U.S. asks Supreme Court to hear oil royalty case

WASHINGTON, July 14 Tue Jul 14, 2009 3:03pm EDT

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WASHINGTON, July 14 (Reuters) - The U.S. Justice Department has asked the Supreme Court to overturn a legal decision between the Interior Department and Anadarko Petroleum Corp (APC.N) that, if allowed to stand, could cost the government billions of dollars in lost oil royalties from energy companies.

Justice, on behalf of the Interior Department, is fighting a lower court's ruling that said Anadarko did not have to pay about $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 avoid paying drilling fees that "will likely cost the United States at least $19 billion in forgone or refunded royalties," the Justice Department said in its filing on Monday to the Supreme Court.

The department said the lower court's interpretation of the royalty relief law was "flatly wrong" and that the amount of money at stake makes the case worthy of review by the Supreme Court.

The Supreme Court's justices are not expected to decide whether to hear the case until they return in early October from their summer recess.

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." (By Tom Doggett; editing by Jim Marshall)

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