In a significant development impacting the oil and gas industry, Hilcorp San Juan L.P., with operations spanning Aztec, New Mexico, and Houston, Texas, has consented to pay $34.6 million to resolve claims of knowingly underpaying royalties on oil and natural gas produced from federal lands. This settlement was announced by the U.S. Department of Justice (DOJ) on January 19, 2024.
The settlement arises from allegations that Hilcorp San Juan engaged in a practice of underreporting royalties due to the federal government for oil and natural gas extracted from August 2017 through December 2018. Companies operating on federal lands are obligated to pay royalties based on the oil and gas extracted value. Though lessees can make estimated royalty payments in the month following production, they must reconcile these with actual royalties at the end of the succeeding month. It was alleged that Hilcorp San Juan failed to do so, resulting in underpayments.
According to the DOJ, Hilcorp San Juan’s conduct involved making payments based on estimated volumes and prices without clearly indicating that these were estimates. Furthermore, they did not adjust these payments in the following month based on actual production figures, as required by law. The DOJ emphasized that U.S. taxpayers deserve a fair share of revenues from natural resources extracted from public lands, a principle crucial to the responsible development of these resources.
U.S. Attorney Alamdar S. Hamdani, representing the Southern District of Texas, stated that the oil and gas industry is central to the economies of Houston and Texas. He asserted the importance of adhering to regulations for the industry’s sustainability, emphasizing the DOJ’s commitment to holding accountable those who fail to pay full royalties in compliance with the law.
The settlement with Hilcorp San Juan is part of a broader DOJ initiative to ensure energy companies fulfill their legal responsibilities. It follows previous settlements with other energy companies over alleged royalty underpayments, including a $16 million settlement with XTO Energy and a $600,000 recovery from Great Western Drilling Co.
This resolution, resulting from coordinated efforts between various departments, marks a significant enforcement action in the energy sector, highlighting the government’s resolve to oversee and regulate natural resource extraction activities, especially in major oil-producing regions like Texas and New Mexico.