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Report: Suits say Feds blocked oil royalties
Four Interior Department auditors said to claim they were blocked from pursuing payments owed for Gulf drilling.

NEW YORK (CNNMoney.com) -- Four government auditors who monitor leases for oil and gas on federal property charge the Interior Department suppressed their efforts to recover millions of dollars from companies they said cheated the government, according to a published report.

The New York Times reported the accusations Thursday, citing recently unsealed lawsuits that the four brought to try to recover more than $30 million they argue is owed the federal government for oil produced in publicly owned waters in the Gulf of Mexico.

Four Interior Department auditors have brought suits charging they were stopped from pursuing oil royalties due to the federal government.
Four Interior Department auditors have brought suits charging they were stopped from pursuing oil royalties due to the federal government.

The paper reports that two of the lawsuits, brought by two senior auditors still with the Minerals Management Service office in Oklahoma City, claim that Shell Oil (Charts) had fraudulently shortchanged taxpayers out of $18 million. The suit charges that the two had been ordered by superiors to drop their claim.

The paper reports that a third auditor, also in Oklahoma City, charged that senior officials in Denver ordered him to drop his demand that two dozen companies pay $1 million in back interest.

Bobby Maxwell, who the Times reports was formerly in charge of Gulf of Mexico auditing before leaving the agency, filed a suit in 2004 that charges senior officials in Washington ordered him not to press claims that the Kerr-McGee Corp. had cheated the government out of $12 million in royalties.

Anadarko Petroleum Corp. (Charts) purchased Kerr-McGee earlier this year for $16 billion. John Christiansen, a Kerr-McGee spokesman, told the paper, "We believe the case is without merit and we are defending against it." A Shell spokeswoman said the company had not seen the suits and had no comment.

The paper said the auditors sued the oil companies under a federal law, called the False Claims Act, that allows individuals to expose fraud against the government. If they are successful in their legal effort, they will be entitled to up to 30 percent of any money recovered, while losing companies would be required to pay triple the amount of recovered money as well as back interest -potentially more than $120 million in these cases.

Interior officials issued a statement to the paper that denied the agency had suppressed any valid claims and implied that the auditors simply wanted a share of any money recovered through their lawsuits.

The paper reports that the Justice Department, which reviews such suits and sometimes joins them, declined to participate in these cases. But it did not urge the courts to dismiss the suits, as some senior Interior Department officials had wanted, according to the paper.

The Interior Department's inspector general, Earl E. Devaney, in testimony to a U.S. House subcommittee Sept. 13, blasted the department for alleged ethical failures, saying that "short of crime, anything goes" at the top levels of the Interior Department, according to the paper.

Public lands under the Gulf of Mexico have become an important source of the nation's oil, accounting for almost 30 percent of U.S. oil production and almost 20 percent of natural gas production.

In addition, advances in deep-water drilling may unlock new supplies in coming years, with Chevron (Charts), Devon Energy (Charts) and Statoil (Charts) announcing earlier this month that a joint venture of theirs had successfully extracted oil from a test well in the deep waters of the Gulf of Mexico, an achievement that could increase total U.S. oil reserves by about 50 percent.

But the three companies may avoid more than $1 billion in royalty payments on that new find due to a mistake the Interior Department made in signing offshore leases in the late 1990's, according to an earlier report in the Times.

Major U.S. source of oil is tapped Top of page

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