U.S. Will Pursue Oil Firms For $440 Million in Royalties
March 31, 2011
The U.S. government said it will try to recoup at least $440 million in royalty payments that it claims is owed by oil companies operating in California. The Interior Department's Minerals Management Service said it will pursue the 20 largest California operators, responsible for pumping 97% of the oil produced both onshore and offshore there since 1985. All companies involved, including such industry giants as Exxon Corp. and Mobil Corp., were asked Thursday to produce royalty records and other documents, a spokesman for the service said. And the initial calculation of $440 million in royalty underpayments might represent just the tip of the iceberg. The total due could run as high as $856 million, according to the conclusions of a two-year study by the Interior, Commerce and Energy departments. In addition, data compiled by the Project on Government Oversight, a watchdog group, shows that the oil companies may owe yet another $400 million to $1.3 billion in unpaid royalties, relating to crude oil production in other states. The Minerals Management Service contends that the oil companies have been basing their royalties on the posted, or well head, price of the oil they produced rather than on the market price for which they actually sold it. This alleged practice has been under government scrutiny for at least five years. Interior Department officials said they hope they can start billing the companies within the next few months, and conclude their auditing efforts within a year after all the data are received from the companies. Among those to be investigated in the royalty probe are Chevron Corp., Phillips Petroleum Co., Shell Oil Co., a unit of Royal Dutch/Shell Group, and Texaco Inc.. An Interior Department spokesman said that if any of the companies deny access to the information requested by the government, subpoenas will be sought. Many of the oil companies targeted said they haven't yet had an opportunity to review the allegations. An Atlantic Richfield Co. spokesman said the company believes that its royalty payments over the past 15 years had been correct and in accordance with its contracts with the federal government.
