Hundreds of Colorado oil, gas and mining operators have not been reporting the full extent of their business operations to regulators, depriving the state of an unknown amount of tax revenue, according to a new audit released Tuesday.
The review by the Joint Legislative Audit Committee looked at two years of state records between 2016 and 2018 and found the Colorado Oil and Gas Conservation Commission and other state offices failed to collect some required oil and gas production and mining information, which the Colorado Department of Revenue uses to determine how much individual producers owe in severance taxes.
Severance taxes are meant to recoup a share of the state’s wealth that’s lost when nonrenewable natural resources like oil and coal are removed from the earth and sold for profit.
Of the 420 oil and gas operators that were actively producing in the audit’s two-year time frame, “316 submitted 1,209 incomplete monthly well reports and/or failed to submit as many as 50,055 required monthly well reports,” the audit found. In most cases, the COGCC did not try and contact the operator to ensure accurate information was submitted.
“It would be speculative to try to come up with an understanding of what (tax revenue) was missed,” said Jeff Robbins, director of the COGCC. “The best we can do at this point is ensure going forward things are not missed.”
In just one example the audit highlighted, an operator failed to submit more than 1,100 reports. That meant 850,000 barrels of oil and millions of cubic feet of natural gas were not reported. While a small percentage of the state's total production, the losses totaled roughly $2.7 million.
The findings drew responses from several lawmakers, including Rep. Dafna Michaelson Jenet (D-Commerce City), the audit committee’s vice-chair, who called it “astounding.”
“This reveals years of noncompliance by oil and gas operators,” Michaelson Jenet said in a statement. “(Severance tax) money is critical for local governments, and is intended to be used for infrastructure projects in communities impacted by the extraction industry.”
A spokesman for Gov. Jared Polis told KUNC that the COGCC is working to implement changes outlined in the audit.
“Our administration is focused on transparency, and serving as good stewards of Colorado’s precious natural resources,” the spokesman said.
The solutions to the problems include two main changes, COGCC director Jeff Robbins told KUNC. They include more rigorous monitoring of oil and gas measurement equipment in the field and using new technology to automatically notify operators via email if their paperwork is missing or incomplete.
“We now understand that the Department of Revenue relies upon the production reports that we receive monthly as it collects taxes,” Robbins said. “We were not aware of that reliance before.”
The amount of severance taxes the state collects depends on the amount of minerals operators extract in a given year. In 2018, for example, the state collected $102 million. In 2015, during a big boom in the oil and gas industry, that number was $292 million.
At least one environmental advocacy group took the audit’s release as an opportunity to criticize the industry for not accurately reporting their production information.
"For years, the oil and gas industry has spent millions of dollars on lobbying and public relations to tell us how much they contribute to Colorado, when the reality is that they aren't paying their fair share,” said Kelly Nordini, executive director of Conservation Colorado. “It's past time for industry to put the health and safety of communities, workers and the environment first."
In a statement, Dan Haley, director of the Colorado Oil and Gas Association, said the industry pays more than its fair share in property and severance taxes each year. Instead, Haley said, regulators should be held accountable for not keeping track of production information.
“The audit highlights several flawed processes within multiple states agencies that prevent the auditor from collecting accurate information among these agencies,” Haley said.