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These excerpts taken from the DVN 10-K filed Feb 27, 2009. Royalty
Matters
Numerous natural gas producers and related parties, including
Devon, have been named in various lawsuits alleging violation of
the federal False Claims Act. The suits allege that the
producers and related parties used below-market prices, improper
deductions, improper measurement techniques and transactions
with affiliates, which resulted in underpayment of royalties in
connection with natural gas and NGLs produced and sold from
federal and Indian owned or controlled lands. The principal suit
in which Devon is a defendant is United States ex rel.
Wright v. Chevron USA, Inc. et al. (the “Wright
case”). The suit was originally filed in August 1996 in the
United States District Court for the Eastern District of Texas,
but was consolidated in October 2000 with other suits for
pre-trial proceedings in the United States District Court for
the District of Wyoming. On July 10, 2003, the District of
Wyoming remanded the Wright case back to the Eastern District of
Texas to resume proceedings. On April 12, 2007, the court
entered a trial plan and scheduling order in which the case will
proceed in phases. Two phases have been scheduled to date. The
first phase was scheduled to begin in August 2008, but the
defendant settled prior to trial. The second phase was scheduled
to begin in February 2009, but the defendants settled prior to
trial. Devon was not included in the groups of defendants
selected for these first two phases. Devon believes that it has
acted reasonably, has legitimate and strong defenses to all
allegations in the suit, and has paid royalties in good faith.
Devon does not currently believe that it is subject to material
exposure with respect to this lawsuit and, therefore, no
liability related to this lawsuit has been recorded.
Royalty
Matters
Numerous natural gas producers and related parties, including
Devon, have been named in various lawsuits alleging violation of
the federal False Claims Act. The suits allege that the
producers and related parties used below-market prices, improper
deductions, improper measurement techniques and transactions
with affiliates, which resulted in underpayment of royalties in
connection with natural gas and NGLs produced and sold from
federal and Indian owned or controlled lands. The principal suit
in which Devon is a defendant is United States ex rel.
Wright v. Chevron USA, Inc. et al. (the “Wright
case”). The suit was originally filed in August 1996 in the
United States District Court for the Eastern District of Texas,
but was consolidated in October 2000 with other suits for
pre-trial proceedings in the United States District Court for
the District of Wyoming. On July 10, 2003, the District of
Wyoming remanded the Wright case back to the Eastern District of
Texas to resume proceedings. On April 12, 2007, the court
entered a trial plan and scheduling order in which the case will
proceed in phases. Two phases have been scheduled to date. The
first phase was scheduled to begin in August 2008, but the
defendant settled prior to trial. The second phase was scheduled
to begin in February 2009, but the defendants settled prior to
trial. Devon was not included in the groups of defendants
selected for these first two phases. Devon believes that it has
acted reasonably, has legitimate and strong defenses to all
allegations in the suit, and has paid royalties in good faith.
Devon does not currently believe that it is subject to material
exposure with respect to this lawsuit and, therefore, no
liability related to this lawsuit has been recorded.
