The U.S. Court of Appeals for the Federal Circuit Monday ordered the federal government to pay more than $1 billion in recovered costs to a group of exploration and production (E&P) companies, upholding a 2005 federal court’s decision to pay for leases off the California coast that were breached. The decision affirms that the government owes the companies bonuses they paid for Outer Continental Shelf leases.

Involved in the case are leases for 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 time period. The appellate court upheld the 2005 ruling by the U.S. Court of Federal Claims, which had said the companies were owed the awards.

Following a series of legal battles related to California’s Coastal Zone Management Plan, the companies couldn’t use the leases, and they ultimately expired or were suspended by the government. The state has resisted federal attempts to expand offshore drilling in the area, and a federal judge three years ago backed the state’s position (see Daily GPI, Aug. 16, 2005).

Plaintiffs in the proceeding were a dozen producers, including Amber Resources Co., Aera Energy LLC, Delta Petroleum Corp., Ogle Petroleum Inc., Olac Resources LLC, Poseidon Petroleum LLC, Total SA, Plains Exploration and Production, Noble Energy, Anadarko E&P, Devon Energy Production and NYCAL Offshore Development Corp..

A counsel for the plaintiff companies told reporters that it was important that the appellate court reaffirmed the principle that the government carries an obligation to uphold contracts it enters with companies, noting that the government either needs to fulfill the contracts or pay damages specified for breaching the deals.

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