Shell Settles Royalty Suit for $56 Million

Shell Oil joined the ranks Thursday of major producers who have settled sizeable royalty disputes with the Department of Justice. The company has agreed to pay the U.S. $56 million to settle claims that it underpaid royalties on natural gas produced on Federal leases.

The Department of Justice (DOJ) reported that the settlement resolves allegations that Shell under-reported the value of gas produced on leases in the Gulf of Mexico from Aug. 1, 1986 to Dec. 31, 1999, and therefore paid the government less than it owed.

"The Department of Justice is committed to ensuring that the United States is fairly compensated for the sale of valuable assets from public lands," said David W. Ogden, assistant attorney general for the civil division.

Mike Bradford, U.S. attorney for the eastern district of Texas, said, "This settlement brings us one step closer to restoring to the taxpayers of the United States money due for production of natural gas from public lands. We commend Shell for settling this matter in a way that avoids further litigation, and we will continue to pursue claims against other companies that have underpaid royalties on their natural gas production."

Shell confirmed it had reached a resolution in the long-standing natural gas royalties dispute with the DOJ. "This settlement does not signify an admission of any liability on Shell's part. Shell continues to believe we have paid our royalties on natural gas in accordance with law and contract," the company said.

The DOJ has recovered more than $200 million in related lawsuits concerning underpayment of royalties on crude oil produced from federal lands including Mobil Oil, $45 million; Oxy USA, Inc., $7.3 million; Chevron, $95 million; and Conoco, $26 million. Just last Wednesday, DOJ announced that Texaco agreed to pay $43 million to settle underpaid royalties due on crude oil drilled from federal and Indian leases (see Daily GPI, Sept. 29).

Shell agreed to pay the claims to forestall long, drawn out litigation. "Shell is one of the largest producers of natural gas in the Gulf of Mexico, and over the time period in question has paid the federal government more than $2.3 billion in royalties on natural gas and natural gas liquids," Shell said in the statement. "However, we have agreed to settle in order to end this long-standing dispute and avoid further protracted litigation expense, risk, and business distraction."

Shell and the DOJ also requested a halt in court proceedings pertaining to other underpaid royalties from the production of oil on federal lands. The federal court agreed to halt the proceedings in the case in Lufkin, TX, for 60 days in hopes the parties can come to a "potentially amicable resolution of their differences," Shell said. Shell continues to maintain that it calculated and paid federal royalties by adhering to guidelines approved by the Minerals Management Service. No formal settlement agreement has been entered as of yet, Shell said.

The royalty cases were before the U.S. District Court for the Eastern District of Texas, following an investigation prompted by several civil suits filed by three industry whistle-blowers in 1998-1999 (see Daily GPI, April 5; June 2).

©Copyright 2000 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.