Royalty Matters Numerous natural gas producers and related parties, including Devon, have been named in various lawsuits alleging violation of the federal False Claims Act. The suits allege that the producers and related parties used below-market prices, improper deductions, improper measurement techniques and transactions with affiliates, which resulted in underpayment of royalties in connection with natural gas and NGLs produced and sold from federal and Indian owned or controlled lands. The principal suit in which Devon is a defendant is United States ex rel. Wright v. Chevron USA, Inc. et al. (the “Wright case”). The suit was originally filed in August 1996 in the United States District Court for the Eastern District of Texas, but was consolidated in October 2000 with other suits for pre-trial proceedings in the United States District Court for the District of Wyoming. On July 10, 2003, the District of Wyoming remanded the Wright case back to the Eastern District of Texas to resume proceedings. On April 12, 2007, the court entered a trial plan and scheduling order in which the case will proceed in phases. Two phases have been scheduled to date. The first phase was scheduled to begin in August 2008, but the defendant settled prior to trial. The second phase was scheduled to begin in February 2009, but the defendants settled prior to trial. Devon was not included in the groups of defendants selected for these first two phases. Devon believes that it has acted reasonably, has legitimate and strong defenses to all allegations in the suit, and has paid royalties in good faith. Devon does not currently believe that it is subject to material exposure with respect to this lawsuit and, therefore, no liability related to this lawsuit has been recorded. Royalty Matters Numerous natural gas producers and related parties, including Devon, have been named in various lawsuits alleging violation of the federal False Claims Act. The suits allege that the producers and related parties used below-market prices, improper deductions, improper measurement techniques and transactions with affiliates, which resulted in underpayment of royalties in connection with natural gas and NGLs produced and sold from federal and Indian owned or controlled lands. The principal suit in which Devon is a defendant is United States ex rel. Wright v. Chevron USA, Inc. et al. (the “Wright case”). The suit was originally filed in August 1996 in the United States District Court for the Eastern District of Texas, but was consolidated in October 2000 with other suits for pre-trial proceedings in the United States District Court for the District of Wyoming. On July 10, 2003, the District of Wyoming remanded the Wright case back to the Eastern District of Texas to resume proceedings. On April 12, 2007, the court entered a trial plan and scheduling order in which the case will proceed in phases. Two phases have been scheduled to date. The first phase was scheduled to begin in August 2008, but the defendant settled prior to trial. The second phase was scheduled to begin in February 2009, but the defendants settled prior to trial. Devon was not included in the groups of defendants selected for these first two phases. Devon believes that it has acted reasonably, has legitimate and strong defenses to all allegations in the suit, and has paid royalties in good faith. Devon does not currently believe that it is subject to material exposure with respect to this lawsuit and, therefore, no liability related to this lawsuit has been recorded. Royalty
Matters
Numerous natural gas producers and related parties, including
Devon, have been named in various lawsuits alleging violation of
the federal False Claims Act. The suits allege that the
producers and related parties used below-market prices, improper
deductions, improper measurement techniques and transactions
with affiliates, which resulted in underpayment of royalties in
connection with natural gas and NGLs produced and sold from
federal and Indian owned or controlled lands. The principal suit
in which Devon is a defendant is United States ex rel.
Wright v. Chevron USA, Inc. et al. (the “Wright
case”). The suit was originally filed in August 1996 in the
United States District Court for the Eastern District of Texas,
but was consolidated in October 2000 with other suits for
pre-trial proceedings in the United States District Court for
the District of
Table of Contents
DEVON
ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)
Wyoming. On July 10, 2003, the District of Wyoming remanded
the Wright case back to the Eastern District of Texas to resume
proceedings. On April 12, 2007, the court entered a trial
plan and scheduling order in which the case will proceed in
phases. Two phases have been scheduled to date. The first phase
was scheduled to begin in August 2008, but the defendant settled
prior to trial. The second phase was scheduled to begin in
February 2009, but the defendants settled prior to trial. Devon
was not included in the groups of defendants selected for these
first two phases. Devon believes that it has acted reasonably,
has legitimate and strong defenses to all allegations in the
suit, and has paid royalties in good faith. Devon does not
currently believe that it is subject to material exposure with
respect to this lawsuit and, therefore, no liability related to
this lawsuit has been recorded.
In 1995, the United States Congress passed the Deep Water
Royalty Relief Act. The intent of this legislation was to
encourage deep water exploration in the Gulf of Mexico by
providing relief from the obligation to pay royalties on certain
federal leases. Deep water leases issued in certain years by the
Minerals Management Service (the “MMS”) have contained
price thresholds, such that if the market prices for oil or gas
exceeded the thresholds for a given year, royalty relief would
not be granted for that year. Deep water leases issued in 1998
and 1999 did not include price thresholds.
The U.S. House of Representatives in January 2007 passed
legislation that would have required companies to renegotiate
the 1998 and 1999 leases as a condition of securing future
federal leases. This legislation was not passed by the
U.S. Senate. However, Congress may consider similar
legislation in the future. In October 2007 a federal district
court ruled in favor of a plaintiff who had challenged the
legality of including price thresholds in deep water leases.
