High court upholds damages due oil firms for voided leases

The US Supreme Court held Monday that the federal government owes ExxonMobil Corp. and Marathon Oil Co. $156 million for voiding their leases to drill off North Carolina. The court, in an 8-1 opinion with Justice John Paul Stevens dissenting, overruled an appeals court ruling.


Washington, DC�The US Supreme Court held Monday that the federal government owes ExxonMobil Corp. and Marathon Oil Co. $156 million for voiding their leases to drill off North Carolina. The court, in an 8-1 opinion with Justice John Paul Stevens dissenting, overruled an appeals court ruling.

Mobil Oil Exploratory & Producing Southeast Inc. and Marathon Oil each paid more than $78 million for the offshore leases in 1981, but Congress later passed a law requiring the Department of the Interior to conduct environmental studies before allowing exploration. The companies alleged that act by the federal government breached their lease contracts.

The American Petroleum Institute, which had filed a brief in support of the oil companies, said the firms had acquired the tracts with the "clear expectation that they would be allowed to develop those leases."

Justice Stephen Breyer, writing for the court, said, "The government broke its promise, repudiated the contracts, and must give the companies their money back."

The appeals court had ruled that the oil companies were unable to obtain all the necessary federal and state government approvals for exploration, and thus were not entitled to breach-of-contract relief.

Justice Stevens agreed the government breached its contract with the oil companies but said they were entitled only "to damages resulting from the delay caused by the government's failure to approve the plan within the requisite time."

Legal observers said the ruling was a major victory for government contractors, because the justices held that the government is bound to the same basic principles of contract law as private parties.

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