Nat-gas producers reportedly avoided royalties

Firms took advantage of inconsistent rules to get out of paying $700 million

WASHINGTON – Natural gas producers reportedly took advantage of inconsistent federal rules to avoid paying the U.S. government about $700 million in royalties in 2005, but the head of the Interior Department defended those rules and said taxpayers were not being shortchanged.

After a three-month investigation, The New York Times wrote Monday that a complicated set of federal regulations allowed energy companies to provide the Interior Department and the Securities and Exchange Commission different data when reporting the value of the natural gas they sold.
To the SEC, the industry reported a market price. But to the Interior Department, it gave a lower so-called wellhead price, which is the value of the gas before factoring in processing and transportation costs, and profit margins. Royalties are set at around 12 percent to 16 percent of the wellhead price.

If the royalty payments had been based on the market price, the Times computed, the U.S. government would have collected an additional $700 million. The paper did not allege that any laws were broken.

AP