Noble Energy, Inc. v. Salazar ( 2011 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
)
NOBLE ENERGY, INC., )
)
Plaintiff, )
)
v. )
)Civil Action No. 09-2013 (EGS)
KENNETH SALAZAR, Secretary )
of the Department )
of the Interior, and U.S. )
DEPARTMENT OF THE INTERIOR, )
)
Defendants. )
)
MEMORANDUM OPINION
This case arises out of long-running litigation over oil and
gas leases off the coast of California. Plaintiff Noble Energy
(“Noble”) challenges an order of the Minerals Management Service
(“MMS”), an agency of the Department of the Interior, which
directs Noble to permanently plug and abandon an undeveloped
exploratory well. Noble asserts that this order was arbitrary,
capricious, and contrary to law, and asks this Court to declare
that it is not obligated to decommission its well.
Pending before the Court are the parties’ cross-motions for
summary judgment. Upon consideration of these cross-motions, the
oppositions and replies thereto, the parties’ supplemental
briefs, the applicable law, the full administrative record in
this case, the statements made by counsel at a motions hearing
held on February 15, 2011, and for the reasons set forth below,
this Court finds that MMS acted within its authority under the
OCSLA to order Noble to permanently plug and abandon its
exploratory well. Accordingly, the plaintiff’s motion for
summary judgment is hereby DENIED and the federal defendants’
cross-motion for summary judgment is hereby GRANTED.
I. BACKGROUND
A. Statutory and Regulatory Background
The Outer Continental Shelf Lands Act (“OCSLA”), 43 U.S.C.
§ 1331 et seq., gives the United States jurisdiction over the
mineral resources found in submerged lands in the Outer
Continental Shelf (“OCS”).1 See 43 U.S.C. § 1332(1). The
Secretary of the Interior controls the disposition of mineral
resources in the OCS through oil and gas leases.2 See id.§ 1337(a)(1). An OCS lease gives a lessee an exclusive right “to
explore, develop and produce the oil and gas contained within the
leased area,” id. § 1337(b)(4), in exchange for an up-front
payment, annual rental fees, and royalties on any oil and gas
that is ultimately produced.3 See id. §§ 1337(b)(3),(6),(7).
1
Each coastal state has jurisdiction over the submerged
lands beneath navigable waters within a fixed distance from its
coastline. See 43 U.S.C. §§ 1311, 1301(a) (defining “lands
beneath navigable waters”). The federal lands beyond these
boundaries are known as the Outer Continental Shelf. Id.§ 1331(a).
2
The Secretary has delegated his responsibilities under
the OCSLA to MMS. 30 C.F.R. § 250.101.
3
An OCS lease runs initially for a primary term of not
more than ten years, as specified in the lease instrument. 43
2
Regulations under the OCSLA establish the general
requirements for permanently plugging and abandoning (or,
“decommissioning”) a well drilled pursuant to an OCS lease. See
generally 30 C.F.R. §§ 250.1700-1754. These requirements include
permanently plugging all wells, removing all platforms and other
facilities, decommissioning all pipelines, clearing the sea floor
of all obstructions, and conducting all decommissioning
activities in a way that is safe and does not cause undue harm or
damage to the human, marine, or coastal environment. See id.§ 250.1703. The regulations also specify the circumstances under
which decommissioning obligations are accrued:
You4 accrue decommissioning obligations when you do any
of the following:
(a) Drill a well;
(b) Install a platform, pipeline, or other facility;
(c) Create an obstruction to other users of the OCS;
(d) Are or become a lessee or the owner of operating
U.S.C. § 1337(b)(2)(B). The lease continues in effect thereafter
as long as oil or gas is being produced in paying quantities or
as long as approved drilling operations are conducted. Id.
Lease suspensions may be issued at the request of a lessee to
facilitate proper development, id. § 1334(a)(1)(A), or may be
directed by MMS, 30 C.F.R. § 250.168(a). Both types of lease
suspensions may extend the lease beyond its initial term. 30
C.F.R. §§ 250.169(a); 256.73(a).
