Devon Energy the latest to settle oil and gas royalty claims, for $3.5 million

by Ben Vernia | March 14th, 2012

On March 12, the Department of Justice announced yet another settlement in the False Claims Act suit against multiple oil and gas companies over royalty payments. This settlement comes only three weeks after the most recent such settlement (with Total). According to the Justice Department:

Devon Energy Corporation and its affiliates have agreed to pay the United States $3,492,463 to resolve claims that PennzEnergy, a predecessor to Devon, violated the False Claims Act by knowingly underpaying royalties owed on natural gas produced from federal and Indian lands, the Justice Department announced today. Devon is an independent oil and natural gas exploration and production company with operations focused onshore in the United States and Canada.

PennzEnergy, formerly known as Pennzoil Company, was acquired by Devon in May 1999. Prior to the merger, PennzEnergy was involved in the production of natural gas from federal leases offshore in the Gulf of Mexico and onshore in the Gulf Coast.

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 and pay 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 PennzEnergy improperly deducted from royalty values costs associated with boosting gas up to pipeline pressures and failed to report and pay royalties on gas used to fuel boosting compressors.

The estate of the late Harold Wright, the whistleblower in the case, will receive approximately $908,000 (a 26% relator’s share – the amount exceeds the 25% cap in cases in which DOJ intervenes because the government intervened only after a decade, and in order to complete the settlement).

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