Additionally, in January 2009 a federal appellate court upheld
this district court ruling. This judgment is subject to further
appeals.
As of December 31, 2008, Devon had $83 million accrued
for potential royalties on various deep water leases. Due to the
uncertainty of this issue caused by the favorable federal court
decisions and potential Congressional actions, Devon has ceased
accruing additional royalties on its affected leases. Devon will
continue to monitor developments and adjust its accruals as
necessary.
Royalty
Matters
Numerous natural gas producers and related parties, including
Devon, have been named in various lawsuits alleging violation of
the federal False Claims Act. The suits allege that the
producers and related parties used below-market prices, improper
deductions, improper measurement techniques and transactions
with affiliates, which resulted in underpayment of royalties in
connection with natural gas and NGLs produced and sold from
federal and Indian owned or controlled lands. The principal suit
in which Devon is a defendant is United States ex rel.
Wright v. Chevron USA, Inc. et al. (the “Wright
case”). The suit was originally filed in August 1996 in the
United States District Court for the Eastern District of Texas,
but was consolidated in October 2000 with other suits for
pre-trial proceedings in the United States District Court for
the District of
Table of Contents
DEVON
ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)
Wyoming. On July 10, 2003, the District of Wyoming remanded
the Wright case back to the Eastern District of Texas to resume
proceedings. On April 12, 2007, the court entered a trial
plan and scheduling order in which the case will proceed in
phases. Two phases have been scheduled to date. The first phase
was scheduled to begin in August 2008, but the defendant settled
prior to trial. The second phase was scheduled to begin in
February 2009, but the defendants settled prior to trial. Devon
was not included in the groups of defendants selected for these
first two phases. Devon believes that it has acted reasonably,
has legitimate and strong defenses to all allegations in the
suit, and has paid royalties in good faith. Devon does not
currently believe that it is subject to material exposure with
respect to this lawsuit and, therefore, no liability related to
this lawsuit has been recorded.
In 1995, the United States Congress passed the Deep Water
Royalty Relief Act. The intent of this legislation was to
encourage deep water exploration in the Gulf of Mexico by
providing relief from the obligation to pay royalties on certain
federal leases. Deep water leases issued in certain years by the
Minerals Management Service (the “MMS”) have contained
price thresholds, such that if the market prices for oil or gas
exceeded the thresholds for a given year, royalty relief would
not be granted for that year. Deep water leases issued in 1998
and 1999 did not include price thresholds.
The U.S. House of Representatives in January 2007 passed
legislation that would have required companies to renegotiate
the 1998 and 1999 leases as a condition of securing future
federal leases. This legislation was not passed by the
U.S. Senate. However, Congress may consider similar
legislation in the future. In October 2007 a federal district
court ruled in favor of a plaintiff who had challenged the
legality of including price thresholds in deep water leases.
Additionally, in January 2009 a federal appellate court upheld
this district court ruling. This judgment is subject to further
appeals.
As of December 31, 2008, Devon had $83 million accrued
for potential royalties on various deep water leases. Due to the
uncertainty of this issue caused by the favorable federal court
decisions and potential Congressional actions, Devon has ceased
accruing additional royalties on its affected leases. Devon will
continue to monitor developments and adjust its accruals as
necessary.
