Mediation efforts to resolve a high-profile royalty lawsuit brought by an Anadarko Petroleum company against the Interior Department have failed, according to documents filed in federal court in Louisiana Thursday.

"Although the parties participated actively in the mediation, their differences were too great to allow settlement of the case...The parties do not believe that further mediation efforts will be productive," said Kerr-McGee Oil & Gas Corp., which Houston-based Anadarko acquired last year, and the Interior Department in a joint report filed with the U.S. District Court for the Western District of Louisiana.

Last July, Kerr-McGee agreed to put its lawsuit on hold while it participated in mediation efforts with Interior over the recovery of royalties on production from deepwater oil and natural gas leases in the Gulf of Mexico.

The lawsuit, which was filed in March 2006, challenged an Interior decision ordering Kerr-McGee to pay $108 million in royalties on production stemming from leases that were acquired in 1996 through 2000 under the Deep Water Royalty Relief Act of 1995. The producer contends the 1995 law did not authorize the agency to include price triggers for oil and gas in any leases sold during the five-year period that, when exceeded, would require producers to pay royalties on certain volumes.

The Government Accountability Office (GAO) has projected that the federal Treasury could lose up to $60 billion in royalty revenues if Kerr-McGee wins its lawsuit disputing Interior's authority to impose price thresholds on leases acquired between 1996 and 2000. This amount would be in addition to the billions of dollars that the federal government is expected to lose as a result of Interior's failure to include price thresholds in leases that were issued in 1998 and 1999, according to the GAO.

In the court papers, Kerr-McGee indicated it will ask the district court by May 24 to decide the merits of the case before actually going to trial.

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