The justices declined Monday to hear the government's appeal of a ruling in favor of the Anadarko Petroleum Corp. involving eight deepwater leases the company holds in the gulf. The 5th U.S. Circuit Court of Appeals in New Orleans ruled that the Interior Department could not collect royalties from the leases, even as oil prices rose and companies began posting huge profits.
The leases were obtained between 1996 and 2000 by Kerr-McGee Corp., which Anadarko later acquired.
The case revolves around a 1995 law that gave oil and natural gas producers a break from paying royalties at a time when energy prices were extremely low. The law waived all royalty payments until a specific amount of oil and gas was produced.
Solicitor General Elena Kagan told the court that the Interior Department has the authority to lift the royalty relief once prices reach a certain level.
The ruling could affect other leases and prohibit the government from collecting royalties from other producers.
"Whatever the precise amount of future foregone royalties ultimately proves to be, the total cost will be huge," Kagan said.
Opposing the government, the company said the 1995 law spurred energy exploration in the gulf and brought in billions of dollars. The law applies only to a small and rapidly diminishing number of leases, the company said in urging the court to turn down the case.
The case is Department of the Interior v. Kerr-McGee Oil and Gas Corp., 09-54.