Royalty Matters Numerous natural gas producers and related parties, including Devon, have been named in various lawsuits alleging violation of the federal False Claims Act. The suits allege that the producers and related parties used below-market prices, improper deductions, improper measurement techniques and transactions with affiliates, which resulted in underpayment of royalties in connection with natural gas and NGLs produced and sold from federal and Indian owned or controlled lands. The principal suit in which Devon is a defendant is United States ex rel. Wright v. Chevron USA, Inc. et al. (the “Wright case”). The suit was originally filed in August 1996 in the United States District Court for the Eastern District of Texas, but was consolidated in October 2000 with other suits for pre-trial proceedings in the United States District Court for the District of
Table of ContentsDEVON ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Wyoming. On July 10, 2003, the District of Wyoming remanded the Wright case back to the Eastern District of Texas to resume proceedings. On April 12, 2007, the court entered a trial plan and scheduling order in which the case will proceed in phases. Two phases have been scheduled to date. The first phase was scheduled to begin in August 2008, but the defendant settled prior to trial. The second phase was scheduled to begin in February 2009, but the defendants settled prior to trial. Devon was not included in the groups of defendants selected for these first two phases. Devon believes that it has acted reasonably, has legitimate and strong defenses to all allegations in the suit, and has paid royalties in good faith. Devon does not currently believe that it is subject to material exposure with respect to this lawsuit and, therefore, no liability related to this lawsuit has been recorded. In 1995, the United States Congress passed the Deep Water Royalty Relief Act. The intent of this legislation was to encourage deep water exploration in the Gulf of Mexico by providing relief from the obligation to pay royalties on certain federal leases. Deep water leases issued in certain years by the Minerals Management Service (the “MMS”) have contained price thresholds, such that if the market prices for oil or gas exceeded the thresholds for a given year, royalty relief would not be granted for that year. Deep water leases issued in 1998 and 1999 did not include price thresholds. The U.S. House of Representatives in January 2007 passed legislation that would have required companies to renegotiate the 1998 and 1999 leases as a condition of securing future federal leases. This legislation was not passed by the U.S. Senate. However, Congress may consider similar legislation in the future. In October 2007 a federal district court ruled in favor of a plaintiff who had challenged the legality of including price thresholds in deep water leases. Additionally, in January 2009 a federal appellate court upheld this district court ruling. This judgment is subject to further appeals. As of December 31, 2008, Devon had $83 million accrued for potential royalties on various deep water leases. Due to the uncertainty of this issue caused by the favorable federal court decisions and potential Congressional actions, Devon has ceased accruing additional royalties on its affected leases. Devon will continue to monitor developments and adjust its accruals as necessary. Royalty Matters Numerous natural gas producers and related parties, including Devon, have been named in various lawsuits alleging violation of the federal False Claims Act. The suits allege that the producers and related parties used below-market prices, improper deductions, improper measurement techniques and transactions with affiliates, which resulted in underpayment of royalties in connection with natural gas and NGLs produced and sold from federal and Indian owned or controlled lands. The principal suit in which Devon is a defendant is United States ex rel. Wright v. Chevron USA, Inc. et al. (the “Wright case”). The suit was originally filed in August 1996 in the United States District Court for the Eastern District of Texas, but was consolidated in October 2000 with other suits for pre-trial proceedings in the United States District Court for the District of
Table of ContentsDEVON ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Wyoming. On July 10, 2003, the District of Wyoming remanded the Wright case back to the Eastern District of Texas to resume proceedings. On April 12, 2007, the court entered a trial plan and scheduling order in which the case will proceed in phases. Two phases have been scheduled to date. The first phase was scheduled to begin in August 2008, but the defendant settled prior to trial. The second phase was scheduled to begin in February 2009, but the defendants settled prior to trial. Devon was not included in the groups of defendants selected for these first two phases. Devon believes that it has acted reasonably, has legitimate and strong defenses to all allegations in the suit, and has paid royalties in good faith. Devon does not currently believe that it is subject to material exposure with respect to this lawsuit and, therefore, no liability related to this lawsuit has been recorded. In 1995, the United States Congress passed the Deep Water Royalty Relief Act. The intent of this legislation was to