Noble Energy, Inc. v. Salazar

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA

)
NOBLE ENERGY, INC., )
)
Plaintiff, )
)
v. )
)Civil Action No. 09-2013 (EGS)
KENNETH SALAZAR, Secretary )
of the Department )
of the Interior, and U.S. )
DEPARTMENT OF THE INTERIOR, )
)
Defendants. )
)

MEMORANDUM OPINION

This case arises out of long-running litigation over oil and

gas leases off the coast of California. Plaintiff Noble Energy

(“Noble”) challenges an order of the Minerals Management Service

(“MMS”), an agency of the Department of the Interior, which

directs Noble to permanently plug and abandon an undeveloped

exploratory well. Noble asserts that this order was arbitrary,

capricious, and contrary to law, and asks this Court to declare

that it is not obligated to decommission its well.

Pending before the Court are the parties’ cross-motions for

summary judgment. Upon consideration of these cross-motions, the

oppositions and replies thereto, the parties’ supplemental

briefs, the applicable law, the full administrative record in

this case, the statements made by counsel at a motions hearing

held on February 15, 2011, and for the reasons set forth below,

this Court finds that MMS acted within its authority under the
OCSLA to order Noble to permanently plug and abandon its

exploratory well. Accordingly, the plaintiff’s motion for

summary judgment is hereby DENIED and the federal defendants’

cross-motion for summary judgment is hereby GRANTED.

I. BACKGROUND

A. Statutory and Regulatory Background

The Outer Continental Shelf Lands Act (“OCSLA”), 43 U.S.C.

§ 1331 et seq., gives the United States jurisdiction over the

mineral resources found in submerged lands in the Outer

Continental Shelf (“OCS”).1 See 43 U.S.C. § 1332(1). The

Secretary of the Interior controls the disposition of mineral

resources in the OCS through oil and gas leases.2 See id.

§ 1337(a)(1). An OCS lease gives a lessee an exclusive right “to

explore, develop and produce the oil and gas contained within the

leased area,” id. § 1337(b)(4), in exchange for an up-front

payment, annual rental fees, and royalties on any oil and gas

that is ultimately produced.3 See id. §§ 1337(b)(3),(6),(7).

1
Each coastal state has jurisdiction over the submerged
lands beneath navigable waters within a fixed distance from its
coastline. See 43 U.S.C. §§ 1311, 1301(a) (defining “lands
beneath navigable waters”). The federal lands beyond these
boundaries are known as the Outer Continental Shelf. Id.
§ 1331(a).
2
The Secretary has delegated his responsibilities under
the OCSLA to MMS. 30 C.F.R. § 250.101.
3
An OCS lease runs initially for a primary term of not
more than ten years, as specified in the lease instrument. 43

2
 Regulations under the OCSLA establish the general

requirements for permanently plugging and abandoning (or,

“decommissioning”) a well drilled pursuant to an OCS lease. See

generally 30 C.F.R. §§ 250.1700-1754. These requirements include

permanently plugging all wells, removing all platforms and other

facilities, decommissioning all pipelines, clearing the sea floor

of all obstructions, and conducting all decommissioning

activities in a way that is safe and does not cause undue harm or

damage to the human, marine, or coastal environment. See id.

§ 250.1703. The regulations also specify the circumstances under

which decommissioning obligations are accrued:

You4 accrue decommissioning obligations when you do any
of the following:

(a) Drill a well;
(b) Install a platform, pipeline, or other facility;
(c) Create an obstruction to other users of the OCS;
(d) Are or become a lessee or the owner of operating

U.S.C. § 1337(b)(2)(B). The lease continues in effect thereafter
as long as oil or gas is being produced in paying quantities or
as long as approved drilling operations are conducted. Id.
Lease suspensions may be issued at the request of a lessee to
facilitate proper development, id. § 1334(a)(1)(A), or may be
directed by MMS, 30 C.F.R. § 250.168(a). Both types of lease
suspensions may extend the lease beyond its initial term. 30
C.F.R. §§ 250.169(a); 256.73(a).
4
In this subpart, the term “you” refers, inter alia, to
“lessees and owners of operating rights.” 30 C.F.R.
§ 250.1701(c). The OCSLA regulations further define a “lessee”
as “a person who has entered into a lease with the United States
to explore for, develop, and produce the leased minerals. The
term lessee also includes the MMS-approved assignee of the lease,
and the owner or the MMS-approved assignee of operating rights
for the lease.” Id. § 250.105.

