NGI The Weekly Gas Market Report
A federal appeals court in Washington D.C. has ordered theDepartment of Interior to repay ExxonMobil and USX-Marathon Group’sMarathon Oil Co. $78 million each for reneging on oil and gas leaseagreements the companies signed in 1981 to drill off the coast ofNorth Carolina.
The U.S. Supreme Court ruled in favor of the two energycompanies last June, but remanded the case to the U.S. Court ofAppeals for the Federal Circuit to decide the issue of restitution.
On remand, Interior had argued that the amount to be repaid toMarathon and ExxonMobil should be reduced to account for thedepressed market value of the leases stemming from lower oil andnatural gas prices at the time of the contract breach. But theappellate court flatly rejected that argument.
Interior’s position “is plainly incorrect,” said the FederalCircuit, which – unlike the D.C. Circuit Court of Appeals -addresses narrower issues such as those dealing with governmentcontracts. The Supreme Court last summer ruled that the “the oilcompanies gave the United States $156 million…the government mustgive the companies their money back,” the lower court remindedInterior.
In addition to the $156 million to be repaid, the FederalCircuit ordered Interior to begin paying a 5% interest charge Dec.29. Interior will not have to pay the producers out of its ownpocket, rather the money will come from a General Accounting Officejudgment fund. A spokesman for the department indicated it wasunlikely Interior would seek an appeal of the decision, given thatthe Supreme Court already reviewed the case.
The case has been making its way through the courts since 1992when the companies that purchased the lease rights filed abreach-of-contract lawsuit against the federal government.
ExxonMobil and Marathon Oil and others were prevented fromdrilling offshore North Carolina by the 1990 Outer Banks ProtectionAct, which was enacted in 1990. On top of this, Interior refused togive the companies their money back, saying that the terms of thelease agreements permitted it to keep it.
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