Government Tries Again to Get Royalty Payments (APC, BP, CVX, XOM)

Back in January a federal three-judge panel ruled that Anadarko Petroleum Corporation (NYSE:APC) was entitled to royalty relief on production from certain Gulf of Mexico leases, even though the government had made an error when it wrote the contracts. According to Platts, now, the US Department of Justice has filed an appeal, saying that if the ruling is allowed to stand, the government could lose more than $38 billion in royalty payments over the next 25 years.  Anadarko is the industry’s stalking horse here. Many other oil majors, including BP plc (NYSE:BP), Chevron Corporation (NYSE:CVX), and Exxon Mobil Corporation (NYSE:XOM) have leases in the Gulf that could be affected by the court’s ruling.

The government is basing its appeal on what it says was the intent of Congress to encourage drilling in the Gulf when oil prices were low and to delay royalty payments until prices reached a certain threshold. Congress never intended to give oil companies a royalty-free deal forever.

Anadarko will fight this. The company’s outlook for 2009 is pretty dim, with analysts expecting a loss for the first quarter of the year, as well as a loss for the whole year. Sales are expected to be off by about 45% for the first quarter.

Anadarko shares fell more than 5% yesterday, but have recovered about 1% in pre-open trading this morning.

Paul Ausick
March 31, 2009