Units of ExxonMobil Corp. have been ordered to pay the United States $32.2 million to resolve claims that they violated the False Claims Act by knowingly underpaying royalties owed on natural gas produced from federal and American Indian leases, the U.S. Justice Department announced last week. For its part, ExxonMobil acknowledged the settlement, which occurred two years ago, but vehemently denied the Justice Department's claims that it deliberately underpaid royalties.

Mobil Natural Gas Inc., Mobil Exploration & Producing U.S. Inc. and their affiliates, which were merged into and became subsidiaries of ExxonMobil in November 1999, are alleged to have systematically underreported the value of natural gas taken from the leases from March 1, 1988 to Nov. 30, 1999, and consequently paid less royalties than owed to the United States and various American Indian tribes.

The settlement with the Mobil companies arises from a lawsuit -- U.S. ex rel. Wright v. Chevron USA, Inc. et al. -- filed by Harold Wright in Texas on behalf of the United States (see NGI, April 10, 2000). The whistleblower provisions of the False Claims Act allow private citizens to file actions on behalf of the United States and to share in any recovery. Because Wright is now deceased, his heirs will receive a $975,000 share of the settlement.

"We reject any accusation that the company deliberately underreported the value of the natural gas," said David Eglinton, a spokesman for ExxonMobil. "The settlement agreement in this case, signed by the government, expressly denies any knowing underreporting with respect to royalty."

Eglinton added that ExxonMobil's policy is to make royalty payments consistent with our legal obligations "at all times," noting that the matter announced by the government was "settled with the Justice Department in 2008."

The ruling against ExxonMobil comes at the end of a long road. The U.S. Justice Department partially intervened against the Mobil defendants in the Wright lawsuit, and previously settled with Burlington Resources Inc. for $105.3 million; Shell Oil Co. for $56 million; Chevron Corp., Texaco and Unocal Inc., which are now part of Chevron, for $45.5 million; and Dominion Exploration and Production Co. for $2 million.

"The message to those who seek to evade their mineral royalty obligations is this: We will aggressively pursue you," said Tony West, assistant attorney general for the Civil Division of the Department of Justice. "We at the Justice Department are committed to protecting the public trust by ensuring that those who remove valuable minerals, some of which are nonrenewable, from American Indian or public lands pay their full, fair, negotiated share for those assets."

The United States in the case alleged that the Mobil companies used transactions with affiliated entities to falsely reduce the reported value of gas taken from federal and American Indian leases, to claim excessive deductions for the cost of transporting that gas, and to otherwise understate the value they reported each month for their natural gas production.

"This settlement closes another important portion of long-standing litigation that MMS [Minerals Management Service] participated in to ensure that taxpayers receive their fair share of royalty revenues from energy production that occurs on federal lands," said MMS Director Liz Birnbaum. "The revenues collected from the settlement will be disbursed to appropriate federal, state and American Indian accounts that were impacted by the underpayment of royalties."

The investigation and settlement with ExxonMobil was jointly handled by the U.S. Attorney for the Eastern District of Texas and the Civil Division of the Department of Justice, with the assistance of the Department of the Interior's Office of Inspector General, MMS and Office of the Solicitor.

©Copyright 2010 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.