Oil company Kerr-McGee (now a unit of Anadarko Petroleum) underpaid $7.5 million in royalties according to a jury verdict reached in Denver yesterday in a whistleblower lawsuit filed by former Interior Department auditor, Bobby Maxwell. The verdict is an embarassment to the Interior Department's Minerals Management Service (MMS) which claimed that the case had no merit and is under fire from Congress for a series of debacles.
Anadarko could be liable for “double or triple times” the jury verdict “as well as penalties of up to $11,000 for each of 1,200 false statements that the company is accused of making in its royalty reports to the government,” according to the New York Times. Anadarko claimed it intends to appeal.
The lawsuit (pdf) was filed by Bobby Maxwell, a highly decorated auditor with more than two decades of government experience. Mr. Maxwell's case is the first of several filed by government whistleblowers who allege that Interior Department officials told them not to bill oil companies for royalties the companies owed for drilling oil and gas from federal leases. Insiders say the agency's refusal to collect the royalties is part of a pattern of complicity toward the industry.
According to the New York Times (registration req'd), Mr. Maxwell lost his job just one week after his lawsuit was made public in a "reorganization" by the Minerals Management Service. Last week, Senator Ron Wyden raised concerns in a Senate Energy and Natural Resources Committee hearing about possible retaliation against three additional MMS auditors based in Oklahoma who filed similar royalty underpayment lawsuits -- Randy Little, Joel Arnold, and Lanis Morris. In response, Interior Department Assistant Secretary Steve Allred promised that he would not tolerate retaliation against the whistleblowers.
Under rules of the False Claims Act, whistleblowers who mount such cases on their own are eligible for up to 30% of the proceeds of the case, but get less if the government joins the case. According to unconfirmed sources, the Interior Department may have urged the Justice Department not to intevene in the whistleblower suits.
The Department of Interior's Inspector General (IG) is currently examining the whistleblower lawsuits as well as conducting a criminal investigation into the MMS' Royalty-in-Kind program. In testimony during the Senate hearing last week, the IG discussed how interest payments made by the oil companies were one area where he believed additional oil company underpayments were occurring. One of the whistleblower lawsuits appears to have brought this problem to light. The IG also made the astonishing statement that collection of oil royalties is "more or less an honor system."
Anadarko's Kerr-McGee unit has the distinction of being the oil company which has filed suit to challenge the government's ability to collect any royalties at all on deep water wells in the Gulf of Mexico, arguing that the law never intended it. According to the Government Accountability Office (pdf), if Kerr McGee succeeds, the government would lose $60 billion.
-- Beth Daley