DNR Audit Finds $600,000 Unlawfully Withheld by Oil Industry
Post production cost investigation expands
December 1, 1997 | By Hans Voss
Great Lakes Bulletin News Service
Five oil and gas companies improperly withheld $560,715 from public royalty payments, according to a Department of Natural Resources report released last October. T h e report summarized the first phase of a DNR audit of all 22 oil and gas companies that operate Antrim wells on state land.
According to Tom Benson, Chief of the DNR's Office of Internal Audit, the state will make sure that a l l unauthorized deductions are paid back to Michigan's citizens. Royalties from oil and gas development on public lands are earmarked for t h e Natural Resources Trust Fund, which finances the purchase of wildlands, parks, and recreation areas.
The audit, conducted by two private accounting firms in cooperation with the DNR, reviewed some of the "post production cost" (PPC) deductions of five companies. (see chart). A total of 321 active wells were audited.
There are more than 5,000 Antrim wells in Michigan, about one-third of which are on state land. If future audits produce comparable results, the public will be entitled to millions of dollars in back payments.
Of the five Antrim operators audited, it was Shell Oil, one of the country's largest energy companies, that had the worst results, owing $332,103 to the Trust Fund. The audit revealed that most of Shell's violations were unauthorized deductions, while about one-quarter were due to a lack of necessary documentation. The DNR has given Shell extra time to produce the paperwork.
Marvin Schneider, Shell's Manager of Business Development and Regulatory Affairs, attributes the audit results to "some serious errors in bookkeeping."
"It's an embarrassing situation for us. But let me assure you, there has been no intent on anybody's part in Shell to cheat anybody," Mr. Schneider said.
In a prepared statement, Frank Mortl, President of the Michigan Oil and Gas Association, said the discrepancies turned up by the audit are "considered normal given the complexity of the guidelines and the large number of costs to be analyzed and classified."
Peter Vellenga, a Boyne City attorney who was a persistent advocate for the audit, does not consider the missing half-million dollars "normal." He joins other critics who contend the results show the special treatment given to the oil and gas industry.
"If this had been done in any other situation, it would be called a breach of contract," Mr. Vellenga said.u