DENVER – Nearly a third of the city-owned oil and gas wells on Denver International Airport property are losing money, according to a new report. A third-party examination commissioned by Auditor Timothy M. O’Brien, CPA, found unprofitable wells and significant payments to vendors outside the single party contract in place for well operation and maintenance.
“The airport needs to take a closer look at whether it’s a good idea to continue operating wells that could be costing — instead of making — money on the airport’s land,” Auditor O’Brien said.
Auditor O’Brien engaged local accounting firm CliftonLarsonAllen LLP to examine the operation of the airport’s oil and gas wells by PetroPro Engineering, Inc. The city entered into an agreement with PetroPro to operate and maintain the wells for up to $3.6 million from November 2016 through October 2021.
After looking at the lease operating expense reports for January 2017 through September 2017, the team found 26 of the 71 wells on airport land were losing money. Six of the wells were shut-in or temporarily abandoned and only incurred minimal management and operating costs. However, the other 20 wells were not only operating at a loss, they were expected to produce less and cost even more over time. From January to September of 2017, the wells lost more than $220,000. All the airport’s wells together brought in a little more than $617,000 for the same time period.
“If we are going to be in the oil and gas business, we need to make sure it’s worth it,” Auditor O’Brien said.
Auditor O’Brien and the examination team recommend a well-by-well review of each one that is losing money and is not shut-in or abandoned. The airport should determine whether it should continue to produce oil and gas from these wells or shut them down to save money on maintenance and operations.
The examination also found the airport is paying significant amounts of money beyond the payments to PetroPro for operations and maintenance of the wells. These extra payments went to outside vendors not subcontracting with PetroPro under the agreement with the city.
In one example from September, the airport paid $53,692 to PetroPro for management fees, operating fees and reimbursable expenses. However, the airport also paid another $151,000 to outside firms for work primarily on one well including trucking, tool rentals, water hauling and workover rig work. These were costs above and beyond the payments made to PetroPro. The total cost for September added up to $204,971. The average monthly total for monthly operating expenses paid to PetroPro and outside companies was $115,575.
Auditor O’Brien recommended the airport analyze the total costs of operating the oil and gas wells to see if the current practice of paying both PetroPro and other companies makes the best business sense.
Finally, the examination identified weaknesses in documentation retention related to evaluating bids for work at the airport and revenue recording internal controls. The airport agreed with all four of our recommendations and plans to finish making changes by mid-May of 2018.
“Nearly a third of Denver airport’s oil and gas wells are not losing money, an audit says. Should they be plugged?” – Denver Post – March 15, 2018
“DIA’s oil and gas wells not big money makers, audit finds” – Denver Business Journal – March 15, 2018
“DIA is operating oil and gas wells at a big loss” – Colorado Politics – March 20, 2018