3
 rights of a lease on which there is a well that
has not been permanently plugged . . . , a
platform, a lease term pipeline, or other
facility, or an obstruction;
(e) Are or become the holder of a pipeline right-of-way
on which there is a pipeline, platform, or other
facility, or an obstruction; or
(f) Re-enter a well that was previously plugged
according to this subpart.

Id. § 250.1702.

Under the regulatory structure of the OCSLA, once a lessee

accrues decommissioning obligations in the manner provided under

§ 250.1702, it retains those obligations notwithstanding

transfer, assignment, or relinquishment of the lease. See id.

§ 256.62(d) (“You, as assignor, are liable for all obligations

that accrue under your lease before the date that the Regional

Director approves your request for assignment . . . The Regional

Director’s approval of the assignment does not relieve you of

accrued lease obligations that your assignee, or a subsequent

assignee, fails to perform.”); id. § 256.64(a)(5)(“You do not

gain a release of any nonmonetary obligation under your lease or

the regulations in this chapter by . . . transferring operating

rights.”); id. § 256.64(h)(1) (“You are jointly and severally

liable for the performance of each nonmonetary obligation under

the lease and under the regulations in this chapter with each

prior lessee and with each operating rights owner holding an

interest at the time the obligation accrued.”); id. § 256.76 (“A

relinquishment shall take effect on the date it is filed subject

4
to the continued obligation of the lessee and the surety to . . .

abandon all wells and condition or remove all platforms and other

facilities on the land to be relinquished to the satisfaction of

the Director.”).

The OCSLA regulations further provide that “[l]essees and

owners of operating rights are jointly and severally responsible

for meeting decommissioning obligations for facilities on leases

. . . as the obligations accrue and until each obligation is

met.” Id. § 250.1701(a). All wells on a lease must be

permanently plugged “within 1 year after the lease terminates.”

Id. § 250.1710

Wells drilled pursuant to an OCS lease may also be

temporarily plugged and abandoned when necessary for proper

development and production of a lease. See id. § 250.1721.

However, the OCSLA regulations provide that if MMS or the lessee

determines that continued maintenance of a temporarily abandoned

well “is not necessary for the proper development or production

of a lease, [the lessee] must . . . [p]romptly and permanently

plug the well.” Id. § 250.1723.

B. Factual and Procedural Background

The litigation preceding this case began in 1999 and spans

the Ninth Circuit, the Federal Circuit, and now this Court. See

Amber Res. Co. v. United States, 538 F.3d 1358 (Fed. Cir. 2008)

(“Amber III”); California v. Norton, 311 F.3d 1162 (9th Cir.

5
2002); California v. Norton, 150 F. Supp. 2d 1046 (N.D. Cal.

2001); Amber Res. Co. v. United States, 73 Fed. Cl. 738 (2006)

(“Amber II”); Amber Res. Co. v. United States, 68 Fed. Cl. 535

(2005) (“Amber I”).5 The extensive factual and procedural

background of this case has been thoroughly documented by other

courts, and this Court will not repeat it at length here.

