Oct. 5--WASHINGTON -- A Texas-based oil company won its bid Monday to hang onto about $350 million -- part of billions in Gulf oil royalty payments the federal government will lose -- as the U.S. Supreme Court declined to consider the closely watched case.

The federal government stands to lose around $19 billion as a result of the case, Kerr-McGee Oil and Gas Corp. vs the Interior Department. The government unsuccessfully argued that that Kerr-McGee, which was later bought by The Woodlands-based Anadarko Petroleum Corp., owed royalty money for drilling on eight federal leases in the Gulf of Mexico. Kerr-McGee refused to pay, citing a 1995 law designed to promote energy exploration in the Gulf of Mexico when oil prices were low.

Because the high court did not take the case, the decision by the U.S. 5th Circuit Court of Appeals in favor of Anadarko stands.

Companies with leases similar to Anadarko's stand to profit from the decision because they, too, will be exempt from paying some royalties and some could receive a refund.

"We appreciate the Supreme Court's time in making its determination, which preserves the sanctity of law and brings resolution to this issue," said John Christiansen, a spokesman for Anadarko. "Eight different federal judges and four federal courts reviewed and interpreted the [Deep Water Royalty Relief Act], and every one concluded we acted in accordance with the law."

The law includes a provision that requires royalty payments once a company has extracted a certain amount of oil. But in the leases, the Department of the Interior added a price threshold so that once oil prices broke a certain mark, royalties were also charged. Kerr-McGee said that provision in the leases ran counter to the law.

The government argued that lower courts had misinterpreted the statute and said Congress never intended to forego a vast sum of money.

"The court of appeals based its decision on a cursory examination of the statute, without even addressing the government's arguments" about the law, said solicitor general Elena Kagan, the government's top high-court lawyer.

The government has collected about $1.5 billion in royalties on similar leases, "the validity of which is called into doubt by the court of appeals' decision," Kagan wrote, meaning the Interior Department may have to pay refunds.

The oil industry has been following the case, both because it will impact some balance sheets and to judge whether the government makes good on its contracts.

For instance, Houston-based Mariner Energy Inc. and its subsidiary drill on six similar leases, according to a 2009 financial filing. Mariner has withheld royalty payments given the pending litigation. The company had set aside $57 million in case it owed the royalties, the filing indicates.

"The goal of royalty relief was to encourage producers to take risks to develop the nation's resources," said Bill Minz, spokesman for Houston-based energy company Apache Corp., which does not have production from the lease sales in dispute. "The industry made those investments, and now the government wants to change the terms of the deal. That would be a horrible precedent."

Experts cited numerous reasons the Supreme Court would decline to hear the case: the law is relatively clear, lower court decisions didn't stray from the mainstream and the amount of money on the line isn't a legally persuasive reason to take it on.

This is an instance when the government created an incentive and didn't calculate the consequences, said Bruce Kramer, counsel at the Houston-based firm McGinnis, Lochridge and Kilgore LLP and a professor at Texas Tech University School of Law.

"There was a lot of oil and gas out there and it caused a substantial loss of revenue for the government, well beyond that which it thought it was going to lose," Kramer said.

But leaseholders don't see the outcome as a loss to the government.

"That would be additional money ... based on an erroneous reading of the statute," said Erik Milito, a lawyer with the American Petroleum Institute, an industry advocacy group.

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