A federal appeals court has ruled in favor of oil producer Anadarko Petroleum in a case that could prevent the government from collecting billions in royalties on oil and natural gas leases.

The 5th U.S. Circuit Court of Appeals on Monday upheld a lower court ruling that said the federal government could not collect royalties from eight deepwater leases held by Anadarko in the Gulf of Mexico. The leases were obtained between 1996 and 2000 by Kerr-McGee Corp., which Anadarko later acquired.

Anadarko Petroleum Corp. says the lawsuit involves more than $150 million in royalties sought by the U.S. Interior Department, which leases offshore tracts to oil and gas producers and, as owner, stands to collect a percentage of revenue. But the ruling could affect other leases and prohibit the government from collecting royalties from other producers.

The Interior Department said it may work with Congress to resolve the issue or appeal the case again.

At issue is interpretation of a 1995 law designed to provide a break from royalties at a time when oil and natural gas prices were extremely low. The law waived all royalty payments until a specific amount of oil and gas was produced.

"If the court's interpretation of Congress' action in 1995 is correct, certain leaseholders will be allowed to produce massive amounts of oil and gas without paying royalties to the United States without regard to the price of oil and gas — perhaps amounting to one of the biggest giveaways of federal resources by Congress in modern history," Interior spokesman Shane Wolfe said.