In sum, the Federal Circuit recently affirmed that the

United States materially breached thirty-five OCS leases when it

suspended them, indefinitely, in an effort to comply with

procedures and standards imposed by 1990 amendments to the

Coastal Zone Management Act (“CZMA”), 16 U.S.C. § 1456(c)(1).6

See Amber III, 538 F.3d at 1374. As a result of the Federal

Circuit’s decision in Amber III, the plaintiffs in that case -

consisting of numerous OCS lessees, including Noble Energy - have

since recovered in restitution the original up-front bonus

payments on their OCS leases. Tr. at 3. Plaintiff Noble,

specifically, has recovered $1.2 million in restitution for its

portion of the original bonus payment on Lease 320, the subject

of the instant lawsuit. Tr. at 3.

5
The federal government’s combined petition for panel
rehearing or rehearing en banc was denied by the Federal Circuit
on December 5, 2008. Amber Res. Co. v. United States, No. 2007-
5047 (Fed. Cir. Dec. 5, 2008). The federal defendants have not
sought Supreme Court review.
6
During a “directed” suspension, such as the suspensions
at issue in Amber Resources, no activities on the lease are
permitted. See Amber III, 538 F.3d at 1363.

6
 Lease 320 was issued by the United States for oil and gas

development in 1979 and is located off the coast of central

California.7 See NOB0001-0007.8 In 1985, an exploratory well

was drilled on Lease 320 - the well at issue in this case,

referred to by the parties as the “320-2” well - which proved to

be capable of producing oil and gas in commercial quantities.

See NOB0458. Shortly after the 320-2 well was drilled and

tested, MMS approved a plan to temporarily plug the 320-2 well

for a one-year period. See NOB0487. The lessees9 subsequently

sought and were granted numerous extensions of the well’s

temporarily abandoned status. See NOB0490; 0492; 0717; 0734;

0823; 0835; 0866; 0867. The administrative record indicates that

the lessees expressed an intent to permanently abandon the 320-2

well in 1990, see NOB0743, and again in 2004, see NOB0908. To

date, however, the 320-2 well remains only “temporarily”

7
Lease 320 along with adjacent Leases 319, 322, and 323,
form the “Sword Unit.” See NOB0151. The OCSLA and its
regulations permit lessees voluntarily to join their leases into
“units” when doing so will “[p]romote and expedite exploration
and development.” 30 C.F.R. § 250.1301(a)(1). A single company
is designated the “unit operator,” and, subject to the terms of
the lessees’ agreements, is given primary responsibility for unit
operations. Plaintiff Noble is the current Sword Unit operator.
8
References to the administrative record are indicated
by “NOB .”
9
References herein to “the lessees” include both
plaintiff Noble and its predecessors-in-interest, Conoco and
Samedan Oil. Conoco drilled the 320-2 well in 1985. See
NOB0458.

7
plugged.10

On September 1, 2009, following the resolution of the Amber

Resources litigation, MMS sent a letter to Noble invoking the

agency’s regulatory authority under the OCSLA to order Noble to

“promptly and permanently” plug and abandon the 320-2 well. See

NOB0941. The letter reads, in relevant part:

The purpose of this letter is to notify you of
outstanding decommissioning obligations that exist on
one of your OCS leases. Our records indicate that your
Well OCS P-0320, No. 2, has not been permanently
abandoned. The Minerals Management Service (MMS) has
determined that there is no longer justification for
maintaining the well in temporarily abandoned status.
Therefore, as required by 30 CFR 250.1723, you must:
promptly and permanently plug the well according to
250.1715; clear the well site according to 250.1740
through 250.1742; and perform any additional activity
necessary to fully satisfy your decommissioning
obligations.

NOB0941.

Noble responded by declining to comply with the agency’s

order, see NOB0942, and it filed its complaint initiating this

lawsuit on October 26, 2009. Complaint, Doc. No. 1. Plaintiff

filed a motion for summary judgment on March 1, 2010. See

Plaintiff Noble Energy, Inc.’s Motion for Summary Judgment, Doc.

No. 10 (“Pl. Mot.”). The federal defendants filed a cross-motion

for summary judgment on April 5, 2010. See Defendants’ Cross-

10
The parties represent that all of the remaining
exploratory wells in the Sword Unit have been permanently plugged
and abandoned in accordance with the OCSLA regulations. Tr. at
8-9.