4
In this subpart, the term “you” refers, inter alia, to
“lessees and owners of operating rights.” 30 C.F.R.
§ 250.1701(c). The OCSLA regulations further define a “lessee”
as “a person who has entered into a lease with the United States
to explore for, develop, and produce the leased minerals. The
term lessee also includes the MMS-approved assignee of the lease,
and the owner or the MMS-approved assignee of operating rights
for the lease.” Id. § 250.105.
3
rights of a lease on which there is a well that
has not been permanently plugged . . . , a
platform, a lease term pipeline, or other
facility, or an obstruction;
(e) Are or become the holder of a pipeline right-of-way
on which there is a pipeline, platform, or other
facility, or an obstruction; or
(f) Re-enter a well that was previously plugged
according to this subpart.
Id. § 250.1702.
Under the regulatory structure of the OCSLA, once a lessee
accrues decommissioning obligations in the manner provided under
§ 250.1702, it retains those obligations notwithstanding
transfer, assignment, or relinquishment of the lease. See id.
§ 256.62(d) (“You, as assignor, are liable for all obligations
that accrue under your lease before the date that the Regional
Director approves your request for assignment . . . The Regional
Director’s approval of the assignment does not relieve you of
accrued lease obligations that your assignee, or a subsequent
assignee, fails to perform.”); id. § 256.64(a)(5)(“You do not
gain a release of any nonmonetary obligation under your lease or
the regulations in this chapter by . . . transferring operating
rights.”); id. § 256.64(h)(1) (“You are jointly and severally
liable for the performance of each nonmonetary obligation under
the lease and under the regulations in this chapter with each
prior lessee and with each operating rights owner holding an
interest at the time the obligation accrued.”); id. § 256.76 (“A
relinquishment shall take effect on the date it is filed subject
4
to the continued obligation of the lessee and the surety to . . .
abandon all wells and condition or remove all platforms and other
facilities on the land to be relinquished to the satisfaction of
the Director.”).
The OCSLA regulations further provide that “[l]essees and
owners of operating rights are jointly and severally responsible
for meeting decommissioning obligations for facilities on leases
. . . as the obligations accrue and until each obligation is
met.” Id. § 250.1701(a). All wells on a lease must be
permanently plugged “within 1 year after the lease terminates.”
Id. § 250.1710
Wells drilled pursuant to an OCS lease may also be
temporarily plugged and abandoned when necessary for proper
development and production of a lease. See id. § 250.1721.
However, the OCSLA regulations provide that if MMS or the lessee
determines that continued maintenance of a temporarily abandoned
well “is not necessary for the proper development or production
of a lease, [the lessee] must . . . [p]romptly and permanently
plug the well.” Id. § 250.1723.
B. Factual and Procedural Background
The litigation preceding this case began in 1999 and spans
the Ninth Circuit, the Federal Circuit, and now this Court. See
Amber Res. Co. v. United States, 538 F.3d 1358 (Fed. Cir. 2008)
(“Amber III”); California v. Norton, 311 F.3d 1162 (9th Cir.
5
2002); California v. Norton, 150 F. Supp. 2d 1046 (N.D. Cal.
2001); Amber Res. Co. v. United States, 73 Fed. Cl. 738 (2006)
(“Amber II”); Amber Res. Co. v. United States, 68 Fed. Cl. 535(2005) (“Amber I”).5 The extensive factual and procedural
background of this case has been thoroughly documented by other
courts, and this Court will not repeat it at length here.
In sum, the Federal Circuit recently affirmed that the
United States materially breached thirty-five OCS leases when it
suspended them, indefinitely, in an effort to comply with
procedures and standards imposed by 1990 amendments to the
Coastal Zone Management Act (“CZMA”), 16 U.S.C. § 1456(c)(1).6
See Amber III, 538 F.3d at 1374. As a result of the Federal
Circuit’s decision in Amber III, the plaintiffs in that case -
consisting of numerous OCS lessees, including Noble Energy - have
since recovered in restitution the original up-front bonus
payments on their OCS leases. Tr. at 3. Plaintiff Noble,
specifically, has recovered $1.2 million in restitution for its
portion of the original bonus payment on Lease 320, the subject
of the instant lawsuit. Tr. at 3.
