Devon agrees to pay to settle allegations

Devon Energy Production Co. will pay $11.9 million to resolve allegations that Pennzoil Co., which merged into Devon Energy Corp. last year, underpaid royalties on oil it produced from leased federal and Indian land during 1988-98, the US Department of Justice said earlier this week. Sunoco Inc. agreed to pay $200,000 to resolve similar allegations.


Devon Energy Production Co. will pay $11.9 million to resolve allegations that Pennzoil Co., which merged into Devon Energy Corp. last year, underpaid royalties on oil it produced from leased federal and Indian land during 1988-98, the US Department of Justice said earlier this week. Sunoco Inc. agreed to pay $200,000 to resolve similar allegations.

The settlements bring to more than $217 million the amount the government has recovered from seven oil companies as a result of a private whistle-blower lawsuit originally filed under the False Claims Act. More cases are pending.

"We will continue to press forward with the prosecution of this False Claims Act lawsuit against other companies that have underpaid their royalty obligations," said Mike Bradford, US attorney for the eastern district of Texas.

Bradford commended the two companies for settling without further litigation and said the settlements "bring us one step closer to restoring to the taxpayers and Indian tribes of the United States the money due for production of oil on public lands."

Representatives of several Indian tribes also signed the Devon Energy settlement.

Two private whistle-blowers , J. Benjamin Johnson Jr. and John Martinek, who filed the original complaint in US District Court in Lufkin, Tex., against Pennzoil and Sunoco, will share in the settlement. In 1999, Pennzoil spun off its motor oil business and the remaining exploration and production business became PennzEnergy, which merged with Devon Energy Corp.

The whistle-blowers alleged that 17 companies underpaid royalties on oil taken from more than 27 million acres of leased federal and Indian land onshore and offshore in 21 states. They alleged that, together, the companies submitted more than 500,000 false claims with damages and penalties possibly exceeding $5 billion.

In March, the justice department joined lawsuits accusing ExxonMobil Corp., Shell Oil Co., and Burlington Resources Inc. of intentionally underpaying royalties on oil and gas they produced from leased federal and Indian land.

Previously, the government reached settlements with BP Amoco PLC ($32 million), Mobil Oil Corp. ($45 million), Oxy USA Inc. ($7.3 million), Chevron Corp. ($95 million), and Conoco Inc. ($26 million).

Private oil and gas companies obtain mineral leases from the US Department of the Interior giving them the right to extract oil and gas from federal and Indian land in return for paying royalties. The False Claims Act allows the government to collect three times the amount of unpaid royalties plus $5,000-10,000 for each underpayment. The act allows private whistle-blowers to sue over these underpayments and to receive a portion, based on the value of their legal work, of whatever the government recovers.

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