Final Consent Order With Murphy Oil Corporation, Murphy Oil USA, Inc. and Murphy Exploration & Production Company

DEPARTMENT OF ENERGY

Economic Regulatory Administration

Final Consent Order With Murphy Oil Corporation, Murphy Oil USA,

Inc. and Murphy Exploration & Production Company

AGENCY: Economic Regulatory Administration, DOE.

ACTION: Final action on proposed consent order.

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SUMMARY: The Department of Energy (DOE) has determined that a proposed

Consent Order between DOE and Murphy Oil Corporation, Murphy Oil USA,

Inc. and Murphy Exploration & Production Company (Murphy), which was

published for public comment in 59 FR 38169 (July 27, 1994), shall be

made final. The Consent Order resolves matters relating to Murphy's

compliance with the federal petroleum price and allocation regulations

for the period January 1, 1973 through January 28, 1981. To resolve

these matters, Murphy will pay to DOE $10,700,000. Following receipt of

the settlement monies, the Economic Regulatory Administration (ERA)

will petition DOE's Office of Hearings and Appeals (OHA) to implement

Special Refund Procedures pursuant to 10 CFR Part 205, Subpart V. Those

procedures provide persons who claim to have suffered injury from the

alleged overcharges with the opportunity to submit claims for payment.

FOR FURTHER INFORMATION CONTACT: Dorothy Hamid, Economic Regulatory

Administration, Department of Energy, GC-44, 820 First Street, NE.,

Suite 810, Washington, DC 20585, (202) 523-3045.

SUPPLEMENTAL INFORMATION:

I. Introduction

II. Comments Received

III. Analysis of Comments

IV. Decision

I. Introduction

On July 27, 1994, ERA published a Notice announcing a proposed

Consent Order between DOE and Murphy, which would resolve matters

relating to Murphy's compliance with the federal petroleum price and

allocation regulations for the period January 1, 1973 through January

28, 1981. 59 FR 38169. That Notice summarized the proposed Consent

Order, which requires Murphy to pay to DOE $10,700,000 within thirty

(30) days of the effective date of the Consent Order.

The July 27 Notice supplied information regarding Murphy's

potential liability for violations of the regulations applicable to

first sales of domestic crude oil (10 CFR Secs. 212.72-212.74), the

regulations exempting from the price rules the sale of crude oil

produced from ``stripper well'' properties (10 CFR Secs. 210.32 and

212.54), and the normal business practices rule (10 CFR Sec. 210.62(c))

in connection with Murphy's first sales of crude oil during the period

September 1973 through December 1979. These matters were at issue in a

Remedial Order (RO) that OHA issued to Murphy on June 17, 1992 (Murphy

Oil Corp., 22 DOE 83,005 (1992)), as modified by a decision and

proposed order (D&PO) issued by an Administrative Law Judge of the

Federal Energy Regulatory Commission (FERC) on January 24, 1994. Ocean

Drilling & Exploration Co., et al., 66 FERC 63,002 (1994). The D&PO is

now pending before the Commission in Docket No. RO92-5-000. With

interest, Murphy's current liability under the D&PO (including ERA's

estimate of Murphy's liability for previously unaudited properties and

unaudited time periods (yet to be adjudicated by OHA or FERC)) totals

approximately $5.2 million.

The Notice also enumerated the considerations which underlay ERA's

preliminary view that the settlement is favorable to the government and

in the public interest. The Notice solicited written comments from the

public relating to the terms and conditions of the settlement and

whether the settlement should be made final.

II. Comments Received

Written comments were received from three parties: Oryx Energy

Company, successor to Sun Exploration and Production Company (Sun), a

working interest owner on certain crude oil production properties

operated by Murphy; the Controller of California (Controller), a

participant in the Murphy/Ocean Drilling administrative enforcement

litigation before OHA and FERC; and a group consisting of six

utilities, fourteen transporting companies and five manufacturers

(UTM).

