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Activists Want Penalties Levied on Oil Companies After Tax Audit

A producing oil and gas site near homes in Erie.EXPAND
A producing oil and gas site near homes in Erie.
Chase Woodruff

Colorado has lost out on untold millions in state and local tax revenue because of the widespread failure of oil and gas companies to submit production data to regulators, a report released last week by state auditors found. Now anti-fracking activists want those regulators to do something about it.

In a complaint filed today, February 4, with the Colorado Oil and Gas Conservation Commission, activist group Colorado Rising calls on the agency to "immediately commence an enforcement action seeking penalties by issuing a Notice of Alleged Violation," and to seek the maximum penalty of $15,000 per violation per day from the offending operators.

"It does not come as a surprise that the oil and gas industry continuously fails to obey our rules and laws," Joe Salazar, Colorado Rising's executive director and a former state representative, said in a statement. "But to learn from the State Auditor that there are over 51,000 violations over a 3-year period is simply disgusting. Each day is a violation, and this industry needs to be held accountable for its gross misconduct and willful and wanton acts."

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The complaint follows a report released by the Office of the State Auditor and presented to lawmakers at the Capitol last week, which found that over a three-year period, oil and gas operators failed to submit more than 50,000 monthly well reports as required by state law. Production data from those reports is used in the calculation of severance taxes, which are levied on mineral owners based on the amount of oil, gas and other non-renewable resources that are extracted every year.

Overall, 316 out of 420 actively producing oil and gas operators failed to comply with reporting requirements between 2016 and 2018, the report found. While auditors and COGCC officials declined to give an estimate of how much revenue was lost, the report found that Colorado's effective severance tax rate was just 0.54 percent — the lowest of nine peer states analyzed by auditors.

"This audit shows how oil and gas operators have failed to pay millions in tax revenue to the state, local governments and their communities, all the while running expensive television ads to tout their contributions to the state," House Speaker KC Becker, a Democrat from Boulder, said in a statement on the audit's release. "We have one of the lowest severance tax rates in the nation, and yet operators aren’t even paying what they owe."

In testimony before the state's Legislative Audit Committee, COGCC director Jeff Robbins said that his agency wasn't previously aware of how much the state's Department of Revenue relied on well reports when collecting severance taxes.

"The commission has limited staff resources," Robbins said. "We were using our resources to ensure compliance with health, safety and welfare regulations — on-the-ground things, out in the field, et cetera. We did not have the understanding that this paperwork was very important in the intergovernmental relationship between us and [the Department of] Revenue."

In response to the audit, the COGCC agreed to implement a new, automated reporting system that will notify operators when they are delinquent on their well reports. But Robbins downplayed the audit's claim that, based on the number of potential violations, the commission could have imposed more than $300 million in fines on non-compliant operators.

"Frankly, that's not how we use our penalty and enforcement authority," Robbins told lawmakers. "We believe that our new protocol, that is automatic and in place, will establish that operators, when they realize that there is a deficiency, that they're going to get into compliance."

Robbins also told the committee that the COGCC is prevented by a one-year statute of limitations from initiating an enforcement action based on the violations identified in the audit. But Colorado Rising's complaint disputes that claim, citing two rulings from the Colorado Court of Appeals to argue that "the one year limitation does not apply to continuing violations where reporting is mandatory and where penalties are assessed on a daily basis."

The COGCC's rules establish a maximum penalty of $200 per day, per well, on operators who fail to submit monthly production reports. Colorado Rising wants regulators to go even further, and seek to penalize each delinquent operator with the $15,000-per-day fine that state law authorizes the COGCC to impose on operators who violate "any rule or order of the commission."

"As this matter involves the reporting of severance taxes, the impacts are far more severe to public health, safety, welfare, environment, and wildlife resources than just simple paperwork violations," the complaint reads. "The conduct of these oil and gas operators, related to severance tax owed to the people of Colorado, is gross negligence or knowing and willful misconduct."

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