  Certainly, the governments of both Iraq and Kuwait are famous for their human rights abuses in their own countries.  Kuwait is a monarchy in which women are not accorded reasonable human rights, slavery still exists, and 70% of the residents are foreign labor who are poorly treated and are not given the opportunity to become citizens.

Of course, even if the Kuwaiti government were more oppressive than the Iraqi government, this would not justify Iraq's invasion and human rights abuses.  It is the residents of Kuwait who suffer most, and they are not usually to blame for their government's behavior.  (In any argument, it is important to separate a country's people from its government - witness George Bush' blindness when he refers to the carpetbombing of tens of thousands of relatively innocent Iraqi conscripts as "kicking Saddam's ass.")

Bush' claims that he is defending freedom (by reinstating a monarchy) is not taken seriously by any of the peoples of the Gulf.  For instance, Noha Ismail of the Arab Women's Council said in In Pittsburgh, "We know that America is not there out of love for the Kuwaitis and Saudis.  In fact, America's contempt for the Arab world is very evident.  We're not stupid; we may be Third World, but we're not stupid."

IS THE U.S. IN THE GULF TO DEFEND CHEAP OIL?

No.  The financial cost of the war is far, far greater than the cost of expensive oil.

In fact, expensive oil is not entirely bad.  High oil prices often accrue to U.S. firms.  Furthermore, the U.S. produces half the oil it consumes, and the collapse of oil prices left the U.S. oil states - Louisiana, Arizona, Alaska, and Texas - in financial trouble.  Both President Bush and Secretary of State Baker are oil men.  They like high oil prices.

Also, other industrialized economies like Europe and Japan are more dependent on foreign oil than the U.S., so high oil prices actually help the U.S. against its major competitors.

Bush is probably quite happy that most objectors to the war think the issue is cheap oil, because his real motives remain obscure.

IS THE U.S. IN THE GULF TO PREVENT ANOTHER HITLER?

Iraq is a country which just failed to win a long, depleting war with Iran. It is not comparable to WWII Germany.  Iraq has 17 million people, not 70 million.  Iraq is economically broke and in debt, not economically strong as Germany was Iraq only has power because the U.S. financed it over the past ten years.

In any case, if the U.S. is serious about opposing Hitlerite territorialism, it should start with itself.

WHY IS THE U.S. IN THE GULF?

In part, the war is about control of oil.  Not necessarily cheap oil, mind you.  However, one of the few areas of worldwide economic control still maintained by the U.S. is oil.  Having the price of oil controlled by the governments of countries like Saudi Arabia and Kuwait is as good as having it controlled from Wall Street.

The President's son, George Bush Jr., is director and major stockholder of Harken Energy Corporation of Dallas, which holds huge drilling rights in the Persian Gulf country of Bahrain, a small island nation just miles from where U.S. troops are stationed in Saudi Arabia.

Nevertheless, this isn't the full explanation.  After all, the U.S. already controlled Arab oil prices; why did they encourage Iraq to invade Kuwait?

Simply put, George Bush wanted a war from the beginning.  His attitude and behavior bear this out. He has refused to negotiate; he moved in a huge number of troops very quickly; he did not give economic sanctions a chance; and he expressed great concern that others might try to "defuse the crisis."  The U.S. went to a great deal of trouble to twist the U.N.'s arm enough to put forth a vaguely worded resolution which might conceivably authorize force in the Gulf. The objectives are further militarization of the U.S. economy, and prevention of the conversion of the economy to peaceful, human-oriented purposes.

Currently, 26% of the national budget is for defense; but if all defense related expenses are added, experts estimate the sum is between one-half and two-thirds of the budget.  This is a huge amount of money, and the military and defense-related industries are intent on keeping it.  Thus, the military went out of its way to cause this war.  The idea is to use enormous military expenditures to ease U.S. economic slumps, while reducing civilian and social programs as much as possible.  This helps draw in huge amounts of money from other nations, also.

In 1990, the global arms trade was $50 billion.  About $30 billion of this was provided by the U.S. and Soviet Union. More recently - less than six weeks after the invasion - the Pentagon proposed the largest sale of arms ever:  $21 billion of arms to Saudi Arabia.  This deal is affectionately known as the "Defense Industry Relief Act of 1990."

If one needs a sign that the U.S. is losing its superpower status, consider that the U.S., which traditionally has paid other countries to fight its wars, has changed roles and is now begging for payment.  On January 25, Senator Pete Domenici (R-NM) convened a press conference to publicly pressure U.S. allies to increase their donations, saying that the American people would judge them severely if they did not.  At the time of this writing, Kuwait has donated $7 billion to the war effort, and pledged an additional $13.5 billion; Saudi Arabia has donated $1.6 billion plus $1.2 billion a month in fuel and lubricants; Japan has donated $2.2 billion and pledged an additional $9 billion; Germany has donated $3.5 billion and pledged an additional $5.5 billion.  Many other countries have given smaller amounts.

