Big Oil Gets Big Break, By Mistake

This story was written by CBS News correspondent Sharyl Attkisson.

When a giant new oil field was discovered recently in the Gulf of Mexico — possibly the biggest domestic field unearthed in 30 years — it was good news for America's energy front. It should have been great news for taxpayers, too. That's because under leases with the U.S. Interior Department, oil companies typically agree to pay taxpayers generous royalties on their finds — after all, the oil companies drill in public waters.

But members of Congress are raising questions as to whether taxpayers will get their due from all of the oil brought up in the new field, due to a costly mistake in some leases that actually exempts oil companies from paying royalties.

A federal inquiry has been trying to get to the bottom of just who gave big oil this big break. It happened eight years ago: Leases issued for deep-water drilling in the Gulf in 1998 and 1999 released oil companies from paying the royalties even if the price of oil escalated to incredible heights, as they have in recent months.

Congress and the Interior Department Inspector General have been trying to dissect the blunder with their own investigations. CBS News has obtained the Inspector General's findings in advance of his appearance on Wednesday before the House Government Reform Committee.

Specifically, Inspector General Earl Devaney's prepared remarks say that the best he can tell, after interviewing dozens of witnesses and examining 11,000 e-mails, the royalty snafu was simply the result of "bureaucratic bungling...(and the) stove-piping of various responsibilities."

But in the bigger picture, he faults an entire culture within the Interior Department, whereby he says mistakes are too often overlooked and there's a lack of accountability.

"Short of a crime, anything goes at the highest levels of the Department of the Interior," Devaney's prepared testimony says. "Ethics failures on the part of senior Department officials — taking the form of appearances of impropriety, favoritism and bias — have been routinely dismissed with a promise 'not to do it again.'"

Devaney goes on to say, "I have watched a number of high-level Interior officials leave the Department under the cloud of ... investigations into bad judgment and misconduct. Absent criminal charges, however, they are sent off in the usual fashion, with a party paying tribute to their good service."

As far as the lost royalty payments, Chevron, one of the companies drilling in the newly-discovered Gulf areas, says it believes only some of the new oil fields could be exempt. Chevron promises it's working with Interior Department officials on a "mutually satisfactory resolution."

A bill is pending in Congress that would force exempted oil companies to pay up the royalties or face stiff financial penalties. If the losses aren't recouped, experts believe it could cost taxpayers hundreds of millions, perhaps billions, of dollars over the lives of the leases in question.