Giving oil and gas producers the royalty treatment

U.S. to collect $32 million from BP By BRAD FOSS

The Interior Department on Thursday said it would collect an additional $32 million in royalties and interest from a U.S. subsidiary of BP PLC for natural-gas it extracted from federal lands in New Mexico over a 15 year period.

The announcement came one day after the Interior Department's inspector general criticized the agency's Mineral Management Service, saying it was losing an unknown amount of royalties from oil and gas taken from federal land and waters because of inadequate monitoring and inaccurate information on how much energy companies are pumping.

The MMS, which went after several companies for similar reasons, said BP owed an additional $18.9 million in royalties and $13.3 million in interest for so-called coalbed methane production between June 1991 and May 2006.

BP initially disputed the claim in court, and its rivals awaited the outcome. But in June 2005 the MMS's claim was upheld by the U.S. District Court of Appeals for the District of Columbia.

That led ConocoPhillips to pay an additional $21.7 million for drilling in New Mexico between January 1989 and June 2004.

MMS spokesman Patrick Etchart said the agency also plans to collect "tens of millions of dollars" in additional royalty payments from past drilling by Williams Cos. and Burlington Resources, which was acquired earlier this year by ConocoPhillips.

Wednesday's inspector general report said the MMS is unable to adequately audit oil and gas company royalty compliance because of inaccurate and incomplete information and poorly conducted reviews.

The MMS royalty program has also been under attack from members of Congress and some watchdog groups.

Last year the government collected $9 billion in royalties from oil and gas taken from federal land, offshore wells and tribal lands. The agency said in its statement that its auditing program has recovered an average of $125 million a year over the last 24 years.

Of course, the Interior Department has already admitted that it could have, should have, collected much, much more.

For a bit of background, see, Jumping Jack Flash.