Most of this money goes into the U.S. economy, and goes into the defense industry.

Operation Desert Shield cost an estimated $30 billion, and Desert Storm is costing about half a billion per day.  This money is in addition to the annual defense budget.  The administration is against a war tax, so whatever isn't paid for by other countries will likely be added to the deficit.

Readers who think it ludicrously cynical that the U.S. would invite a war solely for this purpose need only look as far as the Vietnam War, where the Johnson administration invented an attack by North Vietnamese patrol boats on an American destroyer as a justification to start a war.  That war, like the Gulf War, was characterized by a total unwillingness on the part of the U.S. to enter any negotiations, except the issuing of ultimatums.

The Korean War, where U.S. soldiers died defending one of the world's most barbaric police states against "naked aggression," gives us even more compelling evidence.  National Security Council document NSC-68, which was adopted in 1950 and accidentally released to the public in 1975, proposed to bolster the declining U.S. post-WWII economy by military expansion.  Unable to convince Congress to make massive military allocations, President Truman commanded U.S. and South Korean forces to invade and capture North Korea.  (The U.N. resolution under which U.S. forces were fighting called only for "repelling" aggression from the North.)  As expected, China entered the war to defend North Korea.  Truman declared a state of national emergency and claimed (falsely) that the danger was created by the Soviet Union.  Congress more than tripled the defense budget, and the resulting war economy has continued to this day (justified by the spectre of "International Communism.")

The problem with driving the U.S. economy this way is that it only benefits those who profit directly. Militarization of the economy means an end to many social programs, and a huge expansion of the third world that already exists right here in the U.S.  Of the industrialized nations, the U.S. has one of the worst rates of homelessness, poverty, illiteracy, and infant mortality.  These problems are the natural results of a war economy, and are much less prominent in countries like Japan and Germany, which have been demilitarized since WWII, and enjoy stronger economies than the U.S. as a result.

Of course, the president has other motives, like recovering from the bad press created by the Savings and Loan scandals before the next election.  War may be just the ticket.  After a three-day meeting of the Republican National Committee, Clarke Reed of Mississippi said, "Politically, it's gangbusters. The President has more support than I've ever seen."  In addition, the war will likely enable the U.S. to establish a permanent military presence in the Gulf.

WHERE DID IRAQ GET ALL THAT MILITARY POWER?

From us, of course.  The allies, most prominently the U.S., have given Iraq huge amounts of aid and arms.  Right now, our boys are being killed by the arms we manufactured with our factories and bought for Iraq with our tax dollars.

The U.S. gave extensive aid and arms to Iraq throughout the Iraq-Iran war, and was providing agricultural credits right up to the day of the invasion of Kuwait.  Henry Gonzalez, chairman of the House Banking Committee, charged that one Atlanta-based bank along extended $3 billion in credit to Iraq.  "There is no question but those $3 billion are actually financing the invasion of Kuwait," he added.  Iraq has also received or purchased weapons and equipment from Germany, the U.K., France, Italy, the Soviet Union, and many others.

CAN HUSSEIN BE NEGOTIATED WITH?

Yes, but Bush can't.  Iraq, and other Arab nations, have repeatedly attempted to initiate negotiations since the invasion. These offers have been repeatedly dismissed without discussion by Bush, and were rarely reported by the U.S. press. All evidence seems to suggest that Bush has been stubbornly intent on war from the beginning.  After the release of the hostages in Iraq, Bush chillingly remarked that Hussein's concession removed one more obstacle from the U.S. course of action.

Iraq wants their share of the Rumailah oil fields, and two islands giving it a port on the Gulf.  Says George Lakoff of the University of California at Berkeley, "President Bush has spoken of this as 'rewarding aggression,' using the Third-World-Countries-As-Children metaphor, where the great powers are grown-ups who have the obligation to reward or punish children so as to make them behave properly.  Instead of seeing Iraq as a sovereign nation that has taken military action for economic purposes, the President treats Iraq as if it were a child gone bad."

James Baker has stated that negotiations will take place only after Iraq physically withdraws from Kuwait.  This is not negotiation; this is an ultimatum.  This "formula for humiliation" of Hussein is another sign of Bush' desire for war.  In fact, before Bush attacked, Barbara Ehrenreich stated that she had found out that the Pentagon's "nightmare scenario" was that Saddam would back down and that war would be averted.

