As a consequence of the state's audit findings, Terra Energy will not be allowed to lease minerals on public lands. The action, taken last December by the Department of Natural Resources, followed Terra's refusal to pay back $2.3 million that the state says it owes taxpayers and the Natural Resources Trust Fund. It is the most severe sanction ever issued by the DNR for a violation of state leasing provisions.

"This is an enforcement tool," said Mindy Koch, chief of the DNR's Real Estate Division. "We won't sign any new leases with Terra. We won't extend any existing leases."

The DNR's sanction, which will be lifted upon the completion or settlement of the state's lawsuit seeking repayment of the $2.3 million in royalties and interest, is a severe blow to Terra. The Traverse-City based company, which was founded in 1981, has relied on leasing state minerals for its business. The company operates 81 Antrim production units, covering 1,959 wells across northern Michigan. Of that number, the state says 529 wells (Terra says it's closer to 400) are on state-owned land and involve tapping state minerals.

K.L. Cool, director of the DNR, has said he is committed to auditing all of the wells Terra operates on state lands. According to current estimates by DNR auditors, Terra may owe millions more dollars to taxpayers than the amount covered by the pending lawsuit.

Year #3:
The Industry's Assessment
For three years the Institute and its partners in the Michigan Energy Reform Coalition have worked to strengthen public oversight of the oil and gas industry, reduce environmental damage from operations, and require companies to be more accountable to communities.

Depite the Coalition's efforts to forge a constructive partnership with the industry on behalf of the public interest, executives have insisted on maintaining an adversarial position. Martin G. Lagina, founder of Terra Energy and outgoing chairman of the Michigan Oil and Gas Association, provided a compelling glimpse of this attitude in a letter printed in the Michigan Oil and Gas News on December 19, 1997:

To Association Members and Friends:
As my term as your Chairman draws to a close, I would like to take this opportunity to set forth all of the great things that have happened to our industry in 1997. The truth is, however, 1997 was not the industry's best year. Our critics proved to be tenacious and they seem to have excellent media access. We have been attacked on H₂S issues, drilling under the Great Lakes, PPC's,royalty payments and even force pooling standards.

And yet, despite this onslaught, the Michigan Oil and Gas Association continued to fight for your rights. Given the magnitude of our opposition, we achieved several victories. As I write this, we are finally on track for a State lease sale, thanks to the untiring efforts of our Leasing Committee. We have successfully defeated local control legislation. We have begun our PR initiatives and it is my fervent hope that all of the membership supports this effort such that it can be expanded 10 fold in the coming year. Continuing our PR is our number one priority... .

As I began my term as Chairman, I hoped in two years all our problems would be solved. Unfortunately that isn't quite the case, but I have recently decided that it would be very uncharitable of me not to pass a few issues on to my successor!

I have the highest respect and confidence in the upcoming Chairman and new officers of MOGA. With your help, this excellent organization and the fine people who work in the oil and gas industry will prevail... .