5
The federal government’s combined petition for panel
rehearing or rehearing en banc was denied by the Federal Circuit
on December 5, 2008. Amber Res. Co. v. United States, No. 2007-
5047 (Fed. Cir. Dec. 5, 2008). The federal defendants have not
sought Supreme Court review.
6
During a “directed” suspension, such as the suspensions
at issue in Amber Resources, no activities on the lease are
permitted. See Amber III, 538 F.3d at 1363.
6
Lease 320 was issued by the United States for oil and gas
development in 1979 and is located off the coast of central
California.7 See NOB0001-0007.8 In 1985, an exploratory well
was drilled on Lease 320 - the well at issue in this case,
referred to by the parties as the “320-2” well - which proved to
be capable of producing oil and gas in commercial quantities.
See NOB0458. Shortly after the 320-2 well was drilled and
tested, MMS approved a plan to temporarily plug the 320-2 well
for a one-year period. See NOB0487. The lessees9 subsequently
sought and were granted numerous extensions of the well’s
temporarily abandoned status. See NOB0490; 0492; 0717; 0734;
0823; 0835; 0866; 0867. The administrative record indicates that
the lessees expressed an intent to permanently abandon the 320-2
well in 1990, see NOB0743, and again in 2004, see NOB0908. To
date, however, the 320-2 well remains only “temporarily”
7
Lease 320 along with adjacent Leases 319, 322, and 323,
form the “Sword Unit.” See NOB0151. The OCSLA and its
regulations permit lessees voluntarily to join their leases into
“units” when doing so will “[p]romote and expedite exploration
and development.” 30 C.F.R. § 250.1301(a)(1). A single company
is designated the “unit operator,” and, subject to the terms of
the lessees’ agreements, is given primary responsibility for unit
operations. Plaintiff Noble is the current Sword Unit operator.
8
References to the administrative record are indicated
by “NOB .”
9
References herein to “the lessees” include both
plaintiff Noble and its predecessors-in-interest, Conoco and
Samedan Oil. Conoco drilled the 320-2 well in 1985. See
NOB0458.
7
plugged.10
On September 1, 2009, following the resolution of the Amber
Resources litigation, MMS sent a letter to Noble invoking the
agency’s regulatory authority under the OCSLA to order Noble to
“promptly and permanently” plug and abandon the 320-2 well. See
NOB0941. The letter reads, in relevant part:
The purpose of this letter is to notify you of
outstanding decommissioning obligations that exist on
one of your OCS leases. Our records indicate that your
Well OCS P-0320, No. 2, has not been permanently
abandoned. The Minerals Management Service (MMS) has
determined that there is no longer justification for
maintaining the well in temporarily abandoned status.
Therefore, as required by 30 CFR 250.1723, you must:
promptly and permanently plug the well according to
250.1715; clear the well site according to 250.1740
through 250.1742; and perform any additional activity
necessary to fully satisfy your decommissioning
obligations.
NOB0941.
Noble responded by declining to comply with the agency’s
order, see NOB0942, and it filed its complaint initiating this
lawsuit on October 26, 2009. Complaint, Doc. No. 1. Plaintiff
filed a motion for summary judgment on March 1, 2010. See
Plaintiff Noble Energy, Inc.’s Motion for Summary Judgment, Doc.
No. 10 (“Pl. Mot.”). The federal defendants filed a cross-motion
for summary judgment on April 5, 2010. See Defendants’ Cross-
10
The parties represent that all of the remaining
exploratory wells in the Sword Unit have been permanently plugged
and abandoned in accordance with the OCSLA regulations. Tr. at
8-9.
8
Motion for Summary Judgment and Response to Plaintiff’s Motion
for Summary Judgment, Doc. No. 11 (“Def. Mot.”). The Court held
a hearing on the parties’ cross-motions on February 15, 2011.
