Royal Dutch Shell Plc  .com Rotating Header Image

Royal Dutch Shell Plc .com: Kerr-McGee Agrees to Negotiate With U.S. on Oil Royalties in Gulf

Published: July 1, 2006

WASHINGTON, June 30 — The Kerr-McGee Corporation, under pressure from Congress, said on Friday that it would begin negotiations to settle a lawsuit that if it went to trial could deprive the government of as much as $60 billion in oil and gas royalties.

At issue are thousands of leases the government signed with companies seeking to drill in federal waters in the Gulf of Mexico. The leases include incentives that allow companies to avoid paying royalties to the government on much of what they initially produce.

Kerr-McGee sued the Interior Department in March to overturn a provision that requires companies to pay full royalties if oil prices climb above about $34 a barrel and natural gas prices rise above about $4 per thousand cubic feet.

Kerr-McGee is also one of several dozen companies that signed leases in which the government inadvertently failed to halt the incentives during times of high energy prices.

If those leases remain unchanged, the Bush administration estimates the companies would produce about $65 billion worth of oil and gas over the next five years without paying any royalties — a loss to the government that would total more than $7 billion.

If Kerr-McGee were to win its lawsuit, it would set a precedent that would affect thousands of leases owned by companies like Exxon Mobil, BP and Shell. Congressional auditors have estimated that the government could lose an additional $60 billion over 25 years.

Kerr-McGee, which is based in Oklahoma City, did not say it would drop its claims. But in a statement issued on Friday, the company said that it had agreed to “undertake efforts to mediate the disagreement” and that it would ask a court to postpone the trial preparations.

The abrupt retreat came one week after Kerr-McGee reached an agreement to be acquired by Anadarko Petroleum for $16.4 billion — a 40 percent premium over its stock price at the time.

It also came as Congress has stepped up pressure on oil companies to renegotiate their deals. On Thursday, the Senate Appropriations Committee, over objections by Republican leaders and the Bush administration, approved a measure that would prohibit companies that refused to pay full royalties from acquiring any additional federal oil and gas leases. The House passed an almost identical measure in May as part of the Interior Department’s spending bill.

At a hearing of the energy subcommittee of the House Committee on Government Reform, executives from Chevron, Shell and ConocoPhillips said they were ready to renegotiate the erroneous contracts signed in 1998 and 1999. Exxon Mobil insisted that its contracts should be respected, but Kerr-McGee took the most militant stance by arguing that it was entitled to royalty-free gas and oil on all leases signed from 1996 to 2000.

This website and sisters,,,, and, are owned by John Donovan. There is also a Wikipedia segment.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.