Former Interior Secretary Gale Norton is focus of corruption probe

The Justice Department investigation centers on a 2006 decision to award oil shale leases in Colorado to a Royal Dutch Shell subsidiary. Months later, the oil giant hired Norton as a legal counsel.

Reporting from Washington - The Justice Department is investigating whether former Interior Secretary Gale A. Norton illegally used her position to benefit Royal Dutch Shell PLC, the company that later hired her, according to officials in federal law enforcement and the Interior Department.

The criminal investigation centers on the Interior Department's 2006 decision to award three lucrative oil shale leases on federal land in Colorado to a Shell subsidiary. Over the years it would take to extract the oil, according to calculations from Shell and a Rand Corp. expert, the deal could net the company hundreds of billions of dollars.

The investigation's main focus is whether Norton violated a law that prohibits federal employees from discussing employment with a company if they are involved in dealings with the government that could benefit the firm, law enforcement and Interior officials said.

They said investigators also were trying to determine if Norton broke a broader federal "denial of honest services" law, which says a government official can be prosecuted for violating the public trust by, for example, steering government business to favored firms or friends.

The Interior Department's Office of Inspector General began the investigation during the waning months of the George W. Bush administration and more recently made a formal criminal referral to the Justice Department. Norton is the first Bush official at the Cabinet secretary level to be the subject of a formal political corruption investigation.

Shell spokeswoman Kelly C. op de Weegh declined to comment on behalf of both the company and Norton, who did not respond to numerous calls. "Shell has not received an official notification with regard to a government investigation. Consequently, we are not in a position to comment at this time," she said.

The Justice and Interior departments also would not comment.

Interior Department investigators referred the case to the Justice Department after concluding that there was sufficient evidence of potential illegal conduct, according to federal law enforcement and Interior officials. The officials spoke on the condition of anonymity because of the sensitive and confidential nature of the case.

Those officials said the referral was based on an already comprehensive Interior Department investigation that included interviews with numerous Interior employees. The Justice Department has assigned prosecutors from its public integrity section and the U.S. attorney's office in Washington to the case.

Norton, 55, was President Bush's first Interior secretary. She had worked as an Interior Department attorney before being elected Colorado's attorney general. Later, as a private lawyer, she represented mining, timber and oil companies.

As Interior secretary, she embraced an industry-friendly approach to environmental regulation that she called "cooperative conservation" and pushed the department to open more public land for energy production.

Norton also backed commercial development of the oil shale reserves buried in the rocks of the Mountain West. Known as "the rock that burns," oil shale refers to rocks that release liquid petroleum when heated to extreme temperatures. The highly controversial process promises immense fuel production, but environmentalists argue that it contaminates rugged landscapes and drains precious water.

In early 2006 -- following the recommendations of a team representing several federal agencies and states -- the department announced that it planned to award Shell three oil shale leases. Norton resigned two months later, saying that she had no job lined up. In December of that year, Shell announced it had hired Norton as in-house counsel to its unconventional fuels division, which includes oil shale.

The Justice Department, working with Interior Department investigators, is looking into whether Shell received a competitive advantage or other preferential treatment from the Interior Department in the awarding of the leases.

"If [Norton] had feelers out, or was in discussions with Shell in any way, she is absolutely forbidden from participating in any way from doing anything with Shell," a law enforcement official said.

The federal government long has sought a cost-effective way to extract the abundant oil resources from Western shale rock.

Then-Vice President Dick Cheney's energy task force recommended aggressive steps to encourage private industry to develop such technology. In response, the Bureau of Land Management issued six oil shale "research, development and demonstration" leases. The leases, five in Colorado and one in Utah, granted access to up to 160 acres of federal land apiece to develop shale programs -- with an option to increase that to 5,000 acres once a technique proved commercially viable.

On average, each of those 5,000-acre lease tracts holds an estimated $700-billion worth of recoverable oil (at today's $70-per-barrel price), said James T. Bartis, a shale expert at Rand. Shell has estimated the costs of recovering the oil at $30 per barrel, leaving a potential profit of about $1 trillion after royalties if all the oil is extracted.

Shell was the only company to receive more than one tract.

"Shell got some of the best lands" that the government made available, Bartis said.

At the time, critics accused the Interior Department of undermining a central goal of the leases by awarding three of them to Shell. The leases were meant to allow companies to test distinct methods for extracting shale from rock. But each of Shell's tracts was granted for a variation of the same process.

Critics also raised questions about the fairness of the process, given that Shell filed its first lease application just a day after the department issued its call for proposals in June 2005.

That August, Bush signed the Energy Policy Act of 2005, which included a provision that changed federal law to allow companies to hold multiple oil shale leases. Interior Department officials said they did not notify potential bidders that the law had changed. Shell, which had lobbied Congress to allow companies to hold more than one lease, quickly filed two more applications, BLM records show.

No other company applied for more than one lease.

The lease proposals were evaluated in the fall of 2005 by the interdisciplinary team that included representatives of several Western governors and from the Energy and Defense departments. The team's recommendations included awarding three leases to Shell.

The Interior Department investigation initially focused on whether agency officials had improperly assisted Shell and other private-sector companies. Three of the interviewed BLM employees -- who all spoke on condition of anonymity because an investigation was ongoing -- said the questions investigators posed focused on Norton and her role in the lease process.

jtankersley@latimes.com

josh.meyer@latimes.com

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