Interior Department Drops Chevron Claims

The U.S. Department of the Interior will not pursue tens of millions of dollars in potential royalty revenues from Chevron Corp. for natural gas operations in the Gulf of Mexico, according to an Aug. 3 letter from the agency to Chevron.

According to the letter, obtained by the New York Times under the Freedom of Information Act, the agency said it had no choice but to drop its pursuit of the lost royalties after the agency's appeal board ruled against auditors in a similar but separate case.

"It is not in the public interest to spend federal dollars pursuing claims that have little or no chance of success," the Minerals Management Service said in a statement last week. "MMS lost a contested and controversial issue" before the appeals board. "Had we simply wanted to capitulate to 'big oil,' the agency would not have issued the order in the first place."

The agency had ordered Chevron to pay $6 million but could have potentially earned millions more had it won its case over missing royalties from natural gas it sold to Houston-based natural gas processing company Dynegy during the late 90s. Chevron paid the $6 million but is appealing.

The federal auditors' claims were not unlike those made by state officials and private landowners that prevailed in their cases, forcing Chevron to settle for more than $70 million for various cases.

Chevron said in a written statement that it "endeavors to calculate and pay its oil and gas royalties correctly," and it said that the agency had agreed.

Many fear that Interior's decision will set a dangerous precedent for allowing large companies to skirt their federal royalty payments.

Last month, the Interior Department announced it would not seek more than $1 billion in back royalties from offshore energy producers with leases that mistakenly allowed royalty waivers regardless of oil and gas prices. Instead, the agency said, it would focus on ensuring that correct royalty payments are paid in the future (E&ENews PM, Sept. 21).

"The government is giving up without a fight," said Richard T. Dorman, a lawyer representing private citizens suing Chevron over its federal royalty payments. "If this decision is left standing, it would result in the loss of tens of millions, if not hundreds of millions, of dollars in royalties owed by other companies" (Edmund L. Andrews, New York Times, Oct. 31). -- EB

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