GAO to Evaluate Royalty Collection System, Lawmakers Say

The Government Accountability Office has agreed to study the "accuracy and effectiveness" of the Interior Department's oil and gas royalty collection system, House Government Reform Committee Republicans said today.

The chairman, Rep. Tom Davis (R-Va.), and Rep. Darrell Issa (R-Calif.), who heads the energy subcommittee, said GAO had accepted the lawmakers' Oct. 10 request for a study about several aspects of royalty collections by Interior's Minerals Management Service.

Issa and Davis had asked GAO to examine several issues, including: whether efforts to monitor and verify energy production ensure accurate royalty collection; whether government and industry policies are leading to over- or under-reporting of petroleum production; and whether federal information technology systems adequately gather production data and conduct compliance audits.

The letter also requests a study of MMS royalty-collection compliance and enforcement, including "a comparison of the frequency of enforcement actions, such as issue and demand letters, over time."

MMS royalty collection practices have been under scrutiny, driven in part by several New York Times stories questioning whether the service is collecting all the royalties industry owes and whether its efforts to ensure compliance are robust enough.

MMS came under fire again this week for deciding not to pursue certain royalties on Gulf of Mexico natural gas produced by Chevron Corp. (Greenwire, Oct. 31).

The Government Reform panel has already investigated Gulf of Mexico leases issued in 1998 and 1999 that do not contain so-called price thresholds that end royalty waivers when petroleum prices climb past certain limits. The absence of the thresholds in leases that allow royalty relief could eventually cost the Treasury an estimated $10 billion in lost royalties.

A GAO study of the royalty relief program is ongoing, a committee aide said. But the lawmakers said today other issues warrant GAO inquiry in announcing the new investigation.

"In addition to problems in management of royalty collection from deepwater production, we have reason to believe the shortcomings identified in the investigation may also be impacting the royalty collection from onshore production and on Indian lands," said Davis and Issa in a statement on the GAO study.

GAO has already completed a study looking into alleged discrepancies between energy prices and the amount of royalties collected. Investigators found that revenue collections did not keep pace with energy price increases between 2001 and 2005, because while prices increased, sales volumes declined (Greenwire, July 24).

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