Auditing

Make sure your lease includes audit rights;  and try to stay friends with your neighbors so thew will share with you the cost of an occasional complex audit - to make sure the producers add up your royalty right.


From OIl & Gas Journal

Marathon, Dominion settle federal gas royalty reporting claims

Nick Snow 
OGJ Washington Editor 

WASHINGTON, DC, Aug. 23 -- Two more producers agreed to make payments to settle federal charges that they knowingly underpaid natural gas royalties in an ongoing investigation originating with a whistle-blower’s lawsuit, the US Department of Justice and Bureau of Ocean Energy Management, Regulation, and Enforcement (BOE) jointly announced. 

Marathon Oil Corp. agreed to pay nearly $4.7 million and Dominion Oklahoma Texas Exploration & Production Inc. agreed to pay more than $2.2 million to resolve federal claims that they improperly deducted from royalty values the cost of boosting gas up to pipeline pressures, the two federal entities said on Aug. 20. They added that the Dominion Resources Inc. subsidiary also improperly reported processed gas as unprocessed to reduce royalty payments. 

The settlements were the latest arising from a lawsuit which Harold Wright filed in 1998 alleging that several producers underpaid royalties owed on several of their American Indian leases. Private citizens may sue on the United States’ behalf under the federal False Claims Act qui tam, or whistleblower, provisions and share in any recovery. Wright’s heirs will receive $1.822 million from these two settlements because he is deceased. 

Previous settlements in the case, US ex rel Wright vs. Chevron USA Inc. et al, include Burlington Resources Corp. for $105.3 million; Shell Exploration & Production for $56 million; Chevron Corp., Texaco Inc., and Unocal Corp. for $45.5 million; and Mobil Corp. for $32.2 million, DOJ and BOE said. 

Contact Nick Snow at nicks@pennwell.com.

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Permalink Reply by Ann Ticopa on August 26, 2010 at 12:10am
Sam,

You have likely accidentally included html code in your post that triggers pop-ups to sign on to your law firm's website (Rothman Gordon).
Permalink Reply by Sam Douglass on August 26, 2010 at 3:34am
It was an accident. I went back to my posting and was not able to find what you found - but it must be there if you found it. sam
Permalink Reply by Ann Ticopa on August 26, 2010 at 4:19am
Must be your browser's popup blocker works better than mine (Firefox 3.5.4). Anyway, if you do a View - Page Source (or similar) you'll find: mail dot rothmangordon dot com in the source html ... which is the url displayed on the login popups.

(dot substituted for . so the url doesn't link in my reply.)
Permalink Reply by Sam Douglass on August 26, 2010 at 3:05pm
You are some kind of genius to know how to figure it out. sam
Permalink Reply by Ann Ticopa on August 26, 2010 at 3:58pm
I wish! But I have done a couple small websites, so am familiar with the basics.

To get back to your topic, here is another example, closer to home:

"Landowners settle with Marcellus Shale driller
Friday, July 23, 2010
By Torsten Ove, Pittsburgh Post-Gazette

Some 2,000 landowners in Pennsylvania will receive a share of $1.75 million and could get as much as $20 million over the next few years as part of the settlement of a federal class-action suit against a Texas-based gas company drilling in the Marcellus Shale.

Lawyers for Range Resources and an attorney for plaintiffs who said their royalty payments were improperly calculated by the company reached the settlement last week in U.S. District Court. ..."

http://www.post-gazette.com/pg/10204/1074682-455.stm
Permalink Reply by Sam Douglass on August 29, 2010 at 12:58pm
Of course, it is the same thing. I do not know how many issues were raised in that law suit, but the trail from the "well head" and the allocation of any expenses from there to the pipeline is complex. If the costs are to be deducted before figuring the royalty, how are the costs determined. [For example, if the cost of a gathering line is to be amortized, is it done over 5 years or 20. Are administrative charges made etc.] It seemed to me that the issues raised in the law suit your mentioned and in the Fed action that I alluded to were "no brainers." Yet the producers needed a Court to tell them what to do. Some day we will probably have to have a case to explain what the Chesapeake "Market Enhancement" clause means.

In the meantime one of the things the lessor needs in a lease is a right to audit. Some leases actually restrict any audit rights. Who will do the audit? That is not easy. Most of the people who know anything about the subject work for the industry which is short on people. sam

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