Accordingly, these motions are now ripe for determination by the
Court.
II. STANDARD OF REVIEW
The Administrative Procedure Act (“APA”), 5 U.S.C. §§ 701-
706, provides a right to judicial review of final agency actions.
Under the APA, federal agency actions are to be held unlawful and
set aside where they are “arbitrary, capricious, an abuse of
discretion, or otherwise not in accordance with law,” id.§ 706(2)(A), or “in excess of statutory jurisdiction, authority,
or limitations,” id. § 706(2)(C). To make this finding, the
court must determine whether the agency “considered the factors
relevant to its decision and articulated a rational connection
between the facts found and the choice made.” Keating v. FERC,
569 F.3d 427, 433 (D.C. Cir. 2009) (citing Balt. Gas & Elec. Co.
v. Natural Res. Def. Council, Inc., 462 U.S. 87, 105 (1983)).
The standard of review under the APA is a narrow one.
Citizens to Pres. Overton Park v. Volpe, 401 U.S. 402, 416
(1971). Generally, the court is not empowered to substitute its
judgment for that of the agency. Id. Moreover, an agency is
entitled to particular deference in interpreting and applying its
own regulations, unless its interpretation is plainly erroneous.
9
Stinson v. United States, 508 U.S. 36, 45 (1993). However, the
level of deference granted to an agency’s decision also depends
on whether the agency’s conclusion is based on factual
interpretation or is purely a question of law. See Beverly
Enter., Inc. v. Herman, 130 F. Supp. 2d 1, 12 (D.D.C. 2000). If
the agency’s finding concerns a purely legal question, “the court
reviews the finding de novo to ensure the agency does not exceed
its authority.” Id. at 13.
III. DISCUSSION
Plaintiff Noble seeks a declaratory judgment that MMS’s
September 1, 2009 decommissioning order exceeds the scope of its
authority under the OCSLA and that Noble and its co-lessees are
not obligated to permanently plug and abandon the 320-2 well.11
Specifically, plaintiff argues that any contractual or regulatory
decommissioning obligations it may have had pursuant to Lease 320
were discharged by the government’s material breach of the lease,
as determined by the Court of Federal Claims and the Federal
Circuit. The federal defendants, by contrast, assert that,
pursuant to the OCSLA regulations, plaintiff retains the
decommissioning obligations it has accrued, which survive the
11
The federal defendants contend that Noble does not have
standing to request declaratory relief on behalf of its co-
lessees, who are not parties to this case. See Def. Mot. at 25-
26. As the Court concludes that plaintiff is not entitled to any
declaratory relief, it will not consider whether such relief
would extend to plaintiff’s co-lessees.
10
termination of the lease.
Before reaching the merits, however, the Court must address
two threshold issues raised by the federal defendants. First,
the federal defendants assert that this Court lacks jurisdiction
to hear this case because plaintiff’s claim is essentially a
contract claim against the federal government, over which the
Court of Federal Claims has exclusive jurisdiction pursuant to
the Tucker Act, 28 U.S.C. § 1491. Second, the federal defendants
argue that plaintiffs are precluded from re-litigating a claim
for “reliance” damages, including the cost of plugging and
abandoning the 320-2 well, which the federal defendants contend
was denied by the Federal Circuit in the Amber Resources
litigation. The Court will explore these issues in turn.
A. Subject-Matter Jurisdiction
The federal defendants assert that this Court lacks subject-
matter jurisdiction over plaintiff’s APA claim because
plaintiff’s claim is impliedly forbidden by the Tucker Act, which
gives the Court of Federal Claims exclusive jurisdiction over all
claims for monetary relief in excess of $10,000 founded upon an
alleged contract with the United States. See Def. Mot. at 12
(citing 28 U.S.C. §§ 1346(a)(2), 1491(a)(1)). As the D.C.
Circuit has repeatedly affirmed, an action against the United
States which is “at its essence” a contract claim lies within the
scope of the Tucker Act, and “a district court has no power to
11
grant injunctive relief in such a case.” Megapulse, Inc. v.
