US Supreme Court Denies Interior Dept Royalty Case Hearing
06 October 2009 - 1:46AM
Dow Jones News
The U.S. Supreme Court refused Monday to consider a Department
of Interior challenge to a lower-court ruling that blocked the
agency from collecting at least $19 billion in oil fees.
The petition before the nation's highest court was the
government's last legal opportunity to claim royalties from a raft
of oil contracts signed in the 1990s.
In January, a New Orleans-based federal appeals court sided with
Anadarko Petroleum Corp. (APC) in a controversial and
precedent-setting case, finding the government couldn't collect
royalties from eight oil and natural gas production leases in the
Gulf of Mexico.
Though the case involved only Kerr-McGee Oil and Gas Corp.
leases now owned by Anadarko, the ruling affects dozens of other
oil and natural gas companies that had signed leases in the Gulf
between 1996 and 2000. Estimates vary, but the government said in
its Supreme Court petition that the lower-court ruling could mean
at least $19 billion in foregone royalties.
The leases were signed under the Outer Continental Shelf Deep
Water Royalty Relief Act of 1995 - designed to encourage expensive
offshore oil and gas development. Anadarko argued the law
specifically prevented the collection of royalties until a minimum
volume of oil and gas production had been met, while the Interior
Department said the law gave it discretion to collect fees at a
price threshold.
The case was one of several oil-royalty issues that gave fodder
to Democratic lawmakers seeking to move the country away from
fossil-fuel use and toward renewable energy.
Outside the court system, Democratic lawmakers have tried to
leverage payment of the royalties that Congress believes are owed
to the government. Several legislators have drafted bills that
would prevent oil companies from winning new leases unless they
negotiated a settlement. Such punitive laws are likely to be
successfully challenged in court, however.
While those efforts have largely been dropped, Democrats are
planning to cut tens of billions of dollars in tax breaks to the
oil and natural gas industry.
On another front, Interior Secretary Ken Salazar is in the
process of restructuring the royalty program, including considering
raising rates for oil companies.
By Ian Talley, Dow Jones Newswires; (202) 862 9285;
ian.talley@dowjones.com