Devon agrees to settle underpayment claim for federal royalties

Devon Energy Corp. agreed to pay nearly $3.5 million to settle a federal claim that a company the Oklahoma City independent producer acquired in 1999 underpaid royalties on natural gas produced from federal and Indian tribal leases, the US Department of Justice and US Office of Natural Resources Revenue jointly announced on Mar. 12.

The agreement covers gas produced from federal offshore leases in the Gulf of Mexico and onshore leases along the US Gulf Coast from August 1986 through Dec. 31, 2008, according to DOJ and ONRR, which is part of the US Department of the Interior’s Policy, Management, and Budget Office.

They said Devon acquired the operations when it bought PennzEnergy Co., formerly Pennzoil Co., in May 1999. The settlement covers federal allegations under the False Claims Act (FCA) that PennzEnergy improperly deducted from royalty values costs associated with boosting gas up to pipeline pressures and failed to report and pay royalties on gas used to fuel boosting compressors.

The resolution of this matter was one of the last in a series of settlements arising out of whistleblower litigation which has been pending for more than a decade, the two federal entities said. Under FCA’s whistleblower provision, private citizens may sue on behalf of the US and share in any recovery, they explained.

Harrold Wright sued on this basis, and settlements from Devon and other producers in the case exceed $300 million, DOJ said. It said that his heirs will receive $908,040.38, or 26%, of the Devon settlement because Wright is deceased.

Contact Nick Snow at nicks@pennwell.com.

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