A federal jury in Denver returned a verdict on January 23rd against Kerr-McGee Corporation in an important case involving oil royalties. A former top auditor for the Interior Department found that Kerr-McGee had cheated the U.S. government out of millions of dollars in royalties on oil Kerr-McGee produced in publicly owned coastal waters. The auditor, Bobby L. Maxwell, became a whistle-blower and sued Kerr-McGee as a private citizen after top officials at the Interior Department ordered him to drop his audit findings. That pretty well tells us which side the Interior Department is on and it surely doesn’t appear they are with the public. Mr. Maxwell was dismissed by the Department in a so-called “reorganization,” and the government claims it was unrelated to his trying to take on the oil company. Interestingly, the bosses had insisted that the case against Kerr-McGee had no merit.

As previously reported, the Minerals Management Service, an Interior Department agency that collects more than $10 billion a year in royalties on oil and gas pumped on federal territory, is now the subject of numerous investigations by Congress, as well as its own inspector general, over its enforcement of royalty rules.

In addition to Mr. Maxwell, three other auditors in the royalty program have filed their own lawsuits as whistle-blowers against more than a dozen other oil companies. Like Mr. Maxwell, those auditors have said the Interior Department blocked them from pursuing what they viewed as valid cases of underpayments. The jury in Mr. Maxwell’s case decided that Kerr-McGee had underpaid the government $7.5 million, which was Mr. Maxwell’s estimate. That should be justification for this man’s courageous actions.

Under the False Claims Act, Kerr-McGee could have to pay more than $30 million — double or triple the original amount it owed, as well as penalties of up to $11,000 for each of 1,200 false statements that the company is accused of making in its royalty reports to the government. I hope the Department will start requiring the oil companies to follow the applicable “rules and regulations.” Kerr-McGee was acquired last year by Anadarko Petroleum.

Sources: New York Times and Bloomberg News

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