U.S. Supreme Court declines to hear oil royalties case

By Chris Rizo | Oct 5, 2009

U.S. Supreme Court building

WASHINGTON (Legal Newsline) - The U.S. Supreme Court on Monday declined to hear the federal government's appeal of a tax law that could cost taxpayers at least $19 billion in royalties on energy leases in the Gulf of Mexico.

The U.S. Justice Department had appealed a ruling by the 5th U.S. Circuit Court of Appeals in New Orleans that the Interior Department could not collect royalties from Anadarko Petroleum Corp.

The nation's highest court rejected the government's petition for a hearing without comment.

At issue were eight deepwater leases the company obtained when it acquired Kerr-McGee Corp. in 2006. Keer-McGee obtained the leases between 1996 and 2000.

The government sought to collect royalties on the leases after oil prices began to rise. A 1995 law gave oil and natural gas producers a break from paying royalties when energy prices were at a low -- when oil prices fell to about $10 a barrel.

The law also waived royalty payments until a specific amount of oil and gas was produced.

The appeals court ruling affects dozens of other energy companies that had signed leases in the Gulf of Mexico between 1996 and 2000, under the Outer Continental Shelf Deep Water Royalty Relief Act of 1995.

"Whatever the precise amount of forgone future royalties proves to be, the total cost will be huge and it will have a direct adverse affect on the Treasury," U.S. Solicitor General Elena Kagan said in court papers.

For its part, Anadarko Petroleum said the law has helped bring oil exploration to the Gulf of Mexico amid low energy prices.

Anadarko said Congress intended, through the law, "to assure that companies were afforded the royalty treatment it granted as encouragement to make huge investments in the deepwater Gulf of Mexico frontier."

The case is Department of the Interior v. Kerr-McGee Oil and Gas Corp., 09-54.

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