Firms Harvesting Energy From Public Land May Owe U.S.

Jack Grynberg, a Colorado oil man, charges that the energy extraction industry owes the U.S. government more than $30 billion in unpaid royalties for natural gas alone. He is suing, and Indian tribes are considering lawsuits.
Jack Grynberg, a Colorado oil man, charges that the energy extraction industry owes the U.S. government more than $30 billion in unpaid royalties for natural gas alone. He is suing, and Indian tribes are considering lawsuits. (By T.r. Reid -- The Washington Post)

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By T.R. Reid
Washington Post Staff Writer
Sunday, May 7, 2006

CENTENNIAL, Colo. -- As soaring prices prompt huge increases in gas and oil drilling on public land, an ad hoc posse of state governments, Indian tribes and individual "bounty hunters" is charging that big energy companies are shortchanging taxpayers by billions of dollars.

They say drilling companies and pipeline operators are understating the amount and the quality of the natural gas they pump on public land, and are paying far less in royalties than required by law.

State and tribal governments rely on Washington -- specifically, the Minerals Management Service in the Department of the Interior -- to determine what royalties are owed and to collect the money. States and tribes then receive their shares from the federal government.

Two organizations -- the Council of Energy Resource Tribes, representing 57 tribes in the nation and Canada, and the State and Tribal Royalty Audit Committee, representing 11 state governments and eight tribes, mainly in the West -- are pressuring the Minerals Management Service and the gas companies for stricter accounting and higher royalty payments.

"With the current operation in Washington, you just get the feeling that the companies can report any production number they want to, and the government is not going to check," said Dennis Roller, an auditor with the state of North Dakota who serves as vice chairman of the royalty audit committee.

"And, of course, the result is that taxpayers aren't getting paid for the gas that they own," he said. "We have asked them many times to do the auditing they are supposed to do. But they just stonewall."

Energy companies say they have paid all the royalties they owe for the minerals extracted from public and tribal land. The Bush administration has sided with the industry, resisting suggestions that it should be collecting more money as gas and oil drilling escalates.

Five years ago, however, energy companies paid more than $400 million to settle charges that they had not paid royalties owed on oil taken from public land. Today, most of the focus is on natural gas production, which is booming on public land in the Rocky Mountain West, with the enthusiastic backing of the Bush administration.

"We think the underpayment on gas royalties could be much bigger than the fraud that was exposed for the oil wells," said Beth Daley, of the Project on Government Oversight, a Washington-based interest group that plays a coordinating role among the various groups challenging the energy companies.

"The industry seems to have all sorts of ways to avoid paying what it owes for this gas," Daley said. "And the Bush administration has been loosening the rules. At a time when drilling is way up, the government has cut back on its audits, so it is easier for a company to get away with fraud."

Oil and gas accounting rules are complicated, and it is difficult to assess whether or how much the companies may have underpaid. But one veteran of the Western oil patch, independent driller Jack Grynberg, of Centennial, charges that the industry owes the federal government more than $30 billion in unpaid royalties for natural gas alone. By comparison, the deficit-cutting bill that Congress passed earlier this year would save $39 billion over five years.

The nation's major reserves of oil and gas are found in the Rocky Mountains, the Southwest and Alaska, regions where much of the land is owned by federal or state governments or Indian tribes. When gas and oil companies drill wells on public or tribal land, they are required to pay royalties of about 16 percent of the value at the wellhead, before the fuel is shipped to market and refined.


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