Interior Ordered to Pay Marathon, ExxonMobil $78 Million Each

A federal appeals court in Washington D.C. has ordered the Department of Interior to repay ExxonMobil and USX-Marathon Group's Marathon Oil Co. $78 million each for reneging on oil and gas lease agreements the companies signed in 1981 to drill off the coast of North Carolina.

The U.S. Supreme Court ruled in favor of the two energy companies last June, but remanded the case to the U.S. Court of Appeals for the Federal Circuit to decide the issue of restitution.

On remand, Interior had argued that the amount to be repaid to Marathon and ExxonMobil should be reduced to account for the depressed market value of the leases stemming from lower oil and natural gas prices at the time of the contract breach. But the appellate court flatly rejected that argument.

Interior's position "is plainly incorrect," said the Federal Circuit, which - unlike the D.C. Circuit Court of Appeals - addresses narrower issues such as those dealing with government contracts. The Supreme Court last summer ruled that the "the oil companies gave the United States $156 million...the government must give the companies their money back," the lower court reminded Interior.

In addition to the $156 million to be repaid, the Federal Circuit ordered Interior to begin paying a 5% interest charge Dec. 29. Interior will not have to pay the producers out of its own pocket, rather the money will come from a General Accounting Office judgment fund. A spokesman for the department indicated it was unlikely Interior would seek an appeal of the decision, given that the Supreme Court already reviewed the case.

The case has been making its way through the courts since 1992 when the companies that purchased the lease rights filed a breach-of-contract lawsuit against the federal government.

ExxonMobil and Marathon Oil and others were prevented from drilling offshore North Carolina by the 1990 Outer Banks Protection Act, which was enacted in 1990. On top of this, Interior refused to give the companies their money back, saying that the terms of the lease agreements permitted it to keep it.

Susan Parker

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