As recently as Jan. 28, the U.S. and U.K. flatly opposed, for the third time, requests by groups of Gulf countries to have peace discussed in the U.N. Security Council.

WHAT SHOULD WE HAVE DONE?

The consensus among the Gulf countries is that the invasion is an Arab dispute which would have been solved by the Arab countries without any need for U.S. involvement.  Contrary to the administration line, economic sanctions would likely have worked.  In fact, Bush was deathly afraid that they would. If sanctions had worked, they would have delegitimized militarism.  This is why it is the Pentagon's "nightmare scenario."  Every member of the U.S. military elite has a budget to defend, and has to justify his own existence.  (This is why foreign policy decisions should never be made by members of the military.)

We should take a lesson from history, namely Mussolini's invasion of Ethiopia, to which the newly formed League of Nations responded pathetically. Mussolini later confessed that, had the League made good on its threats to impose economic sanctions, he would have been forced to withdraw.

Some will argue that, even if the U.S. is liberating Kuwait for the wrong reasons, it is still the right thing to do.  My response is that, if the U.S. were to liberate every unfair conquest, it would go broke long before it succeeded, even if it restricted itself to those territories more deserving of liberation that Kuwait.

One cannot simply look at Iraq and Kuwait; one must look at the entire world. The U.S. image as global policeman is impractical because there are too many criminal states and too little money to attack them all.  Other methods, such as sanctions, are just as effective, far cheaper, and kill far fewer people.

Of course, the other thing we should have done is to demilitarize the economy and create a peace dividend.  U.S. tax dollars should be spent on U.S. citizens, not on other nations' wars.  This is the real point which peace activists should be making.  If the U.S. defense budget were used purely for defense, not offense, and if it were reduced to 10% of what it is now (still far more than the U.S. actually needs to defend itself,) and if we slowly switched from a military to a commercial economy, the amount of money available for social purposes would effectively double.  University education could be free, medical and day care would be available to everyone, housing and jobs would be plentiful, poverty and the accompanying violence would diminish, and we could again compete economically with Japan and Europe. Unfortunately, the military doesn't want to lose their affluence, and the military is calling all the shots.

THE MEDIA

"Naturally the common people don't want war...but after all it is the leaders of a country who determine policy, and it is always a simple matter to drag people along....  All you have to do is tell them they are being attacked, and denounce the pacifists for lack of patriotism and exposing the country to danger." - Hermann Goering, 1936

Pentagon censorship of reporting from the Gulf has kept the war bloodless and antiseptic.  Reporters can only travel in pools, accompanied at all times by a military escort, and all battlefield dispatches and photographs must pass a security review.  This allows the Pentagon to break important information first, or to censor information entirely.  It also allows them to control the mood of the articles.

Jane Kirtley of the Reporters' Committee for Freedom of the Press told of an instance where "a military censor wanted to change the word 'giddy' to 'proud' in a story describing some pilots.  That has nothing to do with national security. That's spin control."  Similarly, a rule against televising soldiers in pain or disfigurement has nothing to do with security.  This rule is to prevent the press from undermining popular support for the war.

Nevertheless, in a country where 90% of newspapers are Republican-owned, it is not surprising that press self-censorship is as strong as military censorship.  NBC is owned by General Electric (a major defense contractor,) CBS is partly owned by Westinghouse (a major defense contractor,) and ABC is owned by Capital Cities, which has interlocking directorships with Texaco, ITT, and United Technologies.  Fred Gustafson of In Pittsburgh asks us why "so much of the visual coverage of the Gulf war looks like a series of advertisements for military hardware."  It is.

It is only natural that these companies do not want their broadcasts to show too much coverage of war objectors.  As a result, few U.S. citizens are aware of how large the anti-war movement is.  The news consists of lots of quotes from government officials, and very little opinion from those opposed. Television debates show conservatives arguing with ultra-conservatives.  If some of the facts in this article come as a surprise to you, it's because the mainstream media chose not to tell you.

DEAD PEOPLE

German General Manfred Opel claimed around January 23 that there were already 300,000 dead in Iraq.  This information is dubious and unconfirmable, but U.S. carpetbombing of Iraqi troops has probably brought the death count into the tens of thousands.  The true numbers are unpredictable, because the Pentagon will not release estimates. However, a British officer stated that the bombs dropped on Iraq in the first three weeks of war exceeded the total tonnage dropped by the allies during World War II.

