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Idaho Readying First Audit of Oil, Gas Wells

Idaho's Department of Lands (IDL) has started the process for the state's first audit of oil and natural gas wells operated by Texas-based Alta Mesa Holdings LP, the lone producer in a state that realized its first production only three years ago.

IDL began this week developing a request for proposals (RFP), and it expects to sign a contract by Aug. 1. Idaho lands officials have collaborated with similar agencies in Texas and North Dakota to develop the RFP.

While the state is still trying to set a range for the eventual cost of each well's audit, "the IDL will establish a regular auditing cycle, like every three to five years," said a spokeswoman, who told NGI the RFP should be ready soon.

Alta Mesa operates all three wells to be audited, she said, and most oil and gas producing states with state leases “conduct audits every three to five years.” Nine wells currently are producing in Idaho, with some getting workovers and others rotating in and out of production. The three audited wells are the only ones involving state leases.

"We would add to the audits only if future wells are drilled where there are state land leases," she said. The initial audits are intended to "help IDL understand and build staff knowledge of an auditing process and establish a baseline for future schedules; it is not because we think there is an issue with potential loss of royalty revenues."

Alta Mesa spokesman John Foster told NGI’s Shale Daily that the planned audit would bring the state into line with other producing states, "hitting each relevant well every three to five years.

"The audit approved this week is not in the state's capacity as a 'regulator,’ but rather in its capacity as an owner of minerals," he said. Idaho “is commissioning a review of payments and royalties similar to what working interest partners or nonworking interest owners do."

IDL's analysis, which was presented to the Land Board on Tuesday, said states with significant production have spent up to $500,000 per audit. Idaho is looking for a more modified "desk-audit" review to keep costs under $100,000. The initial audits should be completed in September, with a formal report to the board expected by November.

In March, the Idaho state legislature passed a bill to rewrite oil and natural gas rules that eventually was supported by Alta Mesa, which initially had expressed concerns about the state trying to "nationalize" its fledgling energy activity.    

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