Oil company Kerr-McGee Corp. knowingly underpaid the federal government by $7.56 million in royalties, a federal jury in Denver ruled Tuesday.
Kerr-McGee, now owned by Houston-based Anadarko Petroleum, could be liable for up to $39 million in damages, according to attorneys for former federal auditor Bobby Maxwell, who filed the case against Kerr-McGee.
Kerr-McGee attorney Scott Barker of Holland & Hart said he disagreed with the jury’s verdict and likely will appeal.
The U.S. District Court jury deliberated less than four hours before finding that Kerr-McGee sold oil to Houston-based petroleum company Texon LP at below-market prices in a deal to reduce its royalty payments to the Minerals Management Service, a government agency responsible for collecting payments for energy produced on federal leases.
In exchange for paying a lower price, Texon provided free marketing services for Kerr- McGee, Maxwell’s attorneys said.
The Minerals Management Service never pursued the case against Kerr-McGee, but Maxwell, a former Denver-based auditor for the agency, filed the lawsuit under the federal False Claims Act.
Maxwell, 53, said after the verdict he believes the agency succumbed to “political pressure” in not pursuing the apparent royalty shortfall from Kerr-McGee oil produced in the Gulf of Mexico.
“A group of ordinary citizens decided today they’d had enough with the cozy relationship between government and Big Oil,” said Maxwell’s lawyer, Michael Porter.
Maxwell and his attorneys could receive up to one-third of the damages assessed against Kerr-McGee, with the government collecting the rest.
A separate court hearing will be held to determine if Kerr-McGee will have to pay double or triple the $7.56 million underpayment, plus the possibility of up to $16 million in additional penalties, according to Porter.
Kerr-McGee attorneys claimed that the suit was groundless because senior officials of the Minerals Management Agency made no effort to collect more royalties on top of the $110 million Kerr-McGee paid from its oil sales to Texon.
Barker, the Kerr-McGee attorney, said the case was nothing more than a disagreement over interpretation of royalty calculations, not an intentional false claim as the plaintiffs alleged.
Kerr-McGee, formerly based in Oklahoma City, and Denver-based Western Gas Resources were acquired last year by Anadarko in a $23.3 billion purchase.
Staff writer Steve Raabe can be reached at 303-954-1948 or sraabe@denverpost.com.
