Shell Oil is the latest to settle in massive oil and gas royalties whistleblower suit

by Ben Vernia | May 11th, 2011

On May 10, the Department of Justice announced that Shell Oil Co. and its affiliates will pay $2.2 million to resolve their share of false claims allegations. According to DOJ’s press release:

Shell Oil Company and other Shell affiliates have agreed to pay the United States $2.2 million to resolve claims that the companies violated the False Claims Act by knowingly underpaying royalties owed on natural gas produced from federal leases, the Justice Department announced today. Shell Oil Company is the U.S.-based subsidiary of Royal Dutch Shell, a multinational oil company, and is a leading producer of oil and natural gas.

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 (DOI) the amount of royalty that is due. This settlement resolves claims by the United States that the Shell 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.

In June 2003, Shell paid $56 million to settle claims that it knowingly underpaid royalties related to natural gas and natural gas liquids produced from federal lands located in the Gulf of Mexico. Today’s settlement resolves claims related to Shell’s on-shore federal leases.

The case is part of a multi-defendant qui tam suit brought by a whistleblower who is now deceased, Harold Wright. Previously announced settlements in the case have included Exxon ($32.2 million in April, 2010), Marathon and Dominion ($6.9 million in August, 2010), and Occidental ($2.05 million in March 2011). In all, recoveries in the case exceed $235 million. For this partial settlement, DOJ announced that the whistleblower’s heirs will receive $572,000 (a 26% share).

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