[Federal Register Volume 59, Number 178 (Thursday, September 15, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-22890]


[[Page Unknown]]

[Federal Register: September 15, 1994]


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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