Atlantic Richfield Co. v. State of California

Plaintiffs Atlantic Richfield Company, a Pennsylvania corporation, Mobil Oil Corporation, a New York corporation (hereinafter ARCO) brought an action for declaratory and injunctive relief against defendants, the State of California and members of the State Lands Commission (hereinafter the State).

The declaratory relief cause of action sought resolution of a dispute that had arisen between ARCO and the State over the manner in which royalties payable to the State by ARCO under two offshore oil and gas leases were to be computed. More specifically, the parties disagreed concerning the deductibility of processing and transportation costs in computing the royalties due the State on dry gas, natural gasoline and other products extracted and saved from gas produced under the leases. ARCO maintained that these costs were deductible, and the State maintained that they were not.

The cause of action seeking to enjoin the State from declaring a forfeiture of the leases for nonpayment of royalties was rendered moot by an agreement between ARCO and the State whereby ARCO paid under protest 70 percent of the gas royalties, the portion which it estimated covered processing and…