Royalties & Government Lease Fraud

Handled by Experienced Salt Lake City Whistleblower Lawyers

Since 2011, management of federal oil and gas resources have been on the U.S. Government Accountability Office‘s list of programs that are at high risk of waste, fraud, and abuse.

In the Western United States, large tracts of land are owned by the federal government and managed by the Department of the Interior — usually through the Bureau of Land Management (BLM). The Department of Interior (DOI) is responsible for the management of some 700 million acres of public lands and over the last 10 years alone, has leased nearly 30 million acres for oil and gas, resulting in billions of dollars in royalties.

In Utah, not including trust lands, some 57% of the state’s land is owned by the federal government. Nevada is the highest, with nearly 85% of the state federally owned. Idaho is 50% federally owned, and Wyoming is 42% federally owned. Despite the ownership of the land, most of the land under federal control is made available for a variety of uses, such as mining, oil and gas extraction, cattle grazing, timber harvesting, and similar commercial enterprises.

Contact us today at (801) 901-3470 to speak with one of our knowledgeable whistleblower attorneys in Salt Lake City.

Commercial users of these federal lands are required to lease the land or its resources and pay the government for the use of, and/or the extraction of, these resources. For most commercial uses of public lands, the commercial user owes fees and payments to the Federal Government for those uses. In general, leases for such things as oil or gas production are based upon a royalty to the government of at least 12.5 percent of the value of the amount extracted. Of course, the government doesn’t have enough inspectors to accurately measure the amount extracted from federal leases.

High Risk of Waste, Fraud & Abuse

Beginning in 2011, the U.S. Government Accountability Office (GAO) reported the management of oil and gas production on public lands and water was at, “high risk” of waste, fraud, and abuse. In addition, there are many indications that under-reporting of the tonnage or value (that is, the quality as well as weight) of extracted coal is also taking place. The 2013 GAO update report concludes that DOI cannot meet requirements for production-level verification, resulting in “missing data, errors in company-reported data…, sales data that did not reflect prevailing market prices…, and a lack of controls over changes to the data that companies reported. …. potentially placing both the environment and royalties at risk.”

Note that these are all indications of fraud.

False Claims Act

These fraudulent under-reporting activities are actionable under the False Claims Act. The schemes constitute a reverse false claim. The False Claims Act allows a whistleblower to bring a case where the defendant makes a false record or statement to fraudulently reduce the defendant’s obligation to pay money to the United States. In these cases, it is presumed that an individual is holding money or property that rightfully should belong to the government, and conceals, avoids, or reduces the obligation to pay it to the government. The actions of the lease holder to change records, under-report the amount of oil or gas extracted, under-report the amount of timber harvested, claimed that the coal extracted from a mine on land leased from the government was of a lower quality and lower value, and many other schemes constitute reverse false claims.

Of course, in such organizations, fraud schemes are not carried out by one or two individuals. Many others, from field engineers through accounting and bookkeeping personnel, to mid – and – upper-level executives know that fraud is occurring. They also know that the government doesn’t have enough field inspectors to police these obligations. It often is simply a case of “catch me if you can”. However, when caught, the schemes also can result in massive fines and penalties as well as criminal indictments for those in the company involved.

If you have information about oil and gas royalties or federal lease fraud, contact the experienced whistleblower attorneys at Eisenberg, Gilchrist & Cutt Attorneys at Law right away.

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