Sun objects to an ``implication'' it purportedly perceives in

paragraph 503(b) of the proposed Consent Order, relating to DOE's

promise not to sue any other person, ``presumably including Sun'', as a

non-operating interest owner, for alleged crude oil pricing violations

at Murphy-operated properties. Sun Comments at 1.1 The Controller

and UTM raise concerns about what each perceives to be an impermissible

compromise associated with DOE's claim for restitution of overcharges

on that portion of Murphy's violations that pertained to production

subject to federal royalties.

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\1\Paragraph 503(b) provides that:

In addition, where Murphy was the operator of a property that

produced crude oil, the DOE shall not initiate or prosecute any

enforcement action against any person for noncompliance with the

federal petroleum price and allocation regulations relative to such

property operated by Murphy.

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III. Analysis of Comments

A. Applicability of the Consent Order to a party other than Murphy

Echoing allegations it has advanced in another forum,2 Sun

asserts that DOE's promise in paragraph 503(b) of the proposed Consent

Order not to sue others for overcharges caused by Murphy ``incorrectly

implies'' that DOE predicates Murphy's liability upon the ``underlying

liability of the other interest owners'', when in fact, as Sun

acknowledges, DOE's position in the enforcement litigation is

``predicated solely upon Murphy's alleged misconduct in causing the

overcharges.'' Sun Comments at 2. Sun urges DOE to delete the sentence

from paragraph 503(b) of the proposed Consent Order (quoted in footnote

1) or, at a minimum, make clear that the quoted sentence does not apply

to Sun and that the money DOE receives from Murphy is not attributable

to resolving a liability that Sun might have to the DOE. Id. at 3-4.

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\2\Sun brought a civil action against the government in the

United States District Court for the District of Delaware, Sun

Company, Inc. v. United States, 594 F. Supp. 652 (D. Del. 1984). The

District Court granted the government's motion for summary judgment

in an unpublished opinion, Sun Company, Inc. v. United States, No.

83-204 (D. Del. Jan. 26, 1993), appeal docketed, No. 93-1542 (Fed.

Cir. Sept. 2, 1993).

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Sun's objection misconstrues the effect and purpose of the proposed

Consent Order. The proposed Consent Order ``constitutes a legally

enforceable contractual undertaking that is binding on'' Murphy and DOE

alone and resolves the liability of Murphy alone. (Paragraphs 501 and

701). The proposed Consent Order makes no findings concerning the

relative rights of Murphy and other working interest owners (such as

Sun) on properties where Murphy was the operator, and does not bind any

of the working interest owners (such as Sun) who are not parties to its

terms. Id. at paragraphs 302, 303, 501, 504. Furthermore, contrary to

Sun's misperception, paragraph 503(b) does not ``impl[y]'' any basis of

Murphy's alleged liability inconsistent with DOE's position in the

Murphy/Ocean Drilling enforcement litigation. Thus, no modification or

clarification of paragraph 503(b) is necessary.

B. Settlement Pertaining to the Issue of Federal Royalty

The Controller objects to any compromise of DOE's claim for

restitution of overcharges paid to the federal government in the form

of royalties, and dismisses the Ocean Drilling D&PO's proposed

reduction of the overcharge in this regard as lacking ``any plausible

merit.'' Controller's Comments at 1. The Controller also asserts that

the Final Settlement Agreement in the Stripper Well Litigation

precludes both DOE and Murphy from agreeing to any ``offset'' to

restitution owed by Murphy. To the extent that the DOE feels compelled

to accept some compromise on the royalty issue, the Controller

maintains that the amount of any offset should come wholly from the

federal share without any effect on the States' share. Id.

UTM likewise believe that the D&PO erred on the federal royalty

payment issue, and urge that ERA ``seek to recover such royalties on

the reduced overcharges from the federal agencies to which they were

paid.'' UTM Comments at 2. If ERA does not do so, UTM request that ERA

specify the amount of the benefit which the federal agencies have

received as their share of the overcharges as reduced by the ALJ and as

their share of the overcharges recognized in the settlement. Id. at 2-

3. UTM believe that such calculations would be a necessary basis for an

analysis by OHA of the proper distribution of the amount recovered from

Murphy. Id. at 3.3

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\3\Over and above the approximately $5.2 million that represents

Murphy's current liability under the D&PO, ERA calculates the D&PO

rejected an additional $68,270 in principal amount as overcharges

attributable to payment of federal royalty. Interest on that sum

through June 30, 1994, equals $273,528.