encourage deep water exploration in the Gulf of Mexico by providing relief from the obligation to pay royalties on certain federal leases. Deep water leases issued in certain years by the Minerals Management Service (the “MMS”) have contained price thresholds, such that if the market prices for oil or gas exceeded the thresholds for a given year, royalty relief would not be granted for that year. Deep water leases issued in 1998 and 1999 did not include price thresholds. The U.S. House of Representatives in January 2007 passed legislation that would have required companies to renegotiate the 1998 and 1999 leases as a condition of securing future federal leases. This legislation was not passed by the U.S. Senate. However, Congress may consider similar legislation in the future. In October 2007 a federal district court ruled in favor of a plaintiff who had challenged the legality of including price thresholds in deep water leases. Additionally, in January 2009 a federal appellate court upheld this district court ruling. This judgment is subject to further appeals. As of December 31, 2008, Devon had $83 million accrued for potential royalties on various deep water leases. Due to the uncertainty of this issue caused by the favorable federal court decisions and potential Congressional actions, Devon has ceased accruing additional royalties on its affected leases. Devon will continue to monitor developments and adjust its accruals as necessary. These excerpts taken from the DVN 10-K filed Jun 9, 2008. Royalty
Matters
Numerous gas producers and related parties, including Devon,
have been named in various lawsuits alleging violation of the
federal False Claims Act. The suits allege that the producers
and related parties used below-market prices, improper
deductions, improper measurement techniques and transactions
with affiliates, which resulted in underpayment of royalties in
connection with natural gas and NGLs produced and sold from
federal and Indian owned or controlled lands. The principal suit
in which Devon is a defendant is United States ex rel.
Wright v. Chevron USA, Inc. et al. (the “Wright
case”). The suit was originally filed in August 1996 in the
United States District Court for the Eastern District of Texas,
but was consolidated in October 2000 with other suits for
pre-trial proceedings in the United States District Court for
the District of Wyoming. On July 10, 2003, the District of
Wyoming remanded the Wright case back to the Eastern District of
Texas to resume proceedings. On April 12, 2007, the court
entered a trial plan and scheduling order in which the case will
proceed in phases. Two phases have been scheduled to date, with
the first scheduled to begin in August 2008 and the second
scheduled to begin in February 2009. Devon is not included in
the groups of defendants selected for these first two phases.
Devon believes that it has acted reasonably, has legitimate and
strong defenses to all allegations in the suit, and has paid
royalties in good faith. Devon does not currently believe that
it is subject to material exposure in association with this
lawsuit and no liability has been recorded in connection
therewith.
In 1995, the United States Congress passed the Deep Water
Royalty Relief Act. The intent of this legislation was to
encourage deep water exploration in the Gulf of Mexico by
providing relief from the obligation to pay royalties on certain
federal leases. Deep water leases issued in certain years by the
Minerals Management Service (the “MMS”) have contained
price thresholds, such that if the market prices for oil or
Table of Contents
DEVON
ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)
natural gas exceeded the thresholds for a given year, royalty
relief would not be granted for that year. Deep water leases
issued in 1998 and 1999 did not include price thresholds. The
MMS in 2006 informed Devon and other oil and gas companies that
the omission of price thresholds from these leases was an error
on its part and was not its intention. Accordingly, the MMS
invited Devon and the other affected oil and gas producers to
renegotiate the terms and conditions of the 1998 and 1999 leases
to add price threshold provisions to the lease agreements for
periods after October 1, 2006. Devon has not entered into
any renegotiated leases.
The U.S. House of Representatives in January 2007 passed
legislation that would have required companies to renegotiate
the 1998 and 1999 leases as a condition of securing future
federal leases. This legislation was not passed by the
U.S. Senate. However, Congress may consider similar
legislation in the future. Although Devon has not signed
renegotiated leases, it has accrued in its 2007 financial
statements approximately $28 million for royalties that
would be due if price thresholds were added to its 1998 and 1999
leases effective October 1, 2006.
Additionally, Devon has $22 million accrued at the end of
2007 for royalties related to leases issued under the Deep Water
Royalty Relief Act in years other than 1998 or 1999. The leases
issued in these other years did include price thresholds, but in
October 2007 a federal district court ruled in favor of a
plaintiff who had challenged the legality of including price
thresholds in these leases. This judgment is subject to appeal,
and Devon will continue to accrue for royalties on these leases
until the matter is resolved.
