Shell Oil joined the ranks Thursday of major producers who havesettled sizeable royalty disputes with the Department of Justice.The company has agreed to pay the U.S. $56 million to settle claimsthat it underpaid royalties on natural gas produced on Federalleases.

The Department of Justice (DOJ) reported that the settlementresolves allegations that Shell under-reported the value of gasproduced on leases in the Gulf of Mexico from Aug. 1, 1986 to Dec.31, 1999, and therefore paid the government less than it owed.

“The Department of Justice is committed to ensuring that theUnited States is fairly compensated for the sale of valuable assetsfrom public lands,” said David W. Ogden, assistant attorney generalfor the civil division.

Mike Bradford, U.S. attorney for the eastern district of Texas,said, “This settlement brings us one step closer to restoring tothe taxpayers of the United States money due for production ofnatural gas from public lands. We commend Shell for settling thismatter in a way that avoids further litigation, and we willcontinue to pursue claims against other companies that haveunderpaid royalties on their natural gas production.”

Shell confirmed it had reached a resolution in the long-standingnatural gas royalties dispute with the DOJ. “This settlement doesnot signify an admission of any liability on Shell’s part. Shellcontinues to believe we have paid our royalties on natural gas inaccordance with law and contract,” the company said.

The DOJ has recovered more than $200 million in related lawsuitsconcerning underpayment of royalties on crude oil produced fromfederal lands including Mobil Oil, $45 million; Oxy USA, Inc., $7.3million; Chevron, $95 million; and Conoco, $26 million. Just lastWednesday, DOJ announced that Texaco agreed to pay $43 million tosettle underpaid royalties due on crude oil drilled from federal andIndian leases (see Daily GPI, Sept. 29).

Shell agreed to pay the claims to forestall long, drawn outlitigation. “Shell is one of the largest producers of natural gasin the Gulf of Mexico, and over the time period in question haspaid the federal government more than $2.3 billion in royalties onnatural gas and natural gas liquids,” Shell said in the statement.”However, we have agreed to settle in order to end thislong-standing dispute and avoid further protracted litigationexpense, risk, and business distraction.”

Shell and the DOJ also requested a halt in court proceedingspertaining to other underpaid royalties from the production of oilon federal lands. The federal court agreed to halt the proceedingsin the case in Lufkin, TX, for 60 days in hopes the parties cancome to a “potentially amicable resolution of their differences,”Shell said. Shell continues to maintain that it calculated and paidfederal royalties by adhering to guidelines approved by theMinerals Management Service. No formal settlement agreement hasbeen entered as of yet, Shell said.

The royalty cases were before the U.S. District Court for theEastern District of Texas, following an investigation prompted byseveral civil suits filed by three industry whistle-blowers in1998-1999 (see Daily GPI, April 5; June 2).

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