MMS, Burlington settle gas royalty dispute

By OGJ editors
HOUSTON, Aug. 16 -- Burlington Resources Oil & Gas Co. has agreed to pay the federal government more than $97.5 million, plus interest, to settle several natural gas royalty issues on federal and American Indian lands, said the US Department of the Interior's Minerals Management Service, which filed a District Court complaint against Burlington under the False Claims Act (FCA).

Per the settlement agreement, the accrued interest would be for the period of Sept. 1, 2006, until final payment is made. This will result in a total settlement amount of slightly more than $105 million.

"This settlement should serve as a strong reminder that MMS will aggressively pursue all royalties due to the government from production that occurs on federal and American Indian lands," MMS Director Randall Luthi said.

The agreement covers natural gas production that occurred from Mar. 1, 1988, through Mar. 31, 2005, for the improper valuation of the gas from coal seams, and from Mar. 1, 1988, through Dec. 31, 1997, for under-reported value of conventional gas and natural gas liquids.

In addition to resolving the FCA complaint, the settlement also resolves several "orders to pay" that MMS had previously issued to Burlington beginning in the 1990s. Those orders addressed nonallowable or excessive deductions for processing and transportation, including the cost of removing carbon dioxide from the gas. MMS has maintained, and recent court rulings have affirmed, that those costs must be paid by the company and cannot be deducted from royalty payments.

About $94.5 million of the settlement will be allocated to federal leases in New Mexico, which will be split between the federal government and the state of New Mexico. In addition, MMS will disburse portions of the settlement to a federal lease in Colorado and federal leases in Oklahoma, to the Jicarilla Apache Nation, to the Ute Mountain Ute Tribe, to Indian mineral owners in the Concho and Anadarko areas in Oklahoma, and to individual Navajo mineral owners in New Mexico.

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