The tendency to think of Iraq as a single entity - as when the President says "We have to get Saddam out of Kuwait" - ignores the reality that thousands of troops, most of whom are conscripts, and likely a greater number of citizens, will die. The fact that they are forced to take orders from a government which we currently consider to be the enemy does not make their lives any less valuable than the lives of U.S. troops.

The apparent success of the air war is illusory.  Since Iraq never had a significant air force or centralized communication system, the U.S. has accomplished little.  We can learn a lesson from the Korean war, which began similarly, with a complete U.S. air victory.  Yet when the ground war began, and the U.S. had complete domination of the air, the military was consistently surprised by how little effect their bombing had in biasing the ground war.

The U.S. ground troops will not have a sure victory.  The Iraqi troops' strength is in their ground forces, artillery, and engineering, which were accumulated and honed through the long war with Iran. They may lose, but they will likely kill tens or hundreds of thousands of U.S. troops.  furthermore, ex-CIA agent Philip Agee claims that "The Korean crisis was deliberately prolonged in order to establish military expenditures as the motor of the U.S. economy...we will probably see this with the Gulf."  U.S. expectations of a short war sound like those which accompanied the outset of the Korean and Vietnam Wars.

Of course, things will be far worse if other countries join Iraq.  Saddam Hussein has popular support of the people of Jordan, Pakistan, and various other Arab countries, though he is not supported by their respective governments.  If war spreads through the mideast, millions may die.

THE ENVIRONMENT

As of this writing, there have been three separate oil slicks in the Gulf. The first was caused by damage to oil facilities in the border town of Khafji, and is responsible for the TV pictures of dying cormorants washing up on Saudi beaches.  It also threatens a major Saudi desalinization plant.  U.S. and Saudi authorities have confirmed that U.S. shelling caused this damage.  The other two, and much larger, slicks were the deliberate work of Saddam Hussein. (Oddly enough, reports showing pictures of the dead birds only mention the Iraqi-caused slicks.)

The second spill is the largest in history, covering 350 square miles of the Gulf.  The environmental consequences of the spills will be terrible.  The exchange of water with the Indian Ocean, necessary to disperse the oil, is very slow. The oil will not disperse for years, and mud flats will be irreparably destroyed.  Much of the Gulf's marine life will disappear.

After the famous Exxon Valdez spill, which was small by comparison, Exxon hired over 11,000 workers to clean up the Alaskan shoreline, and even then the damage was extensive.  No such mobilization is considered feasible in the Gulf.

Nonetheless, this could soon seem relatively unimportant.  Dr. Abdullah Toukan, Secretary-General of the High Council of Science and Technology in Jordan demonstrated computer models of a "nuclear winter" scenario if Iraq were to set fire to up to 700 oil wells in Kuwait while retreating.  According to Environmental Engineer Dr. John Cox, "There are not more than four or five teams of firefighters in the world capable of putting out oil wells."  The fires could rage for years.

As a result of one burning well, "Black Rain" has already fallen on Iran. Dr. Toukan claims that the hydrocarbon cloud is deadlier than any of Hussein's biological or chemical weapons.  According to Dr. Matthew Meselson, Professor of Biochemistry and Molecular Modelling at Harvard, "If there was a temperature inversion and there was a big release, and if there was a slow wind driving that over a population center, then you would kill everything from insects on up that doesn't have a gas mask."

If enough wells were fired, Dr. Toukan claims that the resulting cloud will cover an area the size of the United States and circle the earth for months. Highly toxic acid rain could ruin crops and contaminate water worldwide. Dr. Carl Sagan, Dr. Paul Cruizen, Joe Farman, and Dr. Bernard Lown endorse Dr. Toukan's warning.

FINAL THOUGHTS

In January, a group of 14 international jurists decided that a U.N. Security Resolution authorizing force against Iraq was invalid because China, a permanent member, had abstained from voting.  The U.S. has also ignored the U.N.'s Military Staff Committee Article 46, which states that "plans for the application of armed force shall be made with the assistance of the Military Staff Committee." Furthermore, the U.S. has been accused of violating the Hague and Geneva Conventions.  Even when the war is won, the U.S. will have lost credibility as an international peacekeeper, and gained the long-term hatred of the Arab world.

Jonathan Shewchuk -"The Student Union" newspaper - Carnegie Mellon University

This article appeared in the February 14, 1991 issue of Carnegie Mellon University's alternative student paper, "The Student Union." This article summarizes a lot of important information from a large number of sources, and a useful education for those who haven't been able to follow the details of American foreign policy in the Gulf. Please feel free to reprint this article in student papers, leaflets, electronic media, or otherwise. I think that it is important to get this information out to as much of the public as possible, and I greatly appreciate all efforts to circulate it.