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Shell Settles in Long-Running Royalty Case

Shell Oil Co. and some of its affiliates have agreed to pay the United States $2.2 million to resolve claims that they violated the False Claims Act by underpaying royalties owed on natural gas produced from federal leases. It is the latest settlement in a long-running whistle-blower case.

The settlement resolves claims that the Shell companies improperly deducted from royalty values the cost of boosting gas to pipeline pressures, and improperly reported processed gas as unprocessed gas to reduce royalty payments. In June 2003 Shell paid $56 million to settle claims that it knowingly underpaid royalties related to gas and natural gas liquids produced from federal lands in the Gulf of Mexico. The latest settlement resolves claims related to Shell's onshore federal leases.

"We are required to ensure that energy companies accurately report production and pay the required royalties," said Chris Henderson, acting assistant secretary for the U.S. Department of Interior's Office of Policy, Management and Budget. "We will continue to pursue any case where companies do not follow the rules."

The settlement arises from a lawsuit filed by Harrold Wright under the False Claims Act (see Daily GPI, June 12, 2000). The case is U.S. ex rel. Wright v. Chevron USA Inc. et al., 5:03-CV-264.

Under the whistle-blower provisions of the act, private citizens may file actions on behalf of the United States and share in any recovery. Wright is deceased, so his heirs will receive $572,000 as their share of the latest settlements.

The United States intervened against Shell to complete the settlement and had previously intervened as to the claims settled in 2003, but it had otherwise declined to intervene in the allegations against Shell. The Justice Department previously intervened against several other defendants in the Wright lawsuit. Settlements in the case to date exceed $233 million (see Daily GPI, Dec. 28, 2009; Oct. 2, 2000).

Shell Oil is the U.S.-based subsidiary of Royal Dutch Shell.

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