Department of Justice Seal


TUESDAY, MAY 19, 1998 (202) 616-2765

TDD (202) 514-1888


WASHINGTON, D.C. -- The Justice Department has intervened in a whistleblower action, accusing Texaco, Inc. and six of its subsidiaries or affiliates of knowingly undervaluing oil extracted from federal and Indian lands to reduce royalties they would have had to pay the United States and the Indian nations under federal mineral contracts, the Department of Justice announced today.

Stuart Schiffer, Deputy Assistant Attorney General of the Civil Division, said the United States will file an amended complaint alleging that Texaco systematically ignored the rules for valuing oil and instead paid federal and Indian oil royalties on the basis of a lower value that is improper to use for royalties.

The suit was originally filed in U.S. District Court in Lufkin, Texas by three private parties under the qui tam provisions of the False Claims Act, said U.S. Attorney Mike Bradford of Beaumont, Texas.

The Department said oil production on federal and Indian lands is governed by mineral lease agreements between the Department of the Interior and private oil companies under the Federal Oil and Gas Royalty Management Act of 1982. The Minerals Management Service of the Department of the Interior oversees the collection of oil and gas royalties from companies leasing mineral rights from the United States and Indian tribes. By law, the oil companies must pay the United States and the tribes a percentage of the value of the oil produced on federal or tribal leases as a royalty. When a producer sells its oil to a corporate affiliate, as Texaco does, it is required to value the oil in accordance with regulatory "benchmarks" designed to replicate the competitive market price of the oil.

The investigation of the allegations in the qui tam complaint was conducted by the U.S. Attorney's office in Beaumont, Texas, the Department's Civil Division and the Department of Interior.

Under the qui tam statute, a private party, known as a "relator," can file an action on behalf of the United States and receive a portion of the recovery. On February 19, 1998, the United States intervened against Amoco, Burlington Resources, Conoco and Shell, and their respective subsidiaries, in another oil royalty underpayment case, in which Texaco is not a party, filed by the same relators in Lufkin, Texas.

Under the False Claims Act, the United States may recover three times the amount of its losses plus civil penalties.