Company settles oil and gas royalty fraud claims for $34.6 million

by Ben Vernia | January 24th, 2024

On January 19, the Department of Justice announced that an oil and gas company based in New Mexico and Texas has agreed to settle civil allegations of underpaying royalties, for $34.6 million. According to DOJ’s press release:

Hilcorp San Juan L.P., an oil and gas company with offices in Aztec, New Mexico, and Houston, has agreed to resolve allegations that it knowingly underpaid royalties owed on oil and natural gas produced from federal lands. The company has agreed to pay $34.6 million to resolve its False Claims Act and other liability for the conduct.

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Congress allows federal lands to be leased for the production of oil and natural gas in exchange for the payment of royalties on the value of the oil and gas produced. Lessees are required to pay monthly royalties to the federal government for any oil and gas removed or sold from the lease. Although lessees may make estimated royalty payments the month following production, they are required to pay actual royalties at the end of the month following the month in which the estimated payment is made. Lessees are also expected to use a specific transaction code for estimated payments, so that the government can identify circumstances in which a company has temporarily submitted royalties based on estimates. The settlement resolves allegations that, when reporting and paying royalties from August 2017 through December 2018, Hilcorp San Juan knowingly made payments to the federal government based on estimated volumes and prices without indicating that the payments were based on estimates and without subsequently making payments in the following month based on actual volumes and values, resulting in the underpayment of royalties to the United States.  

Hilcorp San Juan cooperated with the United States’ investigation by assisting in the determination of losses and received credit under the department’s guidelines for taking disclosure, cooperation and remediation into account in False Claims Act cases.

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The case apparently arose from a government investigation, rather than from a whistleblower’s qui tam suit.

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