US Supreme Court Denies Interior Dept Royalty Case Hearing

The U.S. Supreme Court refused Monday to consider a Department of Interior challenge to a lower-court ruling that blocked the agency from collecting at least $19 billion in oil fees.

The petition before the nation's highest court was the government's last legal opportunity to claim royalties from a raft of oil contracts signed in the 1990s.

In January, a New Orleans-based federal appeals court sided with Anadarko Petroleum Corp. (APC) in a controversial and precedent-setting case, finding the government couldn't collect royalties from eight oil and natural gas production leases in the Gulf of Mexico.

Though the case involved only Kerr-McGee Oil and Gas Corp. leases now owned by Anadarko, the ruling affects dozens of other oil and natural gas companies that had signed leases in the Gulf between 1996 and 2000. Estimates vary, but the government said in its Supreme Court petition that the lower-court ruling could mean at least $19 billion in foregone royalties.

The leases were signed under the Outer Continental Shelf Deep Water Royalty Relief Act of 1995 - designed to encourage expensive offshore oil and gas development. Anadarko argued the law specifically prevented the collection of royalties until a minimum volume of oil and gas production had been met, while the Interior Department said the law gave it discretion to collect fees at a price threshold.

The case was one of several oil-royalty issues that gave fodder to Democratic lawmakers seeking to move the country away from fossil-fuel use and toward renewable energy.

Outside the court system, Democratic lawmakers have tried to leverage payment of the royalties that Congress believes are owed to the government. Several legislators have drafted bills that would prevent oil companies from winning new leases unless they negotiated a settlement. Such punitive laws are likely to be successfully challenged in court, however.

While those efforts have largely been dropped, Democrats are planning to cut tens of billions of dollars in tax breaks to the oil and natural gas industry.

On another front, Interior Secretary Ken Salazar is in the process of restructuring the royalty program, including considering raising rates for oil companies.

By Ian Talley, Dow Jones Newswires; [phone]; [e-mail]