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Court Upholds Interior Order to Plug Offshore Noble Energy Well

A federal court in Washington, DC, Tuesday upheld an Interior Department order requiring Noble Energy Inc. to plug and permanent abandon an undeveloped well off the central coast of California.

Noble filed a complaint challenging the order of Interior Department's Minerals Management Service (MMS), the predecessor to the Bureau of Ocean Energy Management, Regulation and Enforcement, after the U.S. Court of Appeals for the Federal Circuit in August 2008 ordered the federal government to pay more than $1 billion in recovered costs to a group of producers for materially breaching leases off the California coast (see Daily GPI, Aug. 27, 2008). Noble Energy was one of a dozen producers holding those leases. It recovered $1.2 million in costs.

The case involved 35 undeveloped tracts off Ventura, Santa Barbara and San Luis Obispo counties along the south-central California coast that were granted in the 1979-84 period. The Federal Circuit upheld a 2005 ruling by the U.S. Court of Federal Claims, which had said the companies were owed the awards.

"Noble shares in the joint and several responsibility to permanently plug and abandon the 320-2 [well off the central California coast] until that obligation is met. The court finds that this duty was not discharged [relieved] 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 [Outer Continental Shelf Lands Act] to order Noble to permanently plug and abandon the 320-2 well," said U.S. District Judge Emmet G. Sullivan for the District of Columbia in his 22-page ruling Tuesday..

In September 2009 MMS ordered Noble Energy to "promptly and permanently" plug and abandon the well. The Houston-based independent oil and gas producer responded by filing a lawsuit in October 2009. Noble Energy argued 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 leases, as determined by the Court of Federal Claims and the Federal Circuit."

But the OCSLA regulations see things differently, according to the court. "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 nonbreaching party of regulatory obligations, and this court declines to expand the scope of the common law principle of discharge in that direction," Sullivan said.

Under federal law, "lessees and owners of operating rights are jointly and severally liable for meeting their decommissioning obligations for the facilities on the leases as the obligations accrue 'and until each obligation is met.' Once a lessee has accrued a decommissioning obligation, it retains that obligation, notwithstanding transfer, assignment or relinquishment of the lease," he noted.

While Noble lost on the major legal point -- the plugging and abandonment of the well -- the district court appeared to be receptive to Noble's request that the federal government pay for the plugging and abandonment costs. Noble made a similar plea to the Federal Circuit, but it was rejected. The federal government argued that Noble should be barred from relitigating the point.

"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...Accordingly, the court concludes that plaintiff's claim is not barred [from reconsideration] as a result of proceedings" in prior courts, Sullivan said.

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