8
Motion for Summary Judgment and Response to Plaintiff’s Motion

for Summary Judgment, Doc. No. 11 (“Def. Mot.”). The Court held

a hearing on the parties’ cross-motions on February 15, 2011.

Accordingly, these motions are now ripe for determination by the

Court.

II. STANDARD OF REVIEW

The Administrative Procedure Act (“APA”), 5 U.S.C. §§ 701-

706, provides a right to judicial review of final agency actions.

Under the APA, federal agency actions are to be held unlawful and

set aside where they are “arbitrary, capricious, an abuse of

discretion, or otherwise not in accordance with law,” id.

§ 706(2)(A), or “in excess of statutory jurisdiction, authority,

or limitations,” id. § 706(2)(C). To make this finding, the

court must determine whether the agency “considered the factors

relevant to its decision and articulated a rational connection

between the facts found and the choice made.” Keating v. FERC,

569 F.3d 427, 433 (D.C. Cir. 2009) (citing Balt. Gas & Elec. Co.

v. Natural Res. Def. Council, Inc., 462 U.S. 87, 105 (1983)).

The standard of review under the APA is a narrow one.

Citizens to Pres. Overton Park v. Volpe, 401 U.S. 402, 416

(1971). Generally, the court is not empowered to substitute its

judgment for that of the agency. Id. Moreover, an agency is

entitled to particular deference in interpreting and applying its

own regulations, unless its interpretation is plainly erroneous.

9
Stinson v. United States, 508 U.S. 36, 45 (1993). However, the

level of deference granted to an agency’s decision also depends

on whether the agency’s conclusion is based on factual

interpretation or is purely a question of law. See Beverly

Enter., Inc. v. Herman, 130 F. Supp. 2d 1, 12 (D.D.C. 2000). If

the agency’s finding concerns a purely legal question, “the court

reviews the finding de novo to ensure the agency does not exceed

its authority.” Id. at 13.

III. DISCUSSION

Plaintiff Noble seeks a declaratory judgment that MMS’s

September 1, 2009 decommissioning order exceeds the scope of its

authority under the OCSLA and that Noble and its co-lessees are

not obligated to permanently plug and abandon the 320-2 well.11

Specifically, plaintiff argues 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 lease,

as determined by the Court of Federal Claims and the Federal

Circuit. The federal defendants, by contrast, assert that,

pursuant to the OCSLA regulations, plaintiff retains the

decommissioning obligations it has accrued, which survive the

11
The federal defendants contend that Noble does not have
standing to request declaratory relief on behalf of its co-
lessees, who are not parties to this case. See Def. Mot. at 25-
26. As the Court concludes that plaintiff is not entitled to any
declaratory relief, it will not consider whether such relief
would extend to plaintiff’s co-lessees.

10
termination of the lease.

Before reaching the merits, however, the Court must address

two threshold issues raised by the federal defendants. First,

the federal defendants assert that this Court lacks jurisdiction

to hear this case because plaintiff’s claim is essentially a

contract claim against the federal government, over which the

Court of Federal Claims has exclusive jurisdiction pursuant to

the Tucker Act, 28 U.S.C. § 1491. Second, the federal defendants

argue that plaintiffs are precluded from re-litigating a claim

for “reliance” damages, including the cost of plugging and

abandoning the 320-2 well, which the federal defendants contend

was denied by the Federal Circuit in the Amber Resources

litigation. The Court will explore these issues in turn.

A. Subject-Matter Jurisdiction

The federal defendants assert that this Court lacks subject-

matter jurisdiction over plaintiff’s APA claim because

plaintiff’s claim is impliedly forbidden by the Tucker Act, which

gives the Court of Federal Claims exclusive jurisdiction over all

claims for monetary relief in excess of $10,000 founded upon an

alleged contract with the United States. See Def. Mot. at 12

(citing 28 U.S.C. §§ 1346(a)(2), 1491(a)(1)). As the D.C.

