-falsely reported value of gas to claim excessive deductions
Highlights from “What Guyana needs to know about ExxonMobil Part 2”. In last Thursday’s edition, Kaieteur News examined how US oil giant, ExxonMobil entered into oil rich nations such as Chad, Papua New Guinea and Nigeria. But even after receiving windfall profits from ExxonMobil, those countries are no better off economically. Today, we continue with the third installment of this series which will focus on ExxonMobil’s history when it comes to underpaying royalties.
Continued from Thursday
When contractual deals go wrong, the first place both parties may turn to for fair judgment is the court.
US oil giant, ExxonMobil Mobil is not new to this. In fact, the oil and gas superpower has faced a wave of litigation reaching from environmental matters, the alleged deception of its shareholders to even the underpayment of royalties.
In today’s feature, Kaieteur News will shed some light on just three of the instances in which ExxonMobil has been sued in relation to the underpayment of royalties to nations.
In the case of Chad, ExxonMobil was fined US$74 billion as it was ruled in the courts that the nation was underpaid in the royalties it was entitled to from the oil giant.
Research indicates that the fine itself is about five times more than Chad’s Gross Domestic Product, which the World Bank estimates at US$13 billion.
The fine imposed against the company was handed down October 5, last by the High Court in the capital, N’Djamena. The ruling was in reaction to a protest from the Finance Ministry in Chad that a group led by the ExxonMobil giant did not honour its tax commitments.
According to www.bloomberg.com, the court also demanded that the Texas-based oil explorer pay US$819 million in overdue royalties.
Legal minds believe that Chad would not see most of the money as ordered by the court.
ExxonMobil has since said that it disagreed with the Chadian court’s ruling. At the time of the judgment, it was examining other options.
In 2003, ExxonMobil was found to be defrauding the state of Alabama out of royalty payments and was ordered by the courts to pay up more than US$100 million in back-pay royalties.
According to www.classaction.org., in August 2012, a Kansas judge approved a US$54 million settlement with landowners who claimed they were underpaid royalties when ExxonMobil made deductions for expenses that occurred downstream of their wells.
The settlement also ended a lawsuit filed in Kansas state court against ExxonMobil over royalties dating back to 2000.
AMERICAN INDIAN/ FEDERAL LANDS
The affiliates of Mobil with merged with ExxonMobil, were also caught in allegations of underpayment o royalties from American and Federal Lands.
According to the United States Department of Justice, (https://www.justice.gov/opa/pr/mobil-oil-companies-pay-us-322-million-resolve-allegations-underpayment-royalties-american) Mobil Natural Gas Inc., Mobil Exploration & Producing U.S. Inc. and their affiliates had agreed to pay the United States US$32.2 million to resolve claims that they violated the False Claims Act by knowingly underpaying royalties owed on natural gas produced from federal and American Indian leases. This was released by the Justice Department on April 5, 2010.
The Justice Department said that the Mobil companies were alleged to have systematically under reported the value of natural gas taken from the leases from March 1, 1988, to Nov. 30, 1999, and, consequently, paid less royalties than owed to the United States and various American Indian tribes.
The release from the Department said that the settlement with the Mobil companies came from a lawsuit filed by Harold Wright on behalf of the United States.
“The qui tam or whistleblower provisions of the False Claims Act allow private citizens to file actions on behalf of the United States and to share in any recovery. Because Mr. Wright is deceased, his heirs will receive a US$975,000 share of the settlement,” the release had said.
The Justice Department went on to state that it partially intervened against the Mobil defendants in the Wright lawsuit, and previously settled with Burlington Resources Inc. for $105.3 million, Shell Oil Co. for $56 million, Chevron Corporation, Texaco and Unocal Incorporated for $45.5 million and Dominion Exploration and Production Co. for $2 million. The Department said that the Mobil companies were merged into and became subsidiaries of ExxonMobil, the world’s largest publically traded international oil and gas company in November 1999.
The Minerals Management Service (MMS) of the U.S. Department of the Interior is responsible for overseeing the collection of royalties on federal and American Indian leases, as well as federal offshore lands on the Outer Continental Shelf.
The Justice Department said that each month, companies are required to report to MMS the value of the natural gas produced from their federal and American Indian leases and to pay a percentage of the reported value as royalties.
“The United States alleged that the Mobil companies used transactions with affiliated entities to falsely reduce the reported value of gas taken from federal and American Indian leases, to claim excessive deductions for the cost of transporting that gas, and to otherwise understate the value they reported each month for their natural gas production.”
The investigation of and settlement with the Mobil Defendants was jointly handled by the U.S. Attorney for the Eastern District of Texas and the Civil Division of the Department of Justice, with the assistance of the Department of the Interior’s Office of Inspector General, Minerals Management Service, and Office of the Solicitor. (The case is U.S. ex rel. Wright v. Chevron USA, Inc. et al., 5:03-CV-264 (E.D. Tex.)
PREPARING FOR THE WORST
With the aforementioned in mind, it is not unreasonable for citizens to be worried or cautious when it comes to the nation’s future relations with ExxonMobil as it relates to the payment of royalties.
More importantly, given ExxonMobil’s history in the foregoing cases, it would not be impractical for Guyanese to question whether the state is preparing the legal framework to deal with the worst to come with the oil and gas superpower.
To be continued…
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