The United States owes $1.1 billion to 11 oil and gas companies for breaching their leases to explore off the coast of California, the U.S. Court of Appeals for the Federal Circuit said today in an opinion upholding the lower court.
The 2006 damage award handed down by the U.S. Court of Federal Claims is believed to be one of the largest in that court’s 150-year history. The oil and gas companies, represented by Covington & Burling, sued for breach of contract after the federal government blocked them from drilling off California.
“The fundamental take-home message is that the government, when it enters a contract with another party, is held substantially to the same standard as everyone else,” says Covington partner Steven Rosenbaum, who argued the case for the oil and gas operators. Edward Bruce, senior counsel, and associate Thomas Cosgrove were also on the briefs.
Thirty-five leases granted by the U.S. Department of the Interior between 1979 and 1984 were at issue. The damage amount represents the sum total of payments to the government for the leases.
Rosenbaum says the companies discovered new oil fields that were estimated by the federal government to contain over one billion barrels of oil. But statutory changes in 1990 to the Coastal Zone Management Act of 1972 barred drilling for the oil. In other words, Rosenbaum says, the government changed the rules of the game.
“Under these circumstances, where both parties have participated in apparent good faith for the better part of 20 years, the purpose of restitution is adequately served by having the government return the initial payments,” Judge William Bryson wrote in an opinion joined by Judges Arthur Gajarsa and Alan Lourie. There was no immediate word whether the Department of Justice planned to appeal.
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