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As an initial matter, it is neither practical nor appropriate to

quantify the portion of the $10.7 million proposed settlement sum that

exceeds the $5.2 million in restitution under the D&PO that can be

ascribed to the royalty payment issue. ERA's evaluation of the risks of

continued litigation considered the federal royalty question in

combination with risk related to many other issues specified in the

July 27 Federal Register Notice. 59 FR at 38170. Any attempt to parse

the settlement process's achievement of the $10.7 million amount in

order to quantify the portion that could be ``attributable'' to this

issue would constitute an unwarranted invasion of the content of the

negotiations that preceded the proposed settlement. Such an outcome

would discourage settlement activity and certainly would not advance

the public interest.

Second, neither the Final Settlement Agreement in In re Department

of Energy Stripper Well Exemption Litigation, M.D.L. No. 378 (D. Kan.),

nor the Petroleum Overcharge Distribution and Restitution Act of 1986

(PODRA), 15 U.S.C. 4501 et seq.,\4\ provides a guarantee that potential

refund recipients such as the Controller or UTM be insulated from the

effects of litigation risks associated with ERA's attempts to recover

restitution in enforcement actions, whether such risk is realized in

the course of litigation or the consideration of reasonable settlement.

ERA's assessment of risk attributable to this issue is not at variance

with PODRA or the Final Settlement Agreement in the Stripper Well

litigation, and is completely consistent with ERA's authority to

compromise claims pursuant to 10 CFR 205.199J.

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\4\The Final Settlement Agreement (effected in 1986) and the

PODRA (enacted in 1986) post date both Murphy's payment of the

federal royalties (September 1973-January 1981) and the initiation

of ERA's formal enforcement proceedings through a Notice of Probable

Violation on January 28, 1981.

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Finally, the concerns of the Controller and UTM about the

settlement of the federal royalty issue appear to be premised on their

disagreement with the conclusion expressed in the D&PO rather than the

question of the reasonableness of the resolution proposed. ERA likewise

continues to believe that its interpretation in the litigation of this

issue (as well as all the other issues in the case) is meritorious, but

recognizes that the adjudicated results can often be at odds with the

arguments proffered in litigation. There could be no question that if

the federal royalty issue were not settled and were eventually to be

lost in litigation, the potential beneficiaries could have no further

argument or claim to any portion of the sum not recovered. Absent

consideration of compelling policy principles, a resolution by

settlement should be based on the possible and probable litigation

outcomes; the federal royalty issue is one of those disputes subject to

a litigated outcome and therefore appropriate to consider for

compromise settlement.5

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\5\This is particularly so for a question such as the federal

royalty issue, which comprises just over 6.5% of Murphy's current

liability under the D&PO and approximately 3.2% of the $10,700,000

settlement amount.

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ERA has concluded that the comments of the Controller and UTM deal

with matters more appropriately addressed within a proceeding pursuant

to 10 CFR Part 205, Subpart V. ERA will not modify the proposed Consent

Order in the manner advocated by the Controller of California and UTM.

IV. Decision

ERA has determined that it is in the best interest of the public to

make the proposed Consent Order final without change. By this Notice,

and pursuant to 10 CFR 205.199J, the proposed Consent Order between DOE

and Murphy is made a final Order of the Department of Energy, effective

on the date of publication of this Notice in the Federal Register.

Issued in Washington, DC, on September 9, 1994.

Robert R. Nordhaus,

Acting Administrator, Economic Regulatory Administration, General

Counsel.

[FR Doc. 94-22890 Filed 9-14-94; 8:45 am]

BILLING CODE 6450-01-P