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UPR/Duke to Pay $8.3 M in Antitrust Gas Lawsuit

UPR/Duke to Pay $8.3 M in Antitrust Gas Lawsuit

American Central Gas Technologies Co. was awarded $8.3 million last week after an arbitrator ruled that Union Pacific Resources and Duke Energy Field Services had monopolized natural gas processing in Panola County, the largest natural gas producing county in East Texas.

In the binding arbitration award, arbitrator Harlan Martin ruled that UPR/Duke monopolized natural gas processing in the area. Martin, who released his order July 27, wrote that UPR/Duke "has willfully acquired and maintained monopoly power through a series of overt acts intended to prevent potential competition and the entry of others in the Panola County gas processing business." The ruling is considered significant because UPR and Duke were found to have violated federal antitrust laws.

Although Duke Energy had objected, U.S. District Judge T. John Ward of Tyler, TX, ruled last week that Martin's order could be made public.

According to the arbitration order, UPR/Duke processes more than 90% of all gas processed in Panola County. In January 1997, American Central, headquartered in Tulsa, contracted with UPR/Duke to process its natural gas until December 2005. On April 1, 1999, Duke assumed the contract. American Central then filed the lawsuit, charging that it had been prevented from competing on its own.

The arbitrator awarded actual damages of $7.3 million and attorney fees of $1.8 million. He subtracted $762,000 from the award for an overpayment by UPR to American Central for residue gas. The monetary damages were solely assessed against UPR, which is a wholly owned subsidiary of Anadarko Petroleum Co.. based in Houston.

"This ruling by Judge Martin is the first victory toward ending the monopolistic practices that have plagued the producers in Panola County for many years," said Stephen E. Jackson, CEO of American Central. "American Central will continue to do everything possible to restore effective competition to give every producer and royalty owner the services they deserve and the profits they have rightfully earned."

Thomas Paterson, a partner with Susman Godfrey in Houston and one of American Central's attorneys, said that his client "had the guts to take on the biggest natural gas processing player in East Texas. As a result of their victory, producers and other gas processing customers in Panola County may soon get some competition in gas processing, and, hopefully, lower processing costs."

Sam Baxter, a partner with Dallas law firm McKool Smith, worked with Paterson on the American Central case, and said that even though monopoly claims are hard to prove, "this is an important result for our client, but it's also a declaration that UPR and Duke have monopolized natural gas processing in Panola County."

American Central gathers, treats and processes natural gas as a service to oil and gas producers. It constructs pipelines to gather gas from individual wells and then aggregates the gas from producing wells for compression, dehydration and processing. It then delivers the gas to various inter- and intrastate long-haul transmission pipelines.

In July, the U.S. Department of Justice announced that UPR would pay $2.7 million to settle charges that it had underpaid royalties due on crude oil drilled from federal and Indian leases. The settlement covered underpayments back to 1988, and ended allegations brought by whistle-blowers that UPR, along with other oil companies, tried to short-change the government for royalty fees.

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