In a “Freddie Krueger-style” wipeout, a federal district courton Feb. 13th dealt a crippling blow to a major producer group andtwo producers when it denied their motions dealing with royaltytreatment of take-or-pay settlement payments.

U.S. District Court Judge Royce Lamberth upheld his earlierruling that the Independent Petroleum Association of America (IPAA)lacked jurisdiction in a lawsuit challenging the InteriorDepartment’s collection of royalties on lump-sum payments made byproducers to get out of their gas contracts with pipelines. TheIPAA lawsuit led to a 1996 ruling by the D.C. Circuit Court ofAppeals in favor of gas 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 one producer -Samedan Oil, which was used as a test case in the IPAA lawsuit.Other producers, if hit with royalty bills from Interior, will beforced 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.

Susan Parker

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