GovernmentExecutive.com: Justice commends Interior auditor for recouping unpaid energy royalties

By Katherine McIntire Peters
[email protected]
December 12, 2007

The Justice Department’s civil division last week awarded a senior Interior Department auditor its Special Commendation Award for his efforts in reaching a $105 million settlement with an energy company found to have underpaid royalties from gas leases on federal and tribal land.

John Price, chief of enforcement at the Office of Minerals Revenue Management at Interior’s Minerals Management Service, said he accepted the award on behalf of a team involving officials from Justice and Interior. The federal investigation was launched after state auditors in New Mexico found anomalies in company reporting documents more than a decade ago.

Price said his office negotiated the settlement agreement with Burlington Resources Inc. after the multiyear investigation showed the company systematically underpaid royalties owed the government and several Indian tribes for gas produced mainly in New Mexico.
The settlement stems from an ongoing lawsuit filed by a private whistleblower, Harold “Gene” Wright, under the False Claims Act. The suit, in which Justice partially intervened, alleges that several companies systematically underpaid royalties due for natural gas production. Justice previously reached settlements with Shell Oil Co. for $56 million and Dominion Exploration and Production Co. for $2 million; the agency continues to seek claims against Exxon-Mobil Corp.

The claim against Burlington involved natural gas production on federal and tribal land between March 1, 1988, and March 31, 2005. Last year, Burlington became a wholly-owned subsidiary of ConocoPhillips, the third-largest integrated energy company in the United States.

“In this particular case, part of our claim was that not only were they taking deductions they were not entitled to, but they had inflated the value of those deductions. And we also believed that the way they reported to us intentionally [masked] what they were doing, in effect to conceal it,” Price said.

Investigators undertook painstaking work to reconstruct the details of the company’s activities over nearly two decades, he said. “It was that type of audit work where we look at source documents, transactions between our producers, transporting pipelines, gas processing facilities and all of the various purchasers, and tracking where this gas goes and knowing what that market looks like to see some of these anomalies and find these disconnects,” he said.

There are 28,980 producing leases on federal or tribal land, according to the Minerals Management Service. In fiscal year 2007, which ended Sept. 30, the agency collected and disbursed more than $11 billion from energy production on federal and tribal lands and offshore on the outer continental shelf. Royalty revenue is distributed to the U.S. Treasury, tribes and states where energy is produced, as well as to a number of federal special-use accounts, such as the Land and Water Conservation Fund.

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