Royalty Matters Numerous gas producers and related parties, including Devon, have been named in various lawsuits alleging violation of the federal False Claims Act. The suits allege that the producers and related parties used below-market prices, improper deductions, improper measurement techniques and transactions with affiliates, which resulted in underpayment of royalties in connection with natural gas and NGLs produced and sold from federal and Indian owned or controlled lands. The principal suit in which Devon is a defendant is United States ex rel. Wright v. Chevron USA, Inc. et al. (the “Wright case”). The suit was originally filed in August 1996 in the United States District Court for the Eastern District of Texas, but was consolidated in October 2000 with other suits for pre-trial proceedings in the United States District Court for the District of Wyoming. On July 10, 2003, the District of Wyoming remanded the Wright case back to the Eastern District of Texas to resume proceedings. On April 12, 2007, the court entered a trial plan and scheduling order in which the case will proceed in phases. Two phases have been scheduled to date, with the first scheduled to begin in August 2008 and the second scheduled to begin in February 2009. Devon is not included in the groups of defendants selected for these first two phases. Devon believes that it has acted reasonably, has legitimate and strong defenses to all allegations in the suit, and has paid royalties in good faith. Devon does not currently believe that it is subject to material exposure in association with this lawsuit and no liability has been recorded in connection therewith. In 1995, the United States Congress passed the Deep Water Royalty Relief Act. The intent of this legislation was to encourage deep water exploration in the Gulf of Mexico by providing relief from the obligation to pay royalties on certain federal leases. Deep water leases issued in certain years by the Minerals Management Service (the “MMS”) have contained price thresholds, such that if the market prices for oil or
Table of ContentsDEVON ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) natural gas exceeded the thresholds for a given year, royalty relief would not be granted for that year. Deep water leases issued in 1998 and 1999 did not include price thresholds. The MMS in 2006 informed Devon and other oil and gas companies that the omission of price thresholds from these leases was an error on its part and was not its intention. Accordingly, the MMS invited Devon and the other affected oil and gas producers to renegotiate the terms and conditions of the 1998 and 1999 leases to add price threshold provisions to the lease agreements for periods after October 1, 2006. Devon has not entered into any renegotiated leases. The U.S. House of Representatives in January 2007 passed legislation that would have required companies to renegotiate the 1998 and 1999 leases as a condition of securing future federal leases. This legislation was not passed by the U.S. Senate. However, Congress may consider similar legislation in the future. Although Devon has not signed renegotiated leases, it has accrued in its 2007 financial statements approximately $28 million for royalties that would be due if price thresholds were added to its 1998 and 1999 leases effective October 1, 2006. Additionally, Devon has $22 million accrued at the end of 2007 for royalties related to leases issued under the Deep Water Royalty Relief Act in years other than 1998 or 1999. The leases issued in these other years did include price thresholds, but in October 2007 a federal district court ruled in favor of a plaintiff who had challenged the legality of including price thresholds in these leases. This judgment is subject to appeal, and Devon will continue to accrue for royalties on these leases until the matter is resolved. These excerpts taken from the DVN 10-K filed Feb 28, 2008. Royalty
Matters
Numerous gas producers and related parties, including Devon,
have been named in various lawsuits alleging violation of the
federal False Claims Act. The suits allege that the producers
and related parties used below-market prices, improper
deductions, improper measurement techniques and transactions
with affiliates, which resulted in underpayment of royalties in
connection with natural gas and NGLs produced and sold from
federal and Indian owned or controlled lands. The principal suit
in which Devon is a defendant is United States ex rel.
Wright v. Chevron USA, Inc. et al. (the “Wright
case”). The suit was originally filed in August 1996 in the
United States District Court for the Eastern District of Texas,
but was consolidated in October 2000 with other suits for
pre-trial proceedings in the United States District Court for
the District of Wyoming. On July 10, 2003, the District of
Wyoming remanded the Wright case back to the Eastern District of
Texas to resume proceedings. On April 12, 2007, the court
entered a trial plan and scheduling order in which the case will
proceed in phases. Two phases have been scheduled to date, with
the first scheduled to begin in August 2008 and the second
scheduled to begin in February 2009. Devon is not included in
the groups of defendants selected for these first two phases.