Lewis, 672 F.2d 959, 967 (D.C. Cir. 1982); see also Albrecht v.
Comm. on Emp. Benefits of Fed. Reserve Emp. Benefits Sys., 357
F.3d 62, 68-69 (D.C. Cir. 2004) (“[T]he Tucker Act ‘impliedly
forbids - in APA terms - not only district court awards of money
damages, which the Claims Court may grant, but also injunctive
relief, which the Claims Court may not.’” (citation omitted)).
Whether a claim is “at its essence” a contract claim for
Tucker Act purposes depends “both on the source of the rights
upon which the plaintiff bases its claims, and upon the type of
relief sought (or appropriate).” Megapulse, 672 F.2d at 968.
According to the federal defendants, both elements of this test
support a conclusion that plaintiff’s claim sounds in contract.
First, the federal defendants assert that plaintiff’s claimed
right of discharge “relies on a contract (breach thereof) and
contract law” and, therefore, contract law creates the
substantive right to the remedy plaintiff seeks. Def. Mot. at
12. Second, while the plaintiff’s complaint does not seek
monetary relief on its face, the federal defendants argue that
plaintiff’s request for declaratory relief is essentially a claim
seeking money damages because the practical effect of a
declaratory judgment would purportedly be to require the United
States to pay plugging and abandonment costs that plaintiff would
otherwise incur. Def. Mot. at 13. In other words, the federal
12
defendants assert, plaintiff cannot “avoid the remedial
restrictions of the Tucker Act by recasting cases that are
essentially damages actions as requests for injunctive or
declaratory relief.” Prof. Managers’ Ass’n v. United States, 761
F.2d 740, 745 n.4 (D.C. Cir. 1985).
After careful consideration of these arguments, the Court
finds that it has jurisdiction to hear plaintiff’s claim. The
OCSLA specifically provides that “the district courts of the
United States shall have jurisdiction [over] cases and
controversies arising out of, or in connection with . . . the
cancellation, suspension, or termination of a lease or permit
under this Act.”12 43 U.S.C. § 1349(b)(1). To the extent this
case arises out of, or in connection with, the termination of an
OCS lease, the OCSLA therefore expressly authorizes this Court’s
jurisdiction.13
12
The OCSLA further provides that “[p]roceedings with
respect to any such case or controversy may be instituted in the
judicial district in which any defendant resides or may be found,
or in the judicial district of the State nearest the place the
cause of action arose.” 43 U.S.C. § 1349(b)(1). As the
defendants in this case are the Secretary of the Interior and a
department of the federal government, venue is also proper in
this Court.
13
The term “termination” is not defined in the OCSLA
regulations. The primary regulatory mechanisms for terminating a
lease are relinquishment, under 30 C.F.R. § 256.76, or
cancellation, under 30 C.F.R. § 256.77. The federal defendants
take the position that Lease 320 was relinquished pursuant to
this provision; plaintiff argues that the lease was not
relinquished but has been rescinded as a matter of law. Tr. at
67-68. The administrative record does not indicate that the
parties engaged in any formal “relinquishment” process under 30
13
Moreover, even assuming this Court’s jurisdiction were not
expressly authorized by statute, the Court concludes that
plaintiff’s claim is not a contract claim within the scope of the
Tucker Act. Plaintiff does not seek to enforce its rights under
the terms of Lease 320, nor does it ask this Court to determine
whether the federal government violated its contractual
obligations. Rather, plaintiff challenges a specific agency
action ordering Noble to promptly and permanently plug and
abandon an exploratory well.14 The central question before this
Court on the merits is whether MMS properly exercised its
authority to issue such an order under the OCSLA. This question
falls squarely within the scope of APA review.
The Court’s determination is further guided by the D.C.
Circuit’s decision in Megapulse, Inc. v. Lewis, 672 F.2d 959(D.C. Cir. 1982), which held that the district court erred when
it determined that it did not have jurisdiction to hear a claim
C.F.R. § 256.76. The Court is inclined to agree with the
plaintiff that Lease 320 was rescinded as a matter of law,
pursuant to the courts’ decisions in Amber Resources. The Court
concludes, however, that it need not resolve this question to
decide this case.
