Anadarko and Kerr-Mcgee to Pay More Than $17 Million to Resolve Allegations of Royalty Underpayments from Federal and Indian Lands

WASHINGTON – Anadarko Petroleum Corporation, Kerr-McGee Corporation and their affiliates have agreed to pay the United States more than $17 million to resolve claims that the companies violated the False Claims Act by knowingly underpaying royalties owed on natural gas produced from federal and Indian leases, and numerous additional administrative claims,

the Justice Department announced today. Anadarko is among the largest independent oil and natural gas exploration and production companies in the world. Anadarko and Kerr-McGee were independent companies and were separately sued when this case was originally filed in 1996. In June of 2006, Kerr-McGee Corporation became a wholly-owned Anadarko subsidiary.

Congress has authorized federal and Indian lands to be leased for the production of natural gas in exchange for the payment of royalties on the value of the gas that is produced. Each month companies are required to report to the U.S. Department of the Interior the amount of royalty that is due. This settlement resolves claims by the United States under the False Claims Act that the Anadarko and Kerr-McGee defendants improperly deducted from royalty values the cost of boosting gas up to pipeline pressures and improperly reported processed gas as unprocessed gas to reduce royalty payments, as well as a series of outstanding administrative claims.

“This case is one in a series of significant oil and gas settlements that demonstrate our commitment to ensuring that companies pay all of the royalties they owe,” said Tony West, Assistant Attorney General for the Civil Division of the Department of Justice. “When companies pay natural gas royalties for the privilege to extract non-renewable resources from public lands, that income supports vital federal programs from which we all benefit.”  

“We remain committed to ensuring that energy companies accurately report production and report and pay all of the required royalties, with no exceptions,” said Rhea Suh, Assistant Secretary for the Department of the Interior's Office of Policy, Management and Budget. “We will continue to pursue every dollar due to taxpayers and the federal government from extracting these precious natural resources from federal and American Indian lands.”

Today’s settlement arises from a lawsuit filed by Harrold Wright under the False Claims Act. Under the qui tam, or whistleblower, provisions of the act, private citizens may file actions on behalf of the United States and share in any recovery. Because Mr. Wright is deceased, his heirs will receive $1.95 million plus interest as their share of the settlement. The United States will intervene against the Anadarko and Kerr-McGee defendants for the purpose of completing this settlement. The Justice Department previously intervened against several other defendants in the Wright lawsuit. Total settlements in the case to date exceed $249 million.

The investigation and settlement of this matter was jointly handled by the Justice Department’s Civil Division and the U.S. Attorney for the Eastern District of Texas, with assistance from the Department of the Interior’s Office of Natural Resource Revenue, Office of the Solicitor and Office of the Inspector General.

The case is U.S. ex rel. Wright v. Chevron USA, Inc. et al., 5:03-CV-264 (E.D. Tex.) .