Shell settles one royalty dispute with feds for $25 million

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This week's cover story, "Drilled, Baby, Drilled," reports on the efforts of a group of federal auditors to hold energy companies accountable for underpaid royalties on oil and gas leases. On the eve of its publication, the U.S. Office of Natural Resources Revenue (ONRR) announced a $25 million settlement with Shell Offshore over unpaid royalties on leases in the Gulf of Mexico -- even while the feds are siding with Shell against the auditors in a similar case.

The settlement agreement involves both oil and gas production on deepwater leases from 2000 to 2008. Audits indicated that Shell was improperly taking certain deductions for "transportation costs" on those leases. Last week, fter initially disputing the auditors, Shell agreed to pay $25 million to resolve the claims.

"This resolution demonstrates ONRR's commitment to pursue all revenues due from energy production that occurs on federal onshore and offshore lands," ONRR director Greg Gould stated in a press release.

Gould told Westword that the goal of his agency, a spinoff from the ashes of the scandal-plagued Minerals Management Service, is to "collect every dollar due -- no more, no less." But the agency has been less than eager to tackle a similar claim involving transportation deductions by Shell during the same time period on a dozen other Gulf oil leases, a claim originally brought by MMS auditors Randy Little (now retired) and Joel Arnold in 2005.

Little and Arnold, who filed a federal lawsuit under a statute that allows private citizens to sue for fraud on behalf of the government, figure that the alleged improper deductions by Shell on those leases have cost the taxpayers at least $19 million in uncollected royalties. But their case was dismissed by a federal judge in Texas on procedural issues last spring, and their appeal is being contested not just by Shell but by the Department of Justice, which contends that auditors shouldn't be allowed to bring such cases. (A hard case to make, given that ex-auditor Bobby Maxwell just collected $7.5 million for himself -- and $16 million for the government -- in another royalty lawsuit against Anadarko Petroleum.)

During the Bush years, Little says, his investigation of Shell was blocked at every turn by his superiors in MMS. Now that Ken Salazar has taken over the Department of the Interior and vowed to reform its royalty collection practices, some of that lost money is being pursued. But every dollar due? Little doesn't think so.

"Shell isn't the only company doing this," he told Westword. "We turned in several other companies to the inspector general. We gave them our files. We had to force them to take them. And they still have not done one thing. They have not pursued any of those companies."

More from our Follow That Story archive: "Five great Colorado whistleblowers."

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