By OGJ editors
HOUSTON, Aug. 25 -- The US Court of Appeals upheld the 2006 ruling by the Court of Federal Claims awarding over $1 billion to 11 oil and gas companies that sued the government for its breach of nearly three dozen oil and gas leases off California.
The award by the Court of Federal Claims was likely the largest in that court's 150-year history. In issuing its decision, the Federal Circuit wrote that the government had breached the leases when it, in effect, changed their terms after the leases had been issued.
The leases were sold in the early 1980s by the US Department of the Interior as part of an effort to identify new sources of energy. Through their exploration, the companies had discovered new oil fields on federal lands off California, estimated by the federal government to contain over 1 billion bbl of oil. Under terms of their contracts, the companies were given the right to "explore, develop, and produce" oil and gas in the leased areas. However, production drilling never commenced because subsequent changes in federal law materially interfered with the companies' efforts to develop the reserves.
Covington & Burling LLP represented the 11 oil companies. Partner Steven Rosenbaum, who delivered the oral argument before the Federal Circuit, said, "When any person, company or organization enters into a contractual agreement in this country, they must fulfill the terms or pay damages, even if that entity is the US government."
In 2006, Rosenbaum successfully represented the American Petroleum Institute (API) in a defense against a lawsuit seeking a preliminary injunction to prevent an OCS lease sale in the Western Gulf of Mexico. He currently is representing API in defending a pending challenge to the Department of the Interior's 5-year OCS leasing program.
"The Outer Continental Shelf contains a large percentage of the country's remaining oil reserves," Rosenbaum observed. "Not only is it vital to our national energy portfolio, but leases from the shelf represent one of the largest sources of nontax revenue to the federal government."
