In a “Freddie Krueger-style” wipeout, a federal district courton Friday the 13th dealt a crippling blow to a major producergroup and two producers when it denied their motions dealing withroyalty treatment of take-or-pay settlement payments. U.S. DistrictCourt Judge Royce Lamberth upheld his earlier ruling that theIndependent Petroleum Association of America (IPAA) lackedjurisdiction in a lawsuit challenging the Interior Department’scollection of royalties on lump-sum payments made by producers toget out of their gas contracts with pipelines. The IPAA lawsuit ledto a 1996 ruling by the D.C. Circuit Court of Appeals in favor ofgas producers
But the latest ruling by Lamberth pulls the rug out from underthe victory scored by producers in the appellate court. By denyingjurisdiction to IPAA, Lamberth, in effect, has refused to grantproducers industry-wide injunctive relief that would prohibitInterior from levying royalties on lump-sum payments. He haslimited the thrust of the appellate decision to only oneproducer-Samedan Oil, which was used as a test case in the IPAAlawsuit. Other producers, if hit with royalty bills from Interior,will be forced to fight their battles on their own
In parallel actions, Lamberth dismissed Texaco Inc.’s and ShellOffshore’s challenges to Interior orders requiring them to payroyalties on lump-sum settlement payments. He branded bothchallenges premature. The “exhaustion of administrative appeals byShell [at Interior] is required before this court may exercise itspower of judicial review over the orders to pay,” he wrote in thelengthy Shell decision
Despite his rulings, Lamberth indicated he was sympathetic tothe producers’ plight. “This court is not unmindful of, and to somedegree shares, the frustration experienced by Samedan Oil, Shell,IPAA, Texaco and the other gas companies that have been litigatingthe battle over take-pr-pay settlement royalties” for severalyears. Last year, after initially declaring that the IPAA lackedjurisdiction, he speculated that “perhaps losing 40 or 50 of these[royalty] cases” in the district court will cause Interior torethink its rulemaking with respect to royalties and take-or-paysettlements. With 13 such cases already pending in his court,Lamberth said “this court is concerned that before too long it wellmay be one-third of the way along toward its prediction.
The next step in the case could very well be made by Interior.It must decide whether it wants to appeal Lamberth’s injunction,which was issued in July 1997, barring it from collecting royaltieson past settlement payments made by Samedan. In addition, thelatest decisions against IPAA, Shell and Texaco set the stage forfurther challenges at the D.C. appellate court
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