US govt wants court to rehear oil royalty dispute

WASHINGTON, March 30 Mon Mar 30, 2009 6:37pm EDT

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WASHINGTON, March 30 (Reuters) - The U.S. Justice Department on Monday asked a federal appeals court to rehear a legal decision over oil royalties between the Interior Department and Anadarko Petroleum Corp (APC.N) which, if allowed to stand, could cost the government billions of dollars in lost royalties from oil companies.

Justice, on behalf of the Interior Department, is fighting a January ruling from a panel of the Circuit Court of Appeals for the Fifth Circuit in New Orleans that said Anadarko did not have to pay $350 million in royalties for drilling on federal leases in the Gulf of Mexico issued between 1996 and 2000.

If the ruling stands in Anadarko's favor, other energy companies could forgo paying royalties and the government "stands to lose tens of billions of dollars in revenue that would otherwise be derived from the nation's oil and gas reserves," the Justice Department said in its request for the full circuit court to rehear the case.

Justice said the panel's decision was inconsistent "with the plain language of the statute" and that "the sheer amount of money at stake" makes the case worthy of review by the full court to "correct the panel's error."

The dispute centers on financial incentives Congress gave energy companies in the 1990s when oil prices fell to $10 a barrel. To make drilling in the deeper waters of the Gulf of Mexico more profitable, royalties were waived on initial oil and natural gas production.

The Interior Department sought to end that royalty relief if oil and gas prices increased significantly, which they did.

Kerr-McGee Corp, which was bought by Anadarko in 2006, sued the department, arguing it did not have the authority to take away the royalty relief provided by Congress. The company won in the initial trial and on appeal.

Anadarko has said the clear intent of Congress was "to assure that companies were afforded the royalty treatment it granted as encouragement to make huge investments in the deepwater Gulf of Mexico frontier." (Editing by Christian Wiessner)

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