Share this story
Close X
Switch to Desktop Site

New Teapot Dome scandal: tip of growing US oil-theft problem

Remember Teapot Dome? This naval petroleum reserve in Wyoming was the site of an infamous scandal that rocked the loose-knit administration of Republican President Warren G. Harding. In the 1922 scandal, Mr. Harding's interior secretary, Albert B. Fall, was convicted of taking a $100,000 bribe for illegally leasing these oil reserves to business acquaintances.

Teapot Dome was closed in 1927 and only reopened a few years ago. But, once again, history appears to be repeating itself - at least to a limited extent.

About these ads

It seems that Teapot Dome has been the site of theft of millions of dollars' worth of oil and oil-field equipment. There is an ongoing FBI inquiry into possible fraud, kickbacks, bribery, conflict of interest, theft of government property, and false statements by contractors at Naval Petroleum Reserve No. 3. Last month, two Californians were indicted on a variety of charges.

Actually, the Teapot Dome case is only one in a number of recent incidents that demonstrate that criminal activity is rampant on the nation's far-flung and loosely policed oil fields.

Last March, the Petroleum Independent, a magazine published by the Independent Petroleum Association of America, ran an article on the theft of equipment from the nation's oil fields. ''Estimates of the economic loss to the industry vary, but some put it as high as $200 million annually. And that estimate does not include the costs of downtime while replacement parts are sought, bought, and installed,'' the article reported. Other sources peg the figure much higher, as much as $1 billion yearly. And these losses are ultimately passed on to the consumer and taxpayer.

The reasons for this oil-field crime wave are readily apparent. Domestic oil and gas exploration is at an all-time high. The demand for oil-field gear is greater than the supply, with waiting times of many months for a number of crucial pieces of equipment. As a result, a thriving black market has sprung up. The remoteness of oil and gas operations and some oil companies' traditional laxity in record-keeping make it extremely difficult to combat these thefts, say involved law-enforcement officials.

Not only equipment, but petroleum itself, is being stolen in record quantities. Over the last few years, the value of oil shot up to as much as $40 a barrel. Experts estimate that the level of oil thefts has also risen dramatically over this period, until today thousands of barrels - worth millions of dollars - are stolen daily.

Most of these thefts appear to be made by oil company employees. One example: If an oil tanker driver ''misreads'' the gauge on his truck tank by a few inches , he can transfer a few hundred dollars worth of oil to someone else with a tank truck and make a tidy profit without appreciable effort or risk, explain oil-field investigators.

The situation appears even worse on federal and Indian lands. Here there are two types of problems. One is oil theft. But this is considered a minor problem when compared with the underpayment of royalties by improper accounting.

About these ads

These oil and gas leases are managed by the US Geological Survey. This year USGS estimates it will collect a record $4 billion in royalties. Yet some estimates are that about $1 million in royalties is lost daily due to underpayment and theft.

Interior Secretary James G. Watt has appointed a five-member ''blue ribbon'' panel to look into the situation. Headed by David F. Linowes, professor of political economy and public policy at the University of Illinois, the panel is scheduled to present Mr. Watt with its recommendations late next month.

''The consensus of the committee members is that this problem is serious enough so that major changes must be made in the government's royalty management system,'' says committee staffer David Anderson.

The origin of the current controversy over federal management of its oil and gas leases were charges issued by the Shosone and Arapahoe tribes on the Wind River Reservation in Wyoming. Tribal representatives became convinced that thousands of barrels of oil had been taken from the 2.3 million acre reservation monthly without any royalties being paid to the tribe. The allegations sparked congressional oversight hearings and an FBI probe. Earlier this year Amoco paid the tribes $763 million in compensation for unpaid royalties.

As a result of these problems, the USGS has recently spent $12.4 million to centralize, computerize, and update its royalty managment program. The survey staff oversees almost 17,000 leases which include 44,300 onshore oil and gas wells. To inspect all these leases, there is a force of only 50. The agency has also been trying to build up its inspection force, but have had little success to date because it must compete with oil company salaries and is currently caught in a federal hiring freeze.

The USGS has also been conducting an ''accelerated'' inspection program. By midyear it had inspected 39,000 sites and issued 4,500 citations for failure to comply with federal regulations. Most of these citations were for missing seals and locks on storage tanks, which may or may not indicate illicit activity.

The first area that USGS concentrated on was Wyoming. Here inspectors found what appeared to be royalty underpayments of $7.5 million. But further analysis has shown that a goodly portion of these were due to improper reporting. Much of this apparently missing money had been paid, but to the wrong accounts, the USGS says.

Follow Stories Like This
Get the Monitor stories you care about delivered to your inbox.