Circuit has repeatedly affirmed, an action against the United

States which is “at its essence” a contract claim lies within the

scope of the Tucker Act, and “a district court has no power to

11
grant injunctive relief in such a case.” Megapulse, Inc. v.

Lewis, 672 F.2d 959, 967 (D.C. Cir. 1982); see also Albrecht v.

Comm. on Emp. Benefits of Fed. Reserve Emp. Benefits Sys., 357

F.3d 62, 68-69 (D.C. Cir. 2004) (“[T]he Tucker Act ‘impliedly

forbids - in APA terms - not only district court awards of money

damages, which the Claims Court may grant, but also injunctive

relief, which the Claims Court may not.’” (citation omitted)).

Whether a claim is “at its essence” a contract claim for

Tucker Act purposes depends “both on the source of the rights

upon which the plaintiff bases its claims, and upon the type of

relief sought (or appropriate).” Megapulse, 672 F.2d at 968.

According to the federal defendants, both elements of this test

support a conclusion that plaintiff’s claim sounds in contract.

First, the federal defendants assert that plaintiff’s claimed

right of discharge “relies on a contract (breach thereof) and

contract law” and, therefore, contract law creates the

substantive right to the remedy plaintiff seeks. Def. Mot. at

12. Second, while the plaintiff’s complaint does not seek

monetary relief on its face, the federal defendants argue that

plaintiff’s request for declaratory relief is essentially a claim

seeking money damages because the practical effect of a

declaratory judgment would purportedly be to require the United

States to pay plugging and abandonment costs that plaintiff would

otherwise incur. Def. Mot. at 13. In other words, the federal

12
defendants assert, plaintiff cannot “avoid the remedial

restrictions of the Tucker Act by recasting cases that are

essentially damages actions as requests for injunctive or

declaratory relief.” Prof. Managers’ Ass’n v. United States, 761

F.2d 740, 745 n.4 (D.C. Cir. 1985).

After careful consideration of these arguments, the Court

finds that it has jurisdiction to hear plaintiff’s claim. The

OCSLA specifically provides that “the district courts of the

United States shall have jurisdiction [over] cases and

controversies arising out of, or in connection with . . . the

cancellation, suspension, or termination of a lease or permit

under this Act.”12 43 U.S.C. § 1349(b)(1). To the extent this

case arises out of, or in connection with, the termination of an

OCS lease, the OCSLA therefore expressly authorizes this Court’s

jurisdiction.13

12
The OCSLA further provides that “[p]roceedings with
respect to any such case or controversy may be instituted in the
judicial district in which any defendant resides or may be found,
or in the judicial district of the State nearest the place the
cause of action arose.” 43 U.S.C. § 1349(b)(1). As the
defendants in this case are the Secretary of the Interior and a
department of the federal government, venue is also proper in
this Court.
13
The term “termination” is not defined in the OCSLA
regulations. The primary regulatory mechanisms for terminating a
lease are relinquishment, under 30 C.F.R. § 256.76, or
cancellation, under 30 C.F.R. § 256.77. The federal defendants
take the position that Lease 320 was relinquished pursuant to
this provision; plaintiff argues that the lease was not
relinquished but has been rescinded as a matter of law. Tr. at
67-68. The administrative record does not indicate that the
parties engaged in any formal “relinquishment” process under 30

13
 Moreover, even assuming this Court’s jurisdiction were not

expressly authorized by statute, the Court concludes that

plaintiff’s claim is not a contract claim within the scope of the

Tucker Act. Plaintiff does not seek to enforce its rights under

the terms of Lease 320, nor does it ask this Court to determine

whether the federal government violated its contractual

obligations. Rather, plaintiff challenges a specific agency

action ordering Noble to promptly and permanently plug and

abandon an exploratory well.14 The central question before this

Court on the merits is whether MMS properly exercised its

authority to issue such an order under the OCSLA. This question

falls squarely within the scope of APA review.