14
As the Court of Federal Claims noted in Amber II, “it
is basic to litigation under the Tucker Act that actions are
brought against the United States, not Congress, not particular
Executive agencies, and not the courts.” 73 Fed. Cl. at 751
(citing 28 U.S.C. § 1491(a)(1)). The fact that plaintiff has
challenged a particular action of a specific federal agency
therefore precludes the Court of Federal Claims’ jurisdiction
under the Tucker Act.
14
seeking injunctive relief under the APA where the plaintiff “does
not claim a breach of contract, . . . it seeks no monetary
damages against the United States, and its claim is not properly
characterized as one for specific performance.” Id. at 969. In
that case, the court found that
Appellant’s position is ultimately based, not on breach
of contract, but on an alleged governmental
infringement of property rights and violation of the
Trade Secrets Act. . . . [W]e do not accept the
Government’s argument that the mere existence of such
contract-related issues must convert this action to one
based on the contract.
Id. Here, as in Megapulse, the fact that the Court may have to
consider contract-related issues does not deprive it of
jurisdiction over plaintiff’s APA claim. Accordingly, the Court
concludes that it has subject-matter jurisdiction.
B. Claim Preclusion
Next, the federal defendants assert that, even if this Court
has subject-matter jurisdiction, plaintiff’s claim is nonetheless
precluded because plaintiff has already attempted to recover the
costs of plugging and abandoning exploratory wells, including the
320-2 well, as part of the Amber Resources litigation.15 See
15
The federal defendants also argue that plaintiff’s
claim is barred on the basis of “judicial estoppel,” which
“prevents parties from abusing the legal system by taking a
position in one legal proceeding that is inconsistent with a
position taken in a later proceeding.” Def. Mot. at 22-23
(citing Duvall v. Bumbray, 423 B.R. 383, 390 (D.D.C. 2010)).
Aside from this passing reference to the doctrine, the federal
defendants do not explain how the doctrine of judicial estoppel
applies to the case before the Court. The Court, therefore,
15
Def. Mot. at 22. In Amber Resources, the Court of Federal Claims
ruled, and the Federal Circuit affirmed, that the OCS lessees
could not recover “sunk costs,” such as the costs of development
and exploration, under their chosen remedy of restitution because
those costs are only recoverable as reliance damages. See Amber
II, 73 Fed. Cl. at 757-58; Amber III, 538 F.3d at 1381. The
federal defendants contend that the election-of-remedies doctrine
similarly prohibits Noble from now attempting to recover the
additional “reliance” damages that were rejected by the Amber
Resources court. See Def. Mot. at 22 (citing Amber II, 73 Fed.
Cl. at 748, n.10 (“‘As a general rule, a plaintiff may not
recover both restitution and reliance damages for breach of
contract.’”)(citation omitted))).
The Court finds that even if plaintiff previously sought to
recover money damages for the future costs of plugging and
abandoning the 320-2 well,16 plaintiff’s claim is not precluded
finds no reason to bar plaintiff’s claim on grounds of judicial
estoppel.
16
The Court notes that the parties disagree about whether
plaintiff actually sought to recover the costs of permanently
plugging and abandoning the 320-2 well in Amber Resources. The
federal defendants argue that the costs of plugging and
abandoning the 320-2 well are included in the $727 million in
additional “sunk costs” (i.e., amounts spent on developing the
leases) that the Court of Federal Claims rejected as
unrecoverable reliance damages in Amber II, 73 Fed. Cl. at
757-58, because “plugging an exploratory well is part of
exploration.” Def. Supp. Mem., Doc. No. 24, at 5, n.3. Record
evidence demonstrates that plaintiff did contemplate seeking
recovery for this particular expense, and Noble concedes as much.
