{"id":66290,"date":"2020-01-29T12:22:16","date_gmt":"2020-01-29T19:22:16","guid":{"rendered":"https:\/\/dh.durangoherald.com\/tj\/scathing-audit-finds-colorado-could-have-collected-millions-in-oil-gas-fines-but-didnt\/"},"modified":"2020-01-29T19:22:16","modified_gmt":"2020-01-29T19:22:16","slug":"scathing-audit-finds-colorado-could-have-collected-millions-in-oil-gas-fines-but-didnt","status":"publish","type":"post","link":"https:\/\/dh.durangoherald.com\/tj\/scathing-audit-finds-colorado-could-have-collected-millions-in-oil-gas-fines-but-didnt\/","title":{"rendered":"Scathing audit finds Colorado could have collected millions in oil, gas fines \u2013 but didn\u2019t"},"content":{"rendered":"\n

\"An
An extraction oil and gas drilling rig is visible behind houses along Tundra Circle in Weld County.<\/span>Andy Colwell\/Special to the Colorado Sun<\/span><\/figcaption><\/figure>\n<\/p>

Colorado\u2019s Oil and Gas Conservation Commission failed to collect thousands of monthly production reports from operators across the state over a two-year period \u2013 information that affects the accuracy of the state\u2019s severance tax collection, according to a recently released state audit.<\/p>\n

Of the 420 oil and gas operators in Colorado, 316 were out of compliance with their monthly well reporting from 2016 to 2018, submitting either incomplete reports or none at all, according to a 76-page audit report presented to the Joint Legislative Audit Committee on Tuesday.<\/p>\n

One of Colorado\u2019s 10 largest operators was called out for missing as many as 8,407 well reports \u2013 the most of any operator. The company, which the audit report did not identify by name, produced and sold 46 million barrels of oil and 187 million MCF (thousands of cubic feet) of natural gas from 2016 to 2018, based on the well reports that were submitted to the COGCC.<\/p>\n

The audit report estimates that if the COGCC imposed the maximum fine of $200 per day, per well, the state could have collected more than $308 million in penalties. The top three offenders, each missing over 5,000 reports, would account for more than $120 million of that total number.<\/p>\n

\u201cWe have seen lax enforcement of reporting from oil and gas operators, which has resulted in thousands of unfiled reports and millions of dollars in uncollected fines, and ultimately, tax dollars that could go to the state,\u201d said Rep. Dafna Michaelson Jenet, vice chairwoman of the Legislative Audit Committee. \u201c\u2026 It\u2019s not fines we want; we want producers to file their reports like they are supposed to.\u201d<\/p>\n

The Department of Revenue relies on COGCC\u2019s annual summary reports to help verify that the production amounts operators report on severance tax returns are accurate, the audit said. The missing reports likely mean that operators are underreporting their production amounts.<\/p>\n

\u201cThis highlights yet another aspect of the oil and gas industry that has gone unchecked for years, and we need a reliable reporting and compliance system so this industry can no longer skirt the system with impunity,\u201d House Speaker KC Becker, D-Boulder, said in a statement.<\/p>\n

Becker requested the audit in 2018. Last year, she pushed for the passage of Senate Bill 181, which gave more authority to local governments in regulating oil and gas operations.<\/p>\n

The problems the audit highlighted were not with the industry but with the state agencies that oversee severance tax collection, Dan Haley, executive director of the Colorado Oil and Gas Association, said in a statement.<\/p>\n

\u201cThe audit highlights several flawed processes within multiple state agencies that prevent the auditor from collecting accurate information,\u201d Haley wrote. \u201cWe\u2019re open to having conversations as one of the state\u2019s largest taxpayers.\u201d<\/p>\n

The audit found that only 10% of mine operators with active permits submitted production reports in 2017 and that the Department of Natural Resources has not produced an annual mining report since 1981, both of which are required by statute.<\/p>\n

\u201cIt\u2019s always been in place that they issue and get annual reports from producers and then they issue their own annual report on how much has been extracted. But they haven\u2019t done that. They didn\u2019t think it was something that they were supposed to do,\u201d said Derek Johnson, who helped lead the audit process. \u201cSo that\u2019s obviously part of our recommendation as well.\u201d<\/p>\n

Colorado\u2019s severance tax is imposed on the extraction of nonrenewable natural resources that are sold for profit. Tax rates vary depending on the mineral extracted.<\/p>\n

The Revenue Department does not rely solely, or even primarily, on COGCC\u2019s reporting data when calculating severance taxes, department spokesman Daniel Carr said in an email. \u201cLike any other tax return, we primarily rely on the data provided directly by the taxpayer, and in the event a taxpayer does not provide the required data, we would audit them.\u201d<\/p>\n

But individual operators might not be including their missing reports when submitting their numbers to the Department of Revenue.<\/p>\n

\"An
An Extraction Oil & Gas oil drilling rig in operation on the Livingston pad on the west side of the Anthem neighborhood in Broomfield on Aug. 2.<\/span>Doug Conarroe\/The Colorado Sun<\/span><\/figcaption><\/figure>\n<\/p>

\u201cUltimately, what we were getting at in the audit was that the two agencies within the Department of Natural Resources and the Department of Revenue are not collecting complete information that can be used to verify amounts of minerals that are extracted,\u201d Johnson said.<\/p>\n