The Court’s determination is further guided by the D.C.

Circuit’s decision in Megapulse, Inc. v. Lewis, 672 F.2d 959

(D.C. Cir. 1982), which held that the district court erred when

it determined that it did not have jurisdiction to hear a claim

C.F.R. § 256.76. The Court is inclined to agree with the
plaintiff that Lease 320 was rescinded as a matter of law,
pursuant to the courts’ decisions in Amber Resources. The Court
concludes, however, that it need not resolve this question to
decide this case.
14
As the Court of Federal Claims noted in Amber II, “it
is basic to litigation under the Tucker Act that actions are
brought against the United States, not Congress, not particular
Executive agencies, and not the courts.” 73 Fed. Cl. at 751
(citing 28 U.S.C. § 1491(a)(1)). The fact that plaintiff has
challenged a particular action of a specific federal agency
therefore precludes the Court of Federal Claims’ jurisdiction
under the Tucker Act.

14
seeking injunctive relief under the APA where the plaintiff “does

not claim a breach of contract, . . . it seeks no monetary

damages against the United States, and its claim is not properly

characterized as one for specific performance.” Id. at 969. In

that case, the court found that

Appellant’s position is ultimately based, not on breach
of contract, but on an alleged governmental
infringement of property rights and violation of the
Trade Secrets Act. . . . [W]e do not accept the
Government’s argument that the mere existence of such
contract-related issues must convert this action to one
based on the contract.

Id. Here, as in Megapulse, the fact that the Court may have to

consider contract-related issues does not deprive it of

jurisdiction over plaintiff’s APA claim. Accordingly, the Court

concludes that it has subject-matter jurisdiction.

B. Claim Preclusion

Next, the federal defendants assert that, even if this Court

has subject-matter jurisdiction, plaintiff’s claim is nonetheless

precluded because plaintiff has already attempted to recover the

costs of plugging and abandoning exploratory wells, including the

320-2 well, as part of the Amber Resources litigation.15 See

15
The federal defendants also argue that plaintiff’s
claim is barred on the basis of “judicial estoppel,” which
“prevents parties from abusing the legal system by taking a
position in one legal proceeding that is inconsistent with a
position taken in a later proceeding.” Def. Mot. at 22-23
(citing Duvall v. Bumbray, 423 B.R. 383, 390 (D.D.C. 2010)).
Aside from this passing reference to the doctrine, the federal
defendants do not explain how the doctrine of judicial estoppel
applies to the case before the Court. The Court, therefore,

15
Def. Mot. at 22. In Amber Resources, the Court of Federal Claims

ruled, and the Federal Circuit affirmed, that the OCS lessees

could not recover “sunk costs,” such as the costs of development

and exploration, under their chosen remedy of restitution because

those costs are only recoverable as reliance damages. See Amber

II, 73 Fed. Cl. at 757-58; Amber III, 538 F.3d at 1381. The

federal defendants contend that the election-of-remedies doctrine

similarly prohibits Noble from now attempting to recover the

additional “reliance” damages that were rejected by the Amber

Resources court. See Def. Mot. at 22 (citing Amber II, 73 Fed.

Cl. at 748, n.10 (“‘As a general rule, a plaintiff may not

recover both restitution and reliance damages for breach of

contract.’”)(citation omitted))).

The Court finds that even if plaintiff previously sought to

recover money damages for the future costs of plugging and

abandoning the 320-2 well,16 plaintiff’s claim is not precluded

finds no reason to bar plaintiff’s claim on grounds of judicial
estoppel.
16
The Court notes that the parties disagree about whether
plaintiff actually sought to recover the costs of permanently
plugging and abandoning the 320-2 well in Amber Resources. The
federal defendants argue that the costs of plugging and
abandoning the 320-2 well are included in the $727 million in
additional “sunk costs” (i.e., amounts spent on developing the
leases) that the Court of Federal Claims rejected as
unrecoverable reliance damages in Amber II, 73 Fed. Cl. at
757-58, because “plugging an exploratory well is part of
exploration.” Def. Supp. Mem., Doc. No. 24, at 5, n.3. Record
evidence demonstrates that plaintiff did contemplate seeking
recovery for this particular expense, and Noble concedes as much.

