By OGJ editors
HOUSTON, Nov. 1 -- A federal judge in Louisiana has supported Anadarko Petroleum Corp.'s claim that the US Minerals Management Service lacked authority to collect royalty on deepwater leases issued in 1996-2000.
The leases were issued under the Deep Water Royalty Relief Act of 1995, which provides an exclusion from royalty, subject to various limits, for production from leases with specified water depths.
The law made royalty relief automatic for leases issued during 1996-2000 and gave MMS more latitude to change the program for leases issued after 2000.
To ensure collection of federal royalty during periods of elevated oil and gas prices, MMS imposed price thresholds, above which royalty relief expires, for deepwater Outer Continental Shelf leases, including those issued in 1996, 1997, and 2000.
In January 2006, the Department of the Interior, of which MMS is part, ordered Kerr-McGee Oil & Gas Corp., now part of Anadarko, to pay royalty and interest for eight deepwater leases issued in those 3 years.
Kerr-McGee challenged the agency's authority to suspend royalty relief because of high oil and gas prices, citing statutory language about the years prior to 2000.
The US District Court for the Western District of Louisiana, Lake Charles Division, supported the Kerr-McGee-Anadarko claim, saying Interior "exceeded its congressional authority" by requiring Kerr-McGee to pay royalty based on price threshold in the years under dispute.
Deepwater leases issued during 1998 and 1999 contained no price thresholds. The omissions have been controversial.
According to press reports, the MMS might appeal the Louisiana ruling, which throws into question royalties collected on all deepwater leases with price thresholds in the 3 years covered by the Anadarko case.
