An audit reveals that a local federal agency may be allowing energy firms to underpay, with a possible loss of billions of dollars.The Lakewood-based federal agency charged with collecting oil and gas royalties from energy companies can’t verify that it is receiving full payments, according to a government audit released Wednesday.
The report from the Interior Department’s inspector general concluded that the Minerals Management Service may be allowing royalty underpayments because of weaknesses and inconsistencies in the agency’s audits of energy-company payments.
The report did not identify how much may be missing from royalty payments. The Minerals Management Service has collected $12.8 billion in royalties this year.
The inspector general’s report is the latest in a series of disclosures that the federal government is losing billions of dollars from underpayments or nonpayments of royalties on oil and gas production from federal lands and the Gulf of Mexico.
In a separate federal inquiry, the Minerals Management Service is under investigation for issuing drilling leases in 1998 and 1999 that failed to require royalty payments, a mistake that could cost the government as much as $10 billion. In yet another investigation, the Government Accountability Office, the investigative arm of Congress, is conducting a broad review of the agency’s efforts to collect drilling fees.
In addition, Interior Department auditors have accused their supervisors in Denver of blocking efforts to make energy companies pay full royalties. The allegations – contained in four lawsuits against energy companies – accuse Interior’s Minerals Revenue Management program of failing to seek full payment of royalties from oil production on federal land.
“At a time when energy costs are rising, domestic resources are limited and budget deficits are high, it is remarkable that the administration would pass on billions of dollars in revenue,” said U.S. Sen. Ken Salazar, D-Colo. “These leases are on federal land, and the administration needs to collect on them. There is no middle ground here.”
In response to the inspector general’s audit released Wednesday, the Minerals Management Service said it is initiating strengthened procedures and improved administrative controls to address concerns identified in the audit.
Johnnie Burton, director of the agency, said her office had previously identified some of the issues reported in the audit and has launched computer-system improvements to increase the reliability of internal checks on royalty payments.
The agency said it used audits or less stringent “compliance reviews” to check the accuracy of energy-company payments in 2006 representing 72.5 percent of total revenues, up from 46 percent in 2003 and 10.5 percent in 2002.
“We think we are getting good compliance from the companies,” said Stephen Allred, assistant secretary for land and minerals management at the Interior Department. “We are not saying that we cannot get better.”
Bloomberg News contributed to this report.
Staff writer Steve Raabe can be reached at 303-954-1948 or sraabe@denverpost.com.