16
because it does not seek to do so in this case. 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. The Court declines

to find that this avoided expenditure constitutes “money

damages.” See, e.g., Md. Dep’t of Human Res. v. Dep’t of Health

and Human Serv., 763 F.2d 1441, 1446 (D.C. Cir. 1985) (finding

that the ordinary meaning of the term “money damages” refers to a

“sum of money used as compensatory relief”). Accordingly, the

Court concludes that plaintiff’s claim is not barred as a result

of proceedings in the Court of Federal Claims.

C. Merits

Having concluded that plaintiff’s APA claim is properly

before this Court on review, the Court now turns to the merits of

that claim. Plaintiff contends that MMS’s September 1, 2009

decommissioning order is arbitrary, capricious, an abuse of

See Pl. Reply, Doc. No. 14, at 13. Plaintiff, however, asserts
that it ultimately did not seek recovery for the future costs of
plugging and abandoning the 320-2 well in the Court of Federal
Claims, although it unsuccessfully sought to recover its past,
pre-material breach expenditures on other exploratory wells,
including those that had already been permanently plugged and
abandoned. See Pl. Reply at 14. The Amber Resources opinions
provide no clarity, as they do not specifically address plugging
and abandonment costs. The Court concludes that it need not
resolve this question.

17
discretion, and otherwise not in accordance with law because the

OCSLA regulations do not authorize the agency to order Noble to

permanently plug and abandon the 320-2 well in light of the

government’s material breach of the lease. Specifically,

plaintiff argues that the government’s material breach discharged

any remaining contractual or regulatory obligations that Noble

had as a result of Lease 320.

Section 22 of Lease 320 requires Noble and its co-lessees to

“remove all devices, works, and structures” from the leased area

upon termination of the lease. NOB0004. Under normal

circumstances, plaintiff concedes, that provision would require

Noble and its co-lessees permanently to plug and abandon all

exploratory wells, including the 320-2 well. See Pl. Mot. at 17.

However, well-established common law principles provide that a

material breach of contract discharges all of the non-breaching

party’s remaining contractual obligations. See Restatement

(Second) of Contracts § 237, cmt. a (“[M]aterial failure of

performance has . . . these effects on the other party’s

remaining duties of performance with respect to the exchange. It

prevents performance of those duties from becoming due, at least

temporarily, and it discharges those duties if it has not been

cured during the time in which performance can occur.”).

Therefore, given the prior courts’ conclusions in Amber Resources

that the government totally and materially breached Lease 320 and

18
other offshore leases as a result of the CZMA amendments,

plaintiff argues that it is no longer obligated to decommission

the 320-2 well. See Pl. Mot. at 19 (citing 13 Williston on

Contracts § 39:38 (4th ed. 2009) (“a breach of contract . . .

entitles the nondefaulting party to walk away from the contract

without liability”)).

Plaintiff’s argument rests primarily on what it terms the

“Texas doctrine.” This doctrine, which was set forth by the

Supreme Court in United States v. Texas, provides that

“[s]tatutes . . . are to be read with a presumption favoring the

retention of long-established and familiar principles, except

when a statutory purpose to the contrary is evident.” Pl. Mot.

at 21 (citing United States v. Texas, 507 U.S. 529, 534 (1993)

(quotations omitted)).17 Here, plaintiff argues, because nothing

in the OCSLA expresses a clear intent to abrogate the common law

principle of discharge, that principle continues to govern OCS

leases, including Lease 320.

The Court recognizes that OCS leases are governed by common

law contract principles, such as the principle of discharge. See

Mobil Oil Exploration and Producing Southeast, Inc. v. United

States, 530 U.S. 604, 607 (2000) (“When the United States enters

17
Although plaintiff has cited to numerous cases applying
the Texas doctrine, only one of these cases arises in the context
of the OCSLA, and none address the common law principle of
discharge.

