LEBANON, Va. – For the first time in a decade, a state-run escrow fund holding millions of dollars in royalties from natural gas production belonging to mineral owners will undergo an audit, a regulatory board determined Tuesday.

Gas corporations operating in Virginia are required to pay royalties into escrow whenever they produce gas belonging to people they are unable to locate, or whose mineral ownership is in dispute. The fund was established in 1990, and has grown to more than $24 million with minimal state oversight.

A bare quorum of the Virginia Gas and Oil Board on Tuesday voted 3-1 to award the contract to the Central Virginia accounting firm of Robinson, Farmer, Cox Associates. The board’s move follows nearly a year of divisive deliberations over how thoroughly to probe gas corporations’ compliance with payments into escrow.

It comes within days of a series of articles published by the Bristol Herald Courier revealing that gas corporations don’t always make the required payments, raising questions about what is missing from escrow.

The seven members of the Gas and Oil Board had sparred over the scope of an audit, with some advocating a forensic analysis and others arguing for a more limited review. The board voted in March to award the contract to a Colorado-based petroleum accountant, but dropped the results of the vote in April and readvertised the contract in September.

Five accountants submitted bids and two were rejected, board members said Tuesday. Copies of the bids were not available by press time, and it was not immediately clear why the two bids were rejected.

Katie Dye, a public member from Buchanan County, was the lone member to vote against awarding the contract to Robinson, Farmer, Cox – the same firm that performed the last audit of the escrow fund in 1999, when it contained $3.6 million.

“My concern is that the individual who looked like she could potentially be the most qualified to perform the audit” was eliminated from consideration, Dye said before the vote.

Donnie Ratliff, the board member representing the coal industry, made the motion to award the contract to Robinson, Farmer, Cox, and it was seconded by Bruce Prather, the member representing the gas and oil industry. Butch Lambert, the board’s chairman, also voted in favor.

The Herald Courier compared production numbers gas companies report to the state with royalty payments into escrow over 18 months spanning 2008-2009. The newspaper’s analysis found:

* Between 22 percent and 55 percent of individual accounts in escrow received no payments for months when the wells corresponding to those accounts produced gas;

* Nearly 100 accounts in escrow received no payments for months when the corresponding wells produced gas for all 18 months.

Some of the discrepancies could be explained by the change in the status of a gas well that would create a separate account in escrow to receive royalties. Other discrepancies pointed to gas corporations that failed to file the necessary paperwork for royalties to be escrowed, or otherwise failed to transmit the payments into the state-run fund.

In response to the Herald Courier’s analysis, those at the Department of Mines, Minerals and Energy issued a statement acknowledging the discrepancies as a problem, and pledged to improve their ability to monitor gas corporations’ compliance.

The two corporations that dominate natural gas production in the region, EQT Corp. and CNX Gas Co., acknowledged some lapses in making payments, which company representatives credited to accidental oversights and the complexity of mineral ownership in Southwest Virginia.

The revised scope of the audit calls for the accountant to randomly select 35 individual accounts in escrow and analyze monthly payments into those accounts. The accountant should then compare the payments with expected payments based on the acreage that is subject to escrow, the monthly production gas operators report to the state, the selling price of the gas and deductions and fees taken out of the payment.

The board’s proposal for the audit authorizes the accountant to obtain relevant records from the gas operators required to pay into the selected escrow accounts, and perform a “financial and compliance audit” from Jan. 1, 2000, through Dec. 31, 2008, according to board documents.

When Robinson, Farmer, Cox last audited the escrow fund, the firm’s accountants noted that although they performed tests gauging gas corporations’ compliance with state laws and board regulations, “providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion.”

The escrow fund has been managed by Wachovia Bank – now part of Wells Fargo – since 2001. Beginning in January, Abingdon-based First Bank & Trust Co. will take over managing the fund.