\u201cWe can\u2019t really speak to what COGCC intends to do about these missing reports,\u201d he said, \u201cbut our recommendation is basically that moving forward they need to run these queries to find out which reports are missing and that they need to use the power of fines to force them into compliance.\u201d<\/p>\n

There are about 70,000 active wells in Colorado, making oil and gas the largest extractive industry subject to severance taxes, the report said. In 2018, operators produced 178 million barrels of oil and 2.3 billion MCF of natural gas.<\/p>\n

Colorado has one of the lowest severance tax rates in the nation. In 2018, the state collected $102.7 million in severance taxes \u2013 which gets split between the state and local governments.<\/p>\n

In fiscal year 2016-17, Colorado collected $4.2 million, but that shot up to $126.2 million the next year.<\/p>\n

\"An
An extraction oil and gas drilling rig is visible behind houses along Tundra Circle in Weld County.<\/span>du1-i-syn<\/span><\/figcaption><\/figure>\n<\/p>

At the same time that severance taxes declined, oil output in the state rose from 10.3 million barrels in January 2016 to 16.8 million barrels in December 2018, according to the U.S. Energy Information Administration. Natural gas production rose during the same period from 1.6 million MCF to 1.8 million MCF.<\/p>\n

In 2018, 177.8 million barrels of oil were produced in Colorado, up 32% from 2017, EIA reported.<\/p>\n

Colorado\u2019s Oil and Gas Commission has a one-year statute of limitation to fine operators who inaccurately report, or fail to report, their monthly production data. Meaning, everything that happened from 2016 to 2018 is moot.<\/p>\n

\u201cSo in terms of the ones that are inaccurate, we don\u2019t have a way to go back,\u201d said Jeff Robbins, director of the Colorado Oil and Gas Conservation Commission.<\/p>\n

Robbins, who was appointed in March 2019, said the commission is working to implement the recommendations made in the audit. Until the audit, he was unaware the Department of Revenue relies on COGCC records to calculate severance tax, he said.<\/p>\n

Currently, the commission uses an automated system to notify operators if their monthly report is incomplete or missing. But what the audit highlighted was that there was no mechanism within their current system to follow up after the operator has been notified.<\/p>\n

Another issue identified in the report was a lack of oversight when it came to calibrating the machines that collect the production data for producers. Robbins said that well inspectors have always looked at this, but now will document it on their \u201cchecklist.\u201d<\/p>\n

\u201cHistorically, this hasn\u2019t been a part of the field inspection, but we are adding that,\u201d he said, noting that wells typically are inspected about once every 1.7 years.<\/p>\n

Mary Ellen Denomy, who audits oil and gas companies for local tax collections in Mesa, Rio Blanco and Montezuma counties, said each year she flags two or three companies for discrepancies between production volumes and revenues.<\/p>\n

\u201cIt is like doing a full audit,\u201d Denomy said. She pulls the records for the meters on every well. \u201cThe volumes are supposed to be reported to the COGCC, but those aren\u2019t always accurate or there are gaps.\u201d<\/p>\n

Companies that have underpaid may then get audits on multiple years. But Denomy says it\u2019s hard to keep up.<\/p>\n

\u201cI can only do two or three,\u201d she said. \u201cIt is very time-consuming.\u201d<\/p>\n

Colorado Sun contributor Mark Jaffe contributed to this report.<\/em><\/p>\n

The Colorado Sun is a reader-supported, journalist-owned news outlet exploring issues of statewide interest. Sign up for a newsletter and read more at coloradosun.com.<\/a><\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

Hundreds of operators failed to file production tallies from 2016 to 2018<\/p>\n","protected":false},"author":1,"featured_media":66291,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[],"tags":[394,14,233,221,28],"naviga_topic":[],"class_list":["post-66290","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","tag-colorado-legislature","tag-colorado-state-house-of-representatives","tag-coloradosun-com","tag-gas-and-oil","tag-headlines"],"acf":[],"author_name":"dh_admin","_links":{"self":[{"href":"https:\/\/dh.durangoherald.com\/tj\/wp-json\/wp\/v2\/posts\/66290","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/dh.durangoherald.com\/tj\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/dh.durangoherald.com\/tj\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/dh.durangoherald.com\/tj\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/dh.durangoherald.com\/tj\/wp-json\/wp\/v2\/comments?post=66290"}],"version-history":[{"count":0,"href":"https:\/\/dh.durangoherald.com\/tj\/wp-json\/wp\/v2\/posts\/66290\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/dh.durangoherald.com\/tj\/wp-json\/wp\/v2\/media\/66291"}],"wp:attachment":[{"href":"https:\/\/dh.durangoherald.com\/tj\/wp-json\/wp\/v2\/media?parent=66290"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/dh.durangoherald.com\/tj\/wp-json\/wp\/v2\/categories?post=66290"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/dh.durangoherald.com\/tj\/wp-json\/wp\/v2\/tags?post=66290"},{"taxonomy":"naviga_topic","embeddable":true,"href":"https:\/\/dh.durangoherald.com\/tj\/wp-json\/wp\/v2\/naviga_topic?post=66290"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}