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

By Guest Writer, 9-03-09

Note: This piece, by the non-profit news organization WyoFile, is the second of a two-part series. Click here for part one.

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 March 1995ⁱ, 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 Calvertⁱⁱ 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 moneyⁱⁱⁱ 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.”^iv

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.^v

“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,^vi 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.^vii 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.”^viii

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.^ix 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^x 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^xi 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^xii 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^xiii 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^xiv.

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,^xv 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^xvi and GOP activist, to head the inner-circle team choosing top personnel for the Interior Department.

Sansonetti, who has never held elected office,^xvii 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^xviii, 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.^xix 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^xx announced that Lucy Querques Denett^xxi 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^xxii, 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.”

Click here for end notes referenced above.

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