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Conoco Phillips’ Subsidiary to Pay United States $97.5 Million for Fraudulent Underpayment of Natural Gas Royalties

WASHINGTON – Burlington Resources Inc. has agreed to pay the United States $97.5 million to resolve claims that it underpaid royalties owed on natural gas produced from federal and Indian leases, the Justice Department announced today. Last year, Burlington became a wholly owned subsidiary of ConocoPhillips, the third largest integrated energy company in the United States.

The settlement resolves allegations under the False Claims Act that Burlington systematically under-reported the value of natural gas that it produced from onshore federal and Indian leases from March 1, 1988, to March 31, 2005, and consequently, paid less royalties than it owed to the United States and various Indian tribes.

The Minerals Management Service (MMS) of the U.S. Department of the Interior is responsible for overseeing the collection of royalties on federal and Indian leases. Each month, companies are required to report to MMS the value of the natural gas produced from their federal and Indian leases and to pay a percentage of the reported value as royalties. The United States alleged that Burlington used transactions with affiliated entities to claim excessive deductions for the cost of transporting and treating its gas, and to otherwise understate the value it reported each month for its natural gas production.

“The Department of Justice is committed to ensuring that those who remove valuable assets from public or Indian lands pay a fair price for those assets,” said Peter D. Keisler, Assistant Attorney General for the Civil Division. “We will continue to pursue claims against other companies that seek to evade their royalty payment obligations.”

The settlement with Burlington arises from a lawsuit filed by a private whistleblower under the False Claims Act, which alleges that a number of companies systematically underpaid royalties due for their federal and Indian natural gas production. The Justice Department partially intervened against several defendants in the lawsuit, and previously settled with Shell Oil Co. for $56 million and Dominion Exploration and Production Co. for $2 million. The Department is continuing to pursue claims against Exxon-Mobil Corp.

The investigation of and settlement with Burlington were 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; the Minerals Management Service; and the New Mexico Taxation and Revenue Department Oil and Gas Bureau.