B. Charles Rogers Gas Ltd.: False NGL Statements and Royalty Underpayments

B. Charles Rogers Gas Ltd. and three individuals agreed to a $4.375 million royalty settlement over allegations that false statements understated the volume and value of natural gas liquids purchased from producers. The Justice Department said those statements caused federal lessees to underpay royalties. For someone who knows the liquids sold or the statements sent to producers, the case shows how a marketer’s figures can reach a royalty account through another company’s reporting.

This page follows the marketer’s statements into the producers’ royalty calculations and the civil settlement that followed. Our page on how federal oil and gas royalties are calculated, reported and paid explains the broader production and payment chain.

How Did a Gas Marketer Cause Royalty Underpayments?

When a gas marketer understates natural gas liquids on a transaction statement, a producer using that statement can calculate too little royalty. That was the connection the Justice Department alleged in the B. Charles Rogers Gas case: false information about purchases reached the federal royalty calculation through the producers who received it.

The Interior Department’s Office of Inspector General described the underlying conduct in its December 9, 2019 summary of the criminal investigation. It reported that the company bought gas from producers with federal, Indian, state and private leases in the San Juan Basin of New Mexico and Colorado from 2003 through 2015. The investigation found that the company’s owners and a gas supply originator conspired to defraud approximately 30 oil and gas companies.

The gas supply originator bought aggregate gas packages from B. Charles Rogers Gas, according to the Inspector General’s investigation summary. The participants supplied producers with transaction statements understating the volume and value of natural gas liquids purchased. The company sent false monthly statements and paid the producers far less than it owed them. The summary also described allegations that the marketer overcharged companies producing gas from federal wells in New Mexico.

According to that investigation summary, the owners and the gas supply originator knew the true volumes and prices and shared the fraudulent profits. We see a royalty bill built on figures the buyers knew were false. The statement knew less than the people sending it.

The Inspector General found that the producers unknowingly failed to calculate their federal and tribal royalties properly because they relied on the false statements. The same false information reduced what the producers received and what they calculated they owed the mineral owners.

The U.S. Attorney’s Office for the Northern District of Texas prosecuted the criminal case, according to the Inspector General’s summary. All three individual participants pleaded guilty to conspiracy to commit wire fraud.

What Records Can Show Understated Natural Gas Liquids?

Understated natural gas liquids can show up when the producer’s transaction statement is compared with the underlying liquids recovery, product allocation and sales records. The useful comparison follows the same product, lease and month into the royalty report and payment account. For an insider in plant operations, gas marketing or revenue accounting, those connections give a disputed statement its meaning.

Plant Output and the Producer’s Statement

The allegation concerned liquids, so the comparison needs more than a total gas figure. Gas accounting gives unprocessed gas, residue gas and gas plant products different valuation paths. Plant output and allocation records help connect the liquids sold with the production credited to a particular owner.

The sales contract, purchaser’s statement and pricing point supply the commercial side of that comparison. We connect them to the plant records to examine both parts of the allegation: how much product the statement recognized and what value it assigned to it.

The Statement’s Path Into the Royalty Account

The Office of Natural Resources Revenue’s Minerals Revenue Reporter Handbook identifies the fields that connect a royalty report to the underlying transaction: lease, sales month, product, volume, value and allowances. Form ONRR-2014 carries sales and royalty remittance information. A marketer’s statement can supply information used in that report even though another business submits it.

Original, reversal and replacement report lines show how the reported amount changed, while the payment ledger shows the cash applied to the royalty account. We follow the transaction through those records to see where the understated figure entered the calculation and what payment followed it.

The producer’s reporting work and the marketer’s statement preparation are separate parts of that inquiry. An employee may know the plant allocation or purchaser’s settlement, while another knows who approved the figures sent to the producer. Our work on connecting measurement records to payment brings those accounts together around the particular transaction.

Is the Royalty Owed to the United States, a Tribe or a Private Owner?

The mineral ownership and lease identify who is owed the royalty. The United States, a tribe, an individual Indian mineral owner, a state or a private lessor can hold that interest, while another business operates the well, markets the gas or pays the royalty.

The distinction matters in the B. Charles Rogers Gas story because the Inspector General described purchases involving several kinds of leases and royalty shortfalls affecting federal and tribal interests. The Justice Department’s civil account addressed false records material to producers’ federal royalty obligations.

For mixed production, the lease and tract allocation records connect a producer’s shortfall to the mineral owner who lost royalty revenue. Federal administration does not turn tribal or individual Indian mineral interests into federal property.

What Did the B. Charles Rogers Gas Settlement Resolve?

The Justice Department’s May 1, 2019 announcement described a civil resolution over false records affecting producers’ royalty obligations. B. Charles Rogers Gas and its owners agreed to pay $3.575 million, and the separate settling participant agreed to pay $800,000. The latter worked with the marketer while employed as a gas supply manager at a Houston natural-gas distributor. The Justice Department said the company and the three individuals admitted and accepted responsibility for making, using or causing false records material to the producers’ royalty obligations.

The Justice Department’s Civil Division, the U.S. Attorney’s Office for the Northern District of Texas and Interior’s Office of Inspector General handled the case. The Inspector General’s later report described the civil payment as a recovery of unpaid federal mineral royalties owed to the Office of Natural Resources Revenue.

B. Charles Rogers Gas: False Statements Before the Royalty Report

The marketer’s role gives this case a different starting point from a royalty case focused on the payor’s own deductions. In the Justice Department’s settlement with XTO Energy, the allegations included deductions for costs of putting gas into marketable condition. The B. Charles Rogers Gas case instead follows a marketer’s purchase information into another company’s royalty calculation.

For someone who works with producer statements, the significant knowledge may sit before the royalty report is prepared. You may know which plant record supplied the volume, which sale supplied the value or why the figure sent to the producer differed. We connect that knowledge to the statement’s use, the royalty obligation and the business decisions behind the discrepancy.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. Our energy whistleblower rewards page explains the connection between the public money involved and the potential reward, while we work with you on the specific records and conduct you know.

You Know the Numbers Behind the Producer Statement

If you know why the liquids on a producer’s statement came up short, speak to one of our Whistleblower Experts about how the royalty went unpaid. We build your royalty case around the connection between the product, the false statement and the unpaid obligation, bringing in oil and gas royalty whistleblower lawyers who understand marketer and producer records. You bring the view from inside the business, and we stay beside you as the case develops.