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Chevron Settles Gas Royalty Case for $45.6M

Chevron Corp. has agreed to pay nearly $45.6 million to resolve claims that it and predecessor companies (Texaco, Unocal Inc. and their affiliates) violated the False Claims Act by knowingly underpaying royalties owed on natural gas produced from federal and Indian leases, the U.S. Department of Justice (DOJ) said late last month. Three other producers previously settled with DOJ in the nearly 10-year-old case.

Companies are required to report monthly to the U.S. Minerals Management Service (MMS) the value of gas produced from their federal and Indian leases and to pay a percentage of the reported value as royalties. The settlement resolves claims by the United States that the Chevron, Texaco and Unocal companies improperly deducted from royalty values the cost of boosting gas to pipeline pressures, used affiliate transactions to falsely reduce the reported value of gas taken from federal and Indian leases and improperly reported processed gas as unprocessed gas to reduce royalty payments.

"This settlement successfully ends long-standing litigation and ensures that taxpayers receive their fair share of royalty revenues from energy production on federal and American Indian lands," said Interior Secretary Ken Salazar. "Most of the $45 million settlement will be disbursed to appropriate federal, state and American Indian accounts that were affected by Chevron companies' underpayment of natural gas royalties and improper deductions. This administration is changing the way Interior does business, and settlements, such as this one, demonstrate our determination to assure the American public receives fair market value for the resources we manage in their name."

The settlement resolves allegations under the False Claims Act that the Chevron companies systematically under reported the value of natural gas that they took from federal and Indian leases from March 1988 to November 2008 and, consequently, that they paid less royalties than they owed to the United States and various Indian tribes.

The case began with a lawsuit filed in federal court in Texas by Harrold Wright under the whistle-blower provisions of the False Claims Act, which allow private citizens to file actions on behalf of the United States and share in any recovery (see NGI, April 10, 2000). At the time an attorney for producers criticized the MMS and said the government was trying to impose new regulations after the fact by way of the whistle-blower case (see NGI, June 5, 2000).

Because Wright is deceased, his heirs will receive more than $12.3 million plus interest as part of this settlement. Wright's suit alleged that a number of companies systematically underpaid royalties due for their production of gas from federal and Indian lands. DOJ previously settled with Burlington Resources Inc. for $105.3 million, Shell Oil Co. for $56 million and Dominion Exploration and Production Co. for $2 million.

"Mineral royalties provide an important source of income for Native Americans, the United States, and various States. The Department of Justice is committed to protecting public and Indian lands and to ensuring that companies with leases to take natural gas from those lands pay their fair share of royalties," said Tony West, assistant attorney general for the Civil Division of DOJ.

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