Court Rules in Favor of Anadarko in Oil and Gas Royalty Case
An appeals court has ruled in favor of Texas-based oil company, Anadarko Petroleum Corporation in an oil and gas royalty case that has been closely watched by the industry. Earlier, in a lower court, it was ruled that the government could not collect more than $10 billion in royalties from the company's eight oil and gas leases in the Gulf of Mexico and the ruling still stands.
The ruling has special significance for other companies that acquired oil and gas leases between 1996 and 2000. The dispute stems from a 1995 law that was passed when the oil and gas industry was going through a crisis. In order to spur production efforts the law granted oil and gas exploration companies relief from royalties, which the lease holders are expected to pay to the federal government. However, as the industry made it through the crisis and emerged stronger with robust oil prices boosting profits, the Interior Department, which oversees leasing activities in the Gulf of Mexico, attempted to recover royalties from those oil and gas leases. Kerr McGee Corp. was one of the companies that held leases on the land; the company was later acquired by Anadarko Petroleum Corporation. The company refused to pay the royalties because the 1995 law gave royalty relief to lease holders until specific production volume limits were met. The federal government refuted those arguments saying the law gave it the discretionary power to levy royalties once a minimum price range had been met. A Louisiana court ruled in favor of Anadarko Petroleum Corporation and a federal appeals court agreed.
The Interior Department is considering whether to appeal the decision or to look for ways to solve the issue through Congress. It is not only Anadarko Petroleum Corporation's disappearing royalties at stake for the Department, but royalties from other companies that hold leases and may now have a precedent to avoid paying royalties.
Oil and Gas Attorney
Negotiations for oil and gas leases are different from ordinary contracts. They involve, not only royalty payments, but also details of environmental issues, access to water resources, etc. These contracts must be clearly defined with respect to the extent and depth of drilling and other factors. This requires the expertise of a specialized oil and gas attorney who has experience drawing up such contracts.
If you have an oil and gas royalty dispute, contact an experienced oil and gas attorney at Arnold & Itkin LLP for a free consultation.
