Point of View- Burton: MMS must treat royalty payers as 'customers'

President George W. Bush's appointment of Rejane "Johnnie" Burton to the Minerals Management Service this past March was a surprise among some veteran agency-watchers who had expected the White House to turn to a seasoned industry player or congressional staff member well-versed in the arcane world of oil royalty policy (OGJ Online, Jan. 8, 2002).

MMS is the federal agency within the US Department of the Interior that collects and distributes revenue generated from oil and gas leases on public land and in federal waters.

Burton brings a unique set of qualifications to the position with a solid mix of experience in state government, the oil and gas industry, and education.

Since 1995, she served on the governor of Wyoming's cabinet, as director of the Department of Revenue. Before her cabinet position, Burton was vice-president of TCF Inc., an oil and gas exploration company based in Casper, Wyo. She also served in the state legislature and has held various positions of responsibility with oil data publishing companies. Born in French Algeria, Burton emigrated to the US in 1963 and became an American citizen in 1968.

As the new head of MMS, Burton knows the oil business as well as anyone in Washington can be expected to but who is not an accountant or an attorney. And that gap in her resumé has for now worked in her favor, with both industry officials and public interest groups giving the one-time French teacher high marks for her willingness to be open-minded about often contentious public land management issues.

The Bush White House seriously considered but then ultimately rejected its first impulse to name an "inside" player to the agency. Senior officials said they were mindful that MMS is still recovering from a punishing public policy battle involving its new oil valuation system that had been approved over industry's objections in the waning days of the Clinton administration.

In addition, the president's aides also were keenly aware of the public's trust of oil company lawyers and accountants being at an all-time low in the post-Enron Corp. world.

Given those political realities, Burton's limited experience with "Big Oil" so far has shielded her from some of the criticisms her predecessors experienced.

Commanding respect

As the agency responsible for collecting royalties from federal lands, it's hard for MMS to command respect. It's not uncommon for some leaseholders to compare the relationship they hold with MMS to that of a US taxpayer struggling with the Internal Revenue Service.

But Burton says she wants to change that perception, viewing industry royalty payers as "customers." At the same time, Burton said in an interview shortly after she took office, she does not want to be considered an advocate for the oil industry.

"There's a fine line between being empathetic and being an advocate," she said. "I am not an advocate."

Burton comes to MMS at a critical time in the agency's history: The new administration has made clear it wants more public lands available for exploration and development as part of the White House national energy strategy.

Burton notes that MMS's mission first and foremost is to manage revenues generated from royalties on federal lands and waters for the American public.

"MMS plays a role because it is a key agency for [minerals] production on federal lands and waters. "I strongly feel we should produce more but be mindful of environmental considerations. I think we can do both and do it well.

"MMS must signal to industry we are serious about developing resources, but just as serious about doing it in an environmentally responsible manner."

Burton said that there is irrefutable evidence America's appetite for oil and gas will continue to grow. And to manage that demand growth, "we have to narrow that gap," she said.

Burton noted there are 23 action items within the White House energy plan relating to MMS's mission. To carry out those recommendations, MMS is part of interagency task force to expedite permit processing while keeping controls in place.

In her 2 months in office, Burton readily has acknowledged at various public and private forums that she still has a bit of a learning curve with offshore issues.

But she promises one hallmark of her leadership will be better communication with MMS's stakeholders, particularly state interests.

Some Americans, she acknowledged have "grave concerns" over offshore drilling. "But we'll try to walk that fine line; it will be hard at times, but we will gear our efforts forwardellipsewe want to cooperate with states" on moratoriums, she said.

MMS's new deepwater report, for example, excluded specific agency estimates of eastern Gulf of Mexico tracts viewed as promising by industry but dropped from last fall's federal lease Sale 181. That action was taken by the Bush administration responding to new concerns by Florida officials and the state's congressional delegation over offshore drilling.

RIK issues

One area Burton does have familiarity with is royalty-in-kind (RIK) issues. As a state revenue officer, Burton worked closely with MMS officials in the late 1990s on refining a pilot project in Wyoming to ensure that states and the federal government did not lose money when the government sold royalty oil or gas instead of taking traditional cash payments based on an oil valuation formula.

She said that experience gave her a clear understanding of what MMS and industry need to do to make RIK work. And while she said she favors RIK in some circumstances, it is less certain she will endorse the kind of system-wide RIK plan that industry seeks.

Burton also said MMS has no immediate plans to revise its existing gas valuation rule, although some public land advocates want the agency to move toward a market-benchmark system sooner than later.

Industry, meanwhile, continues to fight with MMS in court over the existing rules.

Last February the US Court of Appeals for the District of Columbia Circuit in Washington, DC, largely affirmed MMS's "duty-to-market" gas royalty rules.

The new oil valuation rules also include a duty-to-market component industry strongly opposed throughout a 4-year rulemaking process. Most of the revenue MMS collects comes from gas leases, much of it offshore, and it is in that arena MMS sees a lot of promise for RIK.

A new draft report on expanding RIK endorsed its continuing use as a pilot project but with an important caveat: "The states have to want it," Burton said. The MMS draft report found that selective use of RIK should be at least revenue-neutral, lessees can benefit from a reduced administrative burden, there is greater certainty for both the lessee and the government because valuation disputes can be avoided, and-most importantly for industry-RIK does not work in every situation.

"This pilot builds on another RIK pilot completed last year in Wyoming and successfully demonstrates that, in some circumstances, taking oil and natural gas production in kind is a viable alternative to the traditional method of taking royalties in value," said Burton after the report was released May 1.

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