Nick Snow
Washington Correspondent
WASHINGTON, DC, Dec. 8 -- A BP America Inc. subsidiary has been billed more than $32 million for underpayment of royalties, the US Minerals Management Service announced on Dec. 7.
BP America Production Co. was billed $32,264,570 for disputed royalties and interest from its coalbed methane production in New Mexico from June 1991 through May 2006, MMS Director Johnnie Burton said. Payment is due by the end of the month.
The announcement came 2 days after the Department of Interior inspector general's office issued a report warning MMS not to rely on royalty compliance reviews as a substitute for audits. The report criticized the agency's data management practices and performance measurements, provoking new attacks from lawmakers suspicious about MMS's handling of deepwater royalty relief (OGJ Online, Dec. 7, 2006).
Burton said the bill to BP America Production included $18.9 million for additional royalties and $13.3 million in interest payments. It followed a $21.7 million collection from another producer, which was not identified, in 2005.
"This action demonstrates that MMS is vigilant in collecting the royalties due to the federal government from energy production that occurs on federal lands," Burton said.
She said the DOI agency is pursuing the issue with other producers and expects to generate tens of millions of dollars more in receipts.
At issue in the BP matter was whether coalbed methane producers could deduct from royalty payments the cost of removing carbon dioxide from the methane. MMS argued that CO2 removal was a production cost to be borne by the producer.
Ruling appealed
Several producers filed administrative appeals, and BP appealed the order to federal courts. MMS said that on June 10, 2005, the US District Court of Appeals for the District of Columbia upheld the government agency's position. BP appealed to the US Supreme Court, which refused to hear the appeal and let the district court's ruling stand.
The $32 million will be split with New Mexico, auditors of which participated as part of the state's delegated audit agreement with MMS, Burton said.
She said the agency pursues a vigorous audit and compliance review program, which has generated an average of more than $125 million/year in the last 24 years. "That's a total of more than $3 billion that flowed to the American public as a result of MMS's audit and compliance efforts," she said.
Burton said MMS, state, and tribal auditors completed 1,572 company audits from 2002 through 2005, compared with 784 audits in the prior 4-year period. In fiscal 2006, the agency reviewed or audited 72.5% of all federal and Indian royalty payments, using a system that targets the largest properties and payers.
She noted that audits conducted by MMS and other federal agencies follow standards published by the Government Accountability Office.
Contact Nick Snow at [email protected].
