Minerals Management Service: History, Scandals, and Dissolution

The Minerals Management Service (MMS) was a federal agency under the Department of the Interior tasked with managing the nation's offshore energy and mineral resources. Established in 1982, the agency played a pivotal role in generating revenue for the U.S. Treasury through the leasing and regulation of oil and gas production. However, its history is marked by a systemic failure to separate revenue collection from safety oversight, leading to a series of high-profile scandals and its eventual dissolution.

Key Facts

• Founded: January 19, 1982.
• Dissolved: October 1, 2011.
• Primary Role: Managed energy and mineral development across 1.71 billion offshore acres of the Outer Continental Shelf (OCS).
• Financial Impact: Disbursed approximately $200 billion to federal, state, and American Indian accounts between 1982 and 2008.
• Successor Agencies: Split into the Bureau of Ocean Energy Management (BOEM), the Bureau of Safety and Environmental Enforcement (BSEE), and the Office of Natural Resources Revenue (ONRR).

Agency Origins and Operations

The MMS was created to oversee the development of energy and minerals on the Outer Continental Shelf, guided by the 1953 Outer Continental Shelf Lands Act. Its operations were further shaped by the Federal Oil and Gas Royalty Management Act of 1983. By 2010, the agency was expected to disburse roughly $5 billion in annual minerals revenue to the U.S. Treasury.

The agency's core responsibility was the collection of royalties—payments made by companies for the right to extract resources from federal lands and waters. For decades, this represented the second-largest source of federal revenue outside of taxes.

The Royalty-in-Kind (RIK) Controversy

A significant point of contention in MMS operations was the method of royalty collection. In 1997, the agency proposed Royalty-in-Value (RIV), which required companies to make cash payments. The energy industry opposed this, proposing instead Royalty-in-Kind (RIK), where the government received actual oil or gas production to sell on the open market.

Despite a lack of congressional authorization, the Bush administration expanded the RIK program, which accounted for over 50% of agency revenue collections by fiscal year 2008. However, the General Accounting Office (GAO) repeatedly flagged the program for severe deficiencies, including:

• Lack of clear strategic objectives and monitoring.
• Inadequate computer systems that failed to detect underpayments.
• Reliance on manual data processing and self-reported industry data.
• Accounting practices that allowed for potential abuse by producers.

The GAO estimated that underpayments reached approximately $160 million in 2006 alone. Due to these failures and ongoing scandals, Secretary of the Interior Ken Salazar announced the shutdown of the RIK program in September 2009.

Ethics Scandals and Regulatory Capture

The MMS became a textbook example of regulatory capture—a phenomenon where a regulatory agency is co-opted by the industry it is meant to oversee. Starting in the 1990s, the agency was plagued by reports of misconduct. In 2008, the Department of Interior's Inspector General revealed that MMS employees had engaged in drug use and sexual activity with employees from the energy firms they regulated.

These "cozy relationships" led to accusations that the agency was more interested in facilitating industry growth than ensuring safety or maximizing taxpayer revenue. The U.S. House Oversight Committee reported that this mismanagement resulted in the loss of billions of dollars in revenue.

Deepwater Horizon and Final Restructuring

The systemic failures of the MMS culminated in the Deepwater Horizon oil spill. The disaster highlighted the inherent conflict of interest in having a single agency responsible for both collecting revenue (which encourages more drilling) and enforcing safety regulations (which may limit drilling).

In response, Secretary Ken Salazar issued a secretarial order on May 19, 2010, to split the agency. During the transition, the MMS was briefly renamed the Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE). Michael Bromwich, a former federal prosecutor, was appointed as Director to lead the restructuring efforts.

The reorganization was finalized on October 1, 2011, when the agency was formally dissolved and replaced by three distinct entities to ensure a separation of duties.

MMS Agency Summary

Overview of the Minerals Management Service (MMS)

Attribute	Details
Parent Agency	Department of the Interior
Headquarters	Washington, D.C.
Budget (2009)	US$310 million
Staffing (2009)	1,614 employees
Key Successors	BOEM, BSEE, and ONRR

Frequently Asked Questions

Why was the Minerals Management Service dissolved?

The MMS was dissolved due to perceived conflicts of interest and poor regulatory oversight, which were brought to a head by the Deepwater Horizon oil spill and investigations into agency corruption.

What is the difference between Royalty-in-Value and Royalty-in-Kind?

Royalty-in-Value (RIV) refers to royalty payments made in cash, while Royalty-in-Kind (RIK) refers to payments made in the form of actual oil or gas production, which the government then sells on the open market.

What were the main criticisms of the RIK program?

The GAO found that the RIK program lacked proper strategic objectives, used inadequate computer systems to track deliveries, and relied too heavily on self-reported data, leading to significant revenue losses for the U.S. government.

Which agencies replaced the MMS?

The MMS was split into three separate agencies: the Bureau of Ocean Energy Management (BOEM), the Bureau of Safety and Environmental Enforcement (BSEE), and the Office of Natural Resources Revenue (ONRR).

Who was the final Director of the restructured agency?

Michael Bromwich served as the Director from June 15, 2010, until the agency's formal dissolution on October 1, 2011.