Investigators probed BP for underpaying royalties

The Department of the Interior's inspector general spent years investigating BP America Inc. for allegedly underpaying the U.S. government by millions of dollars in royalties.

A report not shared with the public but obtained by Greenwire under the Freedom of Information Act (FOIA) found BP and Encana Corp. "improperly reported production" at two units in Wyoming's Jonah Field -- one of the largest onshore gas fields in the country.

An official with Interior's Office of Natural Resources Revenue (ONRR) -- his or her name was redacted from the report -- charged that BP "incorrectly reported oil and gas production," resulting in "a net underpayment of $7.9 million in federal mineral royalties." That allegation led to the Interior IG investigation that began Dec. 1, 2008.

Members of the Interior inspector general's energy investigations unit interviewed auditors with the Wyoming Department of Audit's Mineral Audit Division, who found that Jonah Field's reporting issues were "a mess." They also spoke with an unnamed ONRR official who said a compliance review "discovered significant under-reporting."

In addition, investigators spoke with several BP employees and those working for Encana as well as subpoenaing records from many energy companies. Yet in the IG's final report of investigation -- dated April 4, 2011, more than two years after the probe started -- it appears that BP was not found in violation of the law.


Further, it's unclear from the report whether IG officials determined how much BP underpaid in royalties or even whether the government recouped any money from the energy giant.

The inspector general's investigation, which found that BP and Encana had "improperly reported production" on two Jonah Field units, was discussed with the U.S. Attorney's Office in Colorado.

"It was determined that the investigation did not find any violations of the False Claims Act, and the [U.S. attorney] declined to pursue the matter further," said the report.

The report was then "referred to ONRR for consideration and administrative action as deemed appropriate." The BP case was listed by the Interior IG as a closed investigation in 2013.

Steve Hardgrove, the Interior IG's chief of staff, said his office never received formal follow-up from ONRR on what action, if any, was taken against BP or other alleged violators.

In a statement, ONRR spokesman Patrick Etchart confirmed that the IG referred the BP case to the office and said its investigation was still ongoing.

"The matter was turned over to ONRR's Office of Enforcement, where the investigation is continuing," Etchart said. "If the investigation determines violations of federal reporting requirements occurred, ONRR will initiate appropriate action."

Jeff Dorschner, a spokesman for the U.S. Attorney's Office in Colorado, declined to discuss details of the case but said to run afoul of the False Claims Act, one must lie with intent.

"Although we will not discuss the facts or specifics of our deliberative decisionmaking process in any particular case, including this one, the False Claims Act requires more than a showing of inaccuracy," Dorschner said.

"It requires a showing of intentional misrepresentation, a much higher and more challenging burden. For example, negligence is not enough -- there has to be knowledge and intent to make a misrepresentation to proceed under the False Claims Act."

BP and Encana are no longer operating in Jonah Field.

"We were never fined or penalized, and to our knowledge, the matter is closed. We divested of the Jonah Field earlier this year," said Doug Hock, an Encana spokesman.

In June 2012, BP announced that it was selling its gas operations in Jonah Field.

"Once made aware of the matter, BP worked closely with federal regulators to respond to questions associated with historic royalty reporting and the Jonah Field," said Brett Clanton, a BP America spokesman.

"While BP no longer operates the Jonah Field and sold its ownership stake to another company in 2012, BP will continue to cooperate with our regulators should questions remain. BP is committed to complying with the rules and regulations applicable to our business."

IG mulls policy change

BP and its affiliates have struggled before to pay the correct royalties to the government, leading to ONRR fines in recent years.

In September 2011, BP Amoco Corp. agreed to pay $20.5 million for underpaying gas royalties. In addition, BP America paid a $5.2 million civil penalty in July 2012 for misleading reporting on energy production on Southern Ute Indian Tribe lands in Colorado.

BP has had a contentious relationship with the government of late considering the billions of dollars the company has incurred from fines and settlements due to its role in the 2010 Deepwater Horizon disaster. Considering the company's high profile from the Gulf of Mexico spill, it's surprising that the Interior inspector general didn't release a public report of its investigation into the company.

Hardgrove with the Interior IG said the office's current policy is to publicly post an investigative report if three individuals ask for it through FOIA.

For the BP case, that threshold wasn't met and so the report was not released.

Hardgrove acknowledged that the case might qualify as one of national interest. The issue simply was never discussed at headquarters, he said, considering the investigation took place in a regional IG office with a special agent writing it for prosecutors, not public dissemination.

Hardgrove said that IG officials are in the process of developing a policy with "broader criteria" to ensure reports that have national interest are released, even without the requirement that a report must be requested three times (see related story).

The policy, if implemented as drafted now, would have proactively identified the BP case as one of public and media interest "because of the history of the company in the Gulf, the amount of money that appeared underreported and because of prior media coverage," Hardgrove said.

Reporters Emily Yehle and Phil Taylor contributed.

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