LIMITATION STATUTE SOUGHT ON ROYALTY PAYMENT ERRORS

Gas producers are pressing a bill to change U.S court interpretations of the statute of limitations that prevent producers from closing their books on previous fiscal year royalties. The Natural Gas Supply Association and Independent Petroleum Association of America say judicial interpretations allow the Minerals Management Service to challenge royalty payments for gas produced from federal leases at almost any time in the future. MMS supports the interpretations.

Feb. 13, 1995

2 min read

Gas producers are pressing a bill to change U.S court interpretations of the statute of limitations that prevent producers from closing their books on previous fiscal year royalties.

The Natural Gas Supply Association and Independent Petroleum Association of America say judicial interpretations allow the Minerals Management Service to challenge royalty payments for gas produced from federal leases at almost any time in the future.

MMS supports the interpretations.

HERE'S THE PROBLEM

NGSA said, "In most areas of the law, the clock on the statute of limitations starts ticking at the time a breech of the law occurs. And there is a statute of limitations on royalty payments, 6 years.

"The problem is that courts have said, in the case of royalties connected with federal leases, the statute of limitations clock starts ticking at the time MMS should have known of the royalty deficiency, not at the time the original payment is made."

Producers say this open interpretation of the statute of limitations on royalty payments subjects them to the discretion of MMS's enforcement division and does not allow them to close their books on potential liabilities.

NGSA also said, "While all years are theoretically open to challenge, MMS is concentrating on the years following the mid-1970s, when wellhead prices were as high or in many cases much higher than they are today. With each passing year, the problem of the liability overhang becomes larger."

A proposed bill circulating on Capitol Hill would set a 3 year statute of limitations and would allow producers' overpayments on one lease to be credited against underpayments on another. MMS is expected to oppose the measure because it could lower royalty collections.

An NGSA spokeswoman said the length of time specified in the law is not as important as obtaining a definite period. "The statute of limitations clock should start ticking when the royalty payment is made, not at some future date to be determined later by MMS. We want a real statute of limitations."