19
into contract relations, its rights and duties therein are

governed generally by the law applicable to contracts between

private individuals.” (citations omitted)). Nonetheless, the

Court is not persuaded that applying the common law principle of

discharge in this case would relieve plaintiff of its obligation

to permanently plug and abandon the 320-2 well. The common law

principle of discharge applies only to obligations created by the

particular contract at issue. See Restatement (Second) of

Contracts § 237, cmt. e (“Duties affected: Under the rule stated

in this Section, only duties with respect to the performances to

be exchanged under the particular exchange of promises are

affected by a failure of one of those performances. A duty under

a separate contract is not affected . . . , nor is a duty under

the same contract affected if it was not one to render a

performance to be exchanged under an exchange of promises.”).

Although Lease 320 itself incorporates an obligation to remove

all devices from the lease area upon termination, 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 non-breaching party of regulatory

obligations, and this Court declines to expand the scope of the

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common law principle of discharge in that direction.18

The OCSLA regulations explicitly and comprehensively address

the question of who bears decommissioning responsibilities and

when those responsibilities accrue. Under 30 C.F.R. § 250.1702,

the obligation to permanently plug and abandon a well accrues

upon the drilling of a well or, as in Noble’s case, upon becoming

a lessee of a lease on which there is a well that has not been

permanently plugged. Lessees and owners of operating rights are

jointly and severally liable for meeting their decommissioning

obligations for the facilities on the lease as the obligations

accrue “and until each obligation is met.” Id. § 250.1701(a).

Once a lessee has accrued a decommissioning obligation, it

retains that obligation, notwithstanding transfer, assignment, or

relinquishment of the lease. See id. § 256.62(d) (addressing

decommissioning obligations upon assignment); id. § 256.64(a)(5)

18
In Amoco Production Co. v. Fry, a district court in
this Circuit held that the government was not obligated to refund
excess oil and gas royalty payments, despite a clear statutory
directive under the OCSLA, because of countervailing common law
principles that allowed the government to use those overpayments
to offset debts owed to them. 904 F. Supp. 3, 11-12 (D.D.C.
1995), aff’d in part and rev’d in part on other grounds, 118 F.3d
812 (D.C. Cir. 1997). Plaintiff has also cited to other cases
where the application of the Texas doctrine reached a similar
result. See ABN AMRO Bank N.V. v. United States, 34 Fed. Cl.
126, 132 (1995) (although Treasury regulations appear fairly
comprehensive with respect to forged endorsements, the common law
rules governing which entity bears the loss for a double forgery
take precedence). From these cases, plaintiff reasons that the
application of the Texas doctrine here would likewise relieve
Noble of its decommissioning obligations under the OCLSA
regulations. The Court finds this reasoning unpersuasive.

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(addressing decommissioning obligations upon transfer); id.

§ 256.76 (addressing the effect of relinquishment on outstanding

decommissioning obligations). Indeed, the OCSLA regulations

specify that this duty survives even the termination of the

lease. See id. § 250.1710.

Plaintiff Noble is indisputably a lessee to whom

decommissioning obligations have accrued. As such, Noble shares

in the joint and several responsibility to permanently plug and

abandon the 320-2 well until that obligation is met. The Court

finds that this duty was not discharged 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 to order Noble to permanently plug and

abandon the 320-2 well, and its September 1, 2009 order does not

violate the APA.

IV. CONCLUSION

For the reasons stated herein, it is hereby ORDERED that

plaintiff’s motion for summary judgment is DENIED. It is further

ORDERED that the federal defendants’ cross-motion for summary

judgment is GRANTED. A separate Order accompanies this

Memorandum Opinion.

SO ORDERED.

SIGNED: Emmet G. Sullivan
United States District Court Judge
March 22, 2011

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