16
because it does not seek to do so in this case. Plaintiff’s
complaint does not seek money damages on its face, nor is the
Court persuaded that plaintiff is seeking money damages under the
guise of equitable relief. Here, a declaratory judgment in
plaintiff’s favor would merely relieve plaintiff of an obligation
that would have required a financial outlay. The Court declines
to find that this avoided expenditure constitutes “money
damages.” See, e.g., Md. Dep’t of Human Res. v. Dep’t of Health
and Human Serv., 763 F.2d 1441, 1446 (D.C. Cir. 1985) (finding
that the ordinary meaning of the term “money damages” refers to a
“sum of money used as compensatory relief”). Accordingly, the
Court concludes that plaintiff’s claim is not barred as a result
of proceedings in the Court of Federal Claims.
C. Merits
Having concluded that plaintiff’s APA claim is properly
before this Court on review, the Court now turns to the merits of
that claim. Plaintiff contends that MMS’s September 1, 2009
decommissioning order is arbitrary, capricious, an abuse of
See Pl. Reply, Doc. No. 14, at 13. Plaintiff, however, asserts
that it ultimately did not seek recovery for the future costs of
plugging and abandoning the 320-2 well in the Court of Federal
Claims, although it unsuccessfully sought to recover its past,
pre-material breach expenditures on other exploratory wells,
including those that had already been permanently plugged and
abandoned. See Pl. Reply at 14. The Amber Resources opinions
provide no clarity, as they do not specifically address plugging
and abandonment costs. The Court concludes that it need not
resolve this question.
17
discretion, and otherwise not in accordance with law because the
OCSLA regulations do not authorize the agency to order Noble to
permanently plug and abandon the 320-2 well in light of the
government’s material breach of the lease. Specifically,
plaintiff argues that the government’s material breach discharged
any remaining contractual or regulatory obligations that Noble
had as a result of Lease 320.
Section 22 of Lease 320 requires Noble and its co-lessees to
“remove all devices, works, and structures” from the leased area
upon termination of the lease. NOB0004. Under normal
circumstances, plaintiff concedes, that provision would require
Noble and its co-lessees permanently to plug and abandon all
exploratory wells, including the 320-2 well. See Pl. Mot. at 17.
However, well-established common law principles provide that a
material breach of contract discharges all of the non-breaching
party’s remaining contractual obligations. See Restatement
(Second) of Contracts § 237, cmt. a (“[M]aterial failure of
performance has . . . these effects on the other party’s
remaining duties of performance with respect to the exchange. It
prevents performance of those duties from becoming due, at least
temporarily, and it discharges those duties if it has not been
cured during the time in which performance can occur.”).
Therefore, given the prior courts’ conclusions in Amber Resources
that the government totally and materially breached Lease 320 and
18
other offshore leases as a result of the CZMA amendments,
plaintiff argues that it is no longer obligated to decommission
the 320-2 well. See Pl. Mot. at 19 (citing 13 Williston on
Contracts § 39:38 (4th ed. 2009) (“a breach of contract . . .
entitles the nondefaulting party to walk away from the contract
without liability”)).
Plaintiff’s argument rests primarily on what it terms the
“Texas doctrine.” This doctrine, which was set forth by the
Supreme Court in United States v. Texas, provides that
“[s]tatutes . . . are to be read with a presumption favoring the
retention of long-established and familiar principles, except
when a statutory purpose to the contrary is evident.” Pl. Mot.
at 21 (citing United States v. Texas, 507 U.S. 529, 534 (1993)
(quotations omitted)).17 Here, plaintiff argues, because nothing
in the OCSLA expresses a clear intent to abrogate the common law
principle of discharge, that principle continues to govern OCS
leases, including Lease 320.
The Court recognizes that OCS leases are governed by common
law contract principles, such as the principle of discharge. See
Mobil Oil Exploration and Producing Southeast, Inc. v. United
States, 530 U.S. 604, 607 (2000) (“When the United States enters
17
Although plaintiff has cited to numerous cases applying
the Texas doctrine, only one of these cases arises in the context
of the OCSLA, and none address the common law principle of
discharge.
