Chevron agrees to $45 M settlement of natural gas royalties dispute

TEXARKANA, Texas � Chevron has agreed to pay $45.5 million to settle claims that it violated the False Claims Act by knowingly underpaying royalties it owed on natural gas produced from federal and Indian leases.

According to a press release from the U.S. Department of Justice on Dec. 23, the settlement resolves claims that Chevron, Texaco and Unocal companies from March 1998 to November 2008 reported reduced values of gas and improperly reported processed gas as unprocessed gas in an effort to reduce royalty payments.

The government alleges that the companies improperly deducted from royalty values the cost of boosting gas up to the pipeline pressures and used affiliate transactions to reduce the reported value of gas taken from federal and Indian leases.

The $45.5 million settlement will be disbursed to the appropriate state, federal and American Indian accounts that were affected by Chevron's underpayment.

According to the press release, more than $12.3 million will go to the heirs of deceased Texarkana resident Harrold Wright, who filed the lawsuit under the whistleblower provisions of the False Claims Act. The Act allows private citizens to file lawsuits on behalf of the United States and share in any recovery.

The original lawsuit was filed in federal court in the Texarkana Division of the Eastern District of Texas on Aug. 2, 1996.

The U.S. Department of the Interior is responsible for the oversight of collection of the royalties from federal and Indian tribes. Each month, companies are required to report the value of the natural gas produced from their leases and to pay a percentage of the value as royalties.

"Today's settlement affirms the basic truth that it is never a good idea to cheat. Both the Department of Justice and the U.S. Attorney's Office will always take the necessary steps to protect the royalty interests of the Indian tribes as well as the United States," said Malcom Bales, the U.S. Attorney for the Eastern District of Texas.

Along with many other defendants, Chevron has agreed to settle the litigation to end the expense of fighting 13 years in defense.

In response to the settlement Chevron stated, "The agreement states that Chevron makes no admission of any kind concerning improper or fraudulent actions or omissions on its part, and Chevron reasserts that it did not engage in such activities. Chevron has settled this case simply to bring an end to a long and expensive legal proceeding."

The Justice Department has previously settled with Burlington Resources Inc. for $105.3 million, Shell Oil Co. for $56 million and Dominion Exploration and Production Co. for $2 million.

Recently, Mobil agreed to a settlement but the terms have not yet been announced.

Although many companies have agreed to settlement and are released from the case, several defendants remain.

Plaintiffs' attorney Cary Patterson of Texarkana states, "We've still got a long way to go."

U.S. District Judge David Folsom is presiding over the litigation.

Case No 5:03cv264