Devon believes that it has acted reasonably, has legitimate and
strong defenses to all allegations in the suit, and has paid
royalties in good faith. Devon does not currently believe that
it is subject to material exposure in association with this
lawsuit and no liability has been recorded in connection
therewith.
In 1995, the United States Congress passed the Deep Water
Royalty Relief Act. The intent of this legislation was to
encourage deep water exploration in the Gulf of Mexico by
providing relief from the obligation to pay royalties on certain
federal leases. Deep water leases issued in certain years by the
Minerals Management Service (the “MMS”) have contained
price thresholds, such that if the market prices for oil or
Table of Contents
DEVON
ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS —
(Continued)
natural gas exceeded the thresholds for a given year, royalty
relief would not be granted for that year. Deep water leases
issued in 1998 and 1999 did not include price thresholds. The
MMS in 2006 informed Devon and other oil and gas companies that
the omission of price thresholds from these leases was an error
on its part and was not its intention. Accordingly, the MMS
invited Devon and the other affected oil and gas producers to
renegotiate the terms and conditions of the 1998 and 1999 leases
to add price threshold provisions to the lease agreements for
periods after October 1, 2006. Devon has not entered into
any renegotiated leases.
The U.S. House of Representatives in January 2007 passed
legislation that would have required companies to renegotiate
the 1998 and 1999 leases as a condition of securing future
federal leases. This legislation was not passed by the
U.S. Senate. However, Congress may consider similar
legislation in the future. Although Devon has not signed
renegotiated leases, it has accrued in its 2007 financial
statements approximately $28 million for royalties that
would be due if price thresholds were added to its 1998 and 1999
leases effective October 1, 2006.
Additionally, Devon has $22 million accrued at the end of
2007 for royalties related to leases issued under the Deep Water
Royalty Relief Act in years other than 1998 or 1999. The leases
issued in these other years did include price thresholds, but in
October 2007 a federal district court ruled in favor of a
plaintiff who had challenged the legality of including price
thresholds in these leases. This judgment is subject to appeal,
and Devon will continue to accrue for royalties on these leases
until the matter is resolved.
Royalty Matters Numerous gas producers and related parties, including Devon, have been named in various lawsuits alleging violation of the federal False Claims Act. The suits allege that the producers and related parties used below-market prices, improper deductions, improper measurement techniques and transactions with affiliates, which resulted in underpayment of royalties in connection with natural gas and NGLs produced and sold from federal and Indian owned or controlled lands. The principal suit in which Devon is a defendant is United States ex rel. Wright v. Chevron USA, Inc. et al. (the “Wright case”). The suit was originally filed in August 1996 in the United States District Court for the Eastern District of Texas, but was consolidated in October 2000 with other suits for pre-trial proceedings in the United States District Court for the District of Wyoming. On July 10, 2003, the District of Wyoming remanded the Wright case back to the Eastern District of Texas to resume proceedings. On April 12, 2007, the court entered a trial plan and scheduling order in which the case will proceed in phases. Two phases have been scheduled to date, with the first scheduled to begin in August 2008 and the second scheduled to begin in February 2009. Devon is not included in the groups of defendants selected for these first two phases. Devon believes that it has acted reasonably, has legitimate and strong defenses to all allegations in the suit, and has paid royalties in good faith. Devon does not currently believe that it is subject to material exposure in association with this lawsuit and no liability has been recorded in connection therewith. In 1995, the United States Congress passed the Deep Water Royalty Relief Act. The intent of this legislation was to encourage deep water exploration in the Gulf of Mexico by providing relief from the obligation to pay royalties on certain federal leases. Deep water leases issued in certain years by the Minerals Management Service (the “MMS”) have contained price thresholds, such that if the market prices for oil or
