The Department of Interior on Wednesday slapped BP America Inc. with a $5.2-million civil penalty for submitting "false, inaccurate or misleading" reports regarding natural gas production on Southern Ute tribal land in southwestern Colorado.
It was believed to be the largest civil fine the department has levied since penalties were authorized by federal law in 1982.
It was also the first punishment meted out by the newly constituted Bureau of Ocean Energy Management, Regulation and Enforcement, which replaced the beleaguered Minerals Management Service, or MMS, last month. The new agency oversees offshore energy leasing and production as well as management of onshore federal oil and gas leases.
Tribal auditors first brought the errors to the attention of BP three years ago after discovering that the company's reports included incorrect royalty rates, sales prices and production data related to the leases. All of those factors are used to compute the amount of royalties BP owed to the tribe.
After repeated notification and an order from the MMS, the company agreed to correct the problem, which it attributed to errors in automated files. But later audits from MMS and the tribe showed that the errors continued, even after BP said it had resolved the issue.
Collectively, the company racked up 25,949 violation days across the leases it held on Southern Ute land, according to a spokesman for the newly created bureau. The last of the discrepancies was corrected May 27, he said.
BP spokesman Toby Odone said the discrepancy was a "coding error" that had no bearing on royalties. He said the company was considering whether to appeal the fine.
The amount of the fine, though small in relation to BP's multibillion-dollar annual revenue, nonetheless represents a serious response from Interior, which in 28 years has levied only $35 million in civil fines to the oil and gas industry.
The punishment announced Wednesday reflects what federal officials said was a pattern of behavior by BP that seemed to disregard the importance of filing accurate monthly reports. That, according to Michael R. Bromwich, director of the ocean energy management bureau, led the government to conclude "that BP's continued submission of erroneous reports was knowing or willful."
"It is simply unacceptable for companies to repeatedly misreport production, particularly when it interferes with the auditing process," Bromwich said. "We are committed to collecting every dollar due from energy production that occurs on federal and American Indian lands, and accurate reporting is crucial to that effort."
Testifying before the House Natural Resources Committee on Wednesday, Bromwich highlighted the fine as a signal of the new agency's determination to watch the industry carefully.
"This has been in the works for a while. It's not something that I produced in eight days," Bromwich told the committee. "But it does reflect a seriousness of purpose and an intent to be aggressive in pursuing violations of companies' obligations in their dealing with royalties and other aspects of the programs under my bureau's supervision."
MMS had pursued cases against oil companies that did not include civil penalties. In 2003, it reached a $49-million settlement with Shell Oil Co. over charges of unauthorized burning or venting of natural gas at some of its facilities in the Gulf of Mexico. The case arose after MMS discovered in 1998 that Shell had continuously flared or vented between 1 million and 6 million cubic feet of natural gas a day from oil tanks on a platform in the gulf.
The agency found that the unauthorized practice had been going on for four years.