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March 13, 12

NEWS / Devon Energy to Pay U.S. $3.5 Million to Resolve Allegations of Royalty Underpayments from Federal a

Devon Energy Corporation and its affiliates have agreed to pay the United States $3,492,463 to resolve claims that PennzEnergy, a predecessor to Devon, violated the False Claims Act by knowingly underpaying royalties owed on natural gas produced from federal and Indian lands, the Justice Department announced today. Devon is an independent oil and natural gas exploration and production company with operations focused onshore in the United States and Canada.

PennzEnergy, formerly known as Pennzoil Company, was acquired by Devon in May 1999. Prior to the merger, PennzEnergy was involved in the production of natural gas from federal leases offshore in the Gulf of Mexico and onshore in the Gulf Coast.

Congress has authorized federal and Indian lands to be leased for the production of natural gas in exchange for the payment of royalties on the value of the gas that is produced. Each month companies are required to report and pay to the U.S. Department of the Interior the amount of royalty that is due. This settlement resolves claims by the United States under the False Claims Act that PennzEnergy improperly deducted from royalty values costs associated with boosting gas up to pipeline pressures and failed to report and pay royalties on gas used to fuel boosting compressors.

“Natural gas royalties are an important source of income for the United States, Native Americans, and various states, and they help support critical programs from which we all benefit,” said Stuart F. Delery, Acting Assistant Attorney General for the Justice Department’s Civil Division. “Through cases such as this, we continue to make certain that companies that lease public and Indian lands, and that extract non-renewable resources from those lands, pay their full share of royalties.”

“This settlement demonstrates that the Department remains committed to ensuring that energy companies accurately report production and pay the required royalties,” said Greg Gould, Interior’s Acting Deputy Assistant Secretary for Natural Resources Revenue. Gould added that ONRR “will continue to pursue every dollar due to taxpayers and the Federal Government from extracting these precious natural resources from Federal and American Indian lands.”

The resolution of this matter is one of the last in a series of settlements arising out of qui tam, or whistleblower, litigation that has been pending for over a decade.

Today’s settlement arises from a lawsuit filed by Harrold Wright under the False Claims Act. Under the qui tam, or whistleblower, provisions of the False Claims Act, private citizens may file actions on behalf of the United States and share in any recovery. Because Mr. Wright is deceased, his heirs will receive $908,040.38 or 26 percent of the settlement.

The United States has intervened against Devon for the purpose of completing this settlement. The Department of Justice previously intervened against several other defendants in the Wright lawsuit. Settlements in the case to date exceed $300 million. The claims in the complaint are merely allegations and do not constitute a determination of liability.

The investigation and settlement of this matter was jointly handled by the Justice Department’s Civil Division, the U.S. Attorney’s Office for the Eastern District of Texas and the Department of the Interior’s Office of Natural Resource Revenue, Office of the Solicitor and Office of the Inspector General.

The case is U.S. ex rel. Wright v. Chevron USA, Inc. et al., 5:03-CV-264 (E.D. Tex.) .


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