Table of ContentsDEVON ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) natural gas exceeded the thresholds for a given year, royalty relief would not be granted for that year. Deep water leases issued in 1998 and 1999 did not include price thresholds. The MMS in 2006 informed Devon and other oil and gas companies that the omission of price thresholds from these leases was an error on its part and was not its intention. Accordingly, the MMS invited Devon and the other affected oil and gas producers to renegotiate the terms and conditions of the 1998 and 1999 leases to add price threshold provisions to the lease agreements for periods after October 1, 2006. Devon has not entered into any renegotiated leases. The U.S. House of Representatives in January 2007 passed legislation that would have required companies to renegotiate the 1998 and 1999 leases as a condition of securing future federal leases. This legislation was not passed by the U.S. Senate. However, Congress may consider similar legislation in the future. Although Devon has not signed renegotiated leases, it has accrued in its 2007 financial statements approximately $28 million for royalties that would be due if price thresholds were added to its 1998 and 1999 leases effective October 1, 2006. Additionally, Devon has $22 million accrued at the end of 2007 for royalties related to leases issued under the Deep Water Royalty Relief Act in years other than 1998 or 1999. The leases issued in these other years did include price thresholds, but in October 2007 a federal district court ruled in favor of a plaintiff who had challenged the legality of including price thresholds in these leases. This judgment is subject to appeal, and Devon will continue to accrue for royalties on these leases until the matter is resolved. This excerpt taken from the DVN 10-K filed Feb 28, 2007. Royalty
Matters
Numerous gas producers and related parties, including Devon,
have been named in various lawsuits alleging violation of the
federal False Claims Act. The suits allege that the producers
and related parties used below-market prices, improper
deductions, improper measurement techniques and transactions
with affiliates which resulted in underpayment of royalties in
connection with natural gas and natural gas liquids produced and
sold from federal and Indian owned or controlled lands. The
principal suit in which Devon is a defendant is United States ex
rel. Wright v. Chevron USA, Inc. et al. (the
“Wright case”). The suit was originally filed in
August 1996 in the United States District Court for the Eastern
District of Texas, but was consolidated in October 2000 with the
other suits for pre-trial proceedings in the United States
District Court for the District of Wyoming. On July 10,
2003, the District of Wyoming remanded the Wright case back to
the Eastern District of Texas to resume proceedings. Trial is
set for November 2007. Devon believes that it has acted
reasonably, has legitimate and strong defenses to all
allegations in the suit, and has paid royalties in good faith.
Devon does not currently believe that it is subject to material
exposure in association with this lawsuit and no liability has
been recorded in connection therewith.
In 1995, the United States Congress passed the Deep Water
Royalty Relief Act. The intent of this legislation was to
encourage deep water exploration in the Gulf of Mexico by
providing relief from the obligation to pay royalties on certain
federal leases. Deep water leases issued in certain years by the
Minerals Management Service (the “MMS”) have contained
price thresholds, such that if the market prices for oil or
natural gas exceeded the thresholds for a given year, royalty
relief would not be granted for that year. Deep water leases
issued in 1998 and 1999 did not include price thresholds. The
MMS in 2006 informed Devon and other oil and gas companies that
the omission of price thresholds from these leases was an error
on its part and was not its intention. Accordingly, the MMS
invited Devon and the other affected oil and gas producers to
renegotiate the terms and conditions of the 1998 and 1999 leases
to add price threshold provisions to the lease agreements for
periods after October 1, 2006. Devon has since had several
discussions with MMS representatives on this issue, but has not
yet entered into renegotiated leases.
The U.S. House of Representatives in January 2007 passed
legislation that would require companies to renegotiate the 1998
and 1999 leases as a condition of securing future federal
leases. If this legislation were to become law, it would require
price thresholds to be effective in the renegotiated 1998 and
1999 leases effective October 1, 2006. Although Devon has
not yet signed renegotiated leases, it has accrued in its 2006
consolidated financial statements approximately $6 million
for royalties that would be due if price thresholds were added
to its 1998 and 1999 leases effective October 1, 2006.
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