Garfield County’s first gas audit to focus on industry’s biggest producers

GLENWOOD SPRINGS Mere practical considerations are driving Garfield County Assessor John Gorman’s decision to focus first on three companies as he begins auditing local natural gas production.Gorman plans to have a consultant look first at the 2001 production of Williams Production RMT, EnCana Oil & Gas (USA) and Petroleum Development Corp. Gorman said he’s going back to 2001 production and moving forward from there so he avoids running into statute-of-limitations restrictions on how far back the audit can go.He said he chose those three companies because they were the biggest 2001 producers in the county, so the audit will cover a major part of oil and gas production for that year.”We need to start with where the most production was at the earliest date,” Gorman said.Garfield County commissioners last week approved paying up to $250,000 to Martindale Consultants to audit gas production for the reporting years of 2002 through 2007. Each reporting year is for production the previous year, Gorman said.Gorman was out of town attending a mandatory training for Colorado county assessors last Monday so he was unable to attend the meeting when commissioners acted on the contract. But he said he participated by telephone with them in a closed-door meeting that preceded that decision. He elaborated on his audit plan in an interview later in the week.Gorman, a Democrat, successfully unseated Republican incumbent Shannon Hurst last year based largely on an election campaign promise to audit energy production. He has contended the industry, a chief source of revenues for many taxing districts in the county, may have underpaid taxes by millions of dollars.The county plans to expand the audit to many more companies for later reporting years. In part, it’s a matter of fairness, Gorman said.”We shouldn’t just pick on the big boys. We should treat everyone with the same kind of scrutiny,” Gorman said.Ideally, he said, the county at some point would audit all companies’ production.Gorman said Martindale Consultants will bring a range of applicable skills to the audit. It has staff who have been accountants in the energy industry, been involved in assessors offices, or worked as certified public accountants, he said.He said he couldn’t talk about everything they would look at. However, they first will examine sample months in a year, and consider things such as revenue streams, gas sale prices, costs, deductions – “everything that goes into making a declaration,” he said. Gorman said the assessors office has the power to demand that a company provide all production and sales records that are used to come up with the declaration made to the county.Gas production reporting already has been an issue for Williams in lawsuits brought by royalty owners. Gorman said another challenge with Williams arises from the fact that it and its affiliated companies own wells, pipelines and even power plants, which make it hard to identify the price of the gas that should be reported to the county. Williams also had been the target of an audit by Hurst.Gorman said he also has learned that some smaller companies have grown so quickly that their internal accounting was insufficient as they scrambled to get reports out by deadlines.”It’s not simply dealing with a situation where people are actively trying to misrepresent. They aren’t able to get the job done with the resources that they have sometimes,” Gorman said.”We just feel that there is an obligation for us to see what has actually happened.”At the time of Gorman’s election, energy companies took issue with his contention that they have significantly underreported gas revenues, but they said they stand ready to work with him when the auditing occurs.Williams spokesperson Susan Alvillar said this week, “As with Assessor Hurst, we’ll continue to fully cooperate with Mr. Gorman. If we do owe more money we will pay it like we have in the past.”Alvillar also praised Gorman for making a point to tour Williams’ facilities since his election.”He’s really made an effort to get to know firsthand what we do, by being out in the field. So I have to commend him on his first year in office for taking the time to learn about our industry,” she said.