Natural Gas Marketer Settles Royalty Fraud with Department of Justice

A recent settlement serves as a reminder that companies in the energy sector that do not directly do business with government agencies can still be subject to federal procurement enforcement laws with severe consequences.  On May 1, 2019, the Department of Justice announced that it settled False Claims Act allegations with B. Charles Rogers Gas Ltd. (“BCR”), a natural gas marketer operating in the San Juan Basin area of New Mexico and Colorado, and three individuals who were BCR’s principals for $4.375 Million. 

Even though BCR did not have any government contracts, while operating as a gas marketer in the San Juan Basin, BCR allegedly issued false transaction statements to producers in connection with its gas purchases. These false transactions statements, in turn, caused the producers to underreport the volume and value of the natural gas liquids that BCR purchased. Because many of the producers had federal gas leases, BCR’s fraudulent conduct caused those producers to underpay royalties owed to the United States on gas removed from federal lands under those leases.

For decades, the civil False Claims Act has been the government’s primary tool for enforcing fraud and abuse perpetrated against federal programs.  The Act imposes liability against any person who “knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval” (31 U.S.C. § 3729 (a)(1)(A)), as well as any person who “improperly avoids or decreases an obligation to pay or transmit money or property to the Government” such as under-reporting royalty payments owed to the government. 31 U.S.C. § 3729 (a)(1)(G).  Any person found liable under the Act is subject to treble damages plus between $11,181 and $22,363 per claim.

A copy of the Justice Department’s press release announcing the settlement can be found here.