19
into contract relations, its rights and duties therein are
governed generally by the law applicable to contracts between
private individuals.” (citations omitted)). Nonetheless, the
Court is not persuaded that applying the common law principle of
discharge in this case would relieve plaintiff of its obligation
to permanently plug and abandon the 320-2 well. The common law
principle of discharge applies only to obligations created by the
particular contract at issue. See Restatement (Second) of
Contracts § 237, cmt. e (“Duties affected: Under the rule stated
in this Section, only duties with respect to the performances to
be exchanged under the particular exchange of promises are
affected by a failure of one of those performances. A duty under
a separate contract is not affected . . . , nor is a duty under
the same contract affected if it was not one to render a
performance to be exchanged under an exchange of promises.”).
Although Lease 320 itself incorporates an obligation to remove
all devices from the lease area upon termination, the OCSLA
regulations - which are not being challenged by plaintiff -
establish an independent obligation to permanently plug and
abandon all exploratory wells. Plaintiff cites no authority in
support of its position that the common law principle of
discharge relieves the non-breaching party of regulatory
obligations, and this Court declines to expand the scope of the
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common law principle of discharge in that direction.18
The OCSLA regulations explicitly and comprehensively address
the question of who bears decommissioning responsibilities and
when those responsibilities accrue. Under 30 C.F.R. § 250.1702,
the obligation to permanently plug and abandon a well accrues
upon the drilling of a well or, as in Noble’s case, upon becoming
a lessee of a lease on which there is a well that has not been
permanently plugged. Lessees and owners of operating rights are
jointly and severally liable for meeting their decommissioning
obligations for the facilities on the lease as the obligations
accrue “and until each obligation is met.” Id. § 250.1701(a).
Once a lessee has accrued a decommissioning obligation, it
retains that obligation, notwithstanding transfer, assignment, or
relinquishment of the lease. See id. § 256.62(d) (addressing
decommissioning obligations upon assignment); id. § 256.64(a)(5)
18
In Amoco Production Co. v. Fry, a district court in
this Circuit held that the government was not obligated to refund
excess oil and gas royalty payments, despite a clear statutory
directive under the OCSLA, because of countervailing common law
principles that allowed the government to use those overpayments
to offset debts owed to them. 904 F. Supp. 3, 11-12 (D.D.C.
1995), aff’d in part and rev’d in part on other grounds, 118 F.3d
812 (D.C. Cir. 1997). Plaintiff has also cited to other cases
where the application of the Texas doctrine reached a similar
result. See ABN AMRO Bank N.V. v. United States, 34 Fed. Cl.
126, 132 (1995) (although Treasury regulations appear fairly
comprehensive with respect to forged endorsements, the common law
rules governing which entity bears the loss for a double forgery
take precedence). From these cases, plaintiff reasons that the
application of the Texas doctrine here would likewise relieve
Noble of its decommissioning obligations under the OCLSA
regulations. The Court finds this reasoning unpersuasive.
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(addressing decommissioning obligations upon transfer); id.§ 256.76 (addressing the effect of relinquishment on outstanding
decommissioning obligations). Indeed, the OCSLA regulations
specify that this duty survives even the termination of the
lease. See id. § 250.1710.
Plaintiff Noble is indisputably a lessee to whom
decommissioning obligations have accrued. As such, Noble shares
in the joint and several responsibility to permanently plug and
abandon the 320-2 well until that obligation is met. The Court
finds that this duty was not discharged as to Noble by the
government’s breach of contract. Accordingly, the Court
concludes that MMS acted within the scope of its regulatory
authority under OCSLA to order Noble to permanently plug and
abandon the 320-2 well, and its September 1, 2009 order does not
violate the APA.
IV. CONCLUSION
For the reasons stated herein, it is hereby ORDERED that
plaintiff’s motion for summary judgment is DENIED. It is further
ORDERED that the federal defendants’ cross-motion for summary
judgment is GRANTED. A separate Order accompanies this
Memorandum Opinion.
SO ORDERED.
SIGNED: Emmet G. Sullivan
United States District Court Judge
March 22, 2011
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