After writing about whether it is a clear breach of contract for the government to try and apply liability cap changes to existing leases I was referred to the testimony of Jack Coleman who actually represented THE GOVERNMENT in prior breach of contract cases.
Here is his full written testimony:
http://judiciary.senate.gov/pdf/10-06-08ColemansTestimony.pdf
I've pulled out the important parts.
1) His background - Note he was attorney for the department of the interior
Jack Coleman and I am Managing Partner of EnergyNorthAmerica, LLC, an energy consulting firm with offices in Washington, DC, Houston, TX, and Oklahoma.
Early in 2009 I retired after a career of almost 27 years in the federal government – the last six of which were spent working in the House of Representatives. From February 2007 until March 2009, I was the Republican General Counsel of the House Committee on Natural Resources, and prior to that I served from May 2003 until late 2006 as the Energy and Minerals Counsel for the House Committee on Resources.
My work in the House followed my previous fourteen years as a senior attorney at the Department of the Interior.
2) His conclusions:
IV. Application of the Mobil and Amber Decisions to Current Issues
I will address the following in turn – legislative proposals to substantially increase, or eliminate, the OPA 90 $75 million damages limitation and apply this increase to existing leases; proposals to change the OCSLA statutory deadline to approve exploration plans from 30 to 90 days and apply this change to existing leases; and President Obama’s current minimum seven month drilling moratoria on wells in more than 500 feet of water.
Proposals to substantially increase, or eliminate, the $75 million damages limitation (for natural resource damages, lost income, property damage/loss, lost tax revenues) in OPA90 and apply it to existing leases abound, even though the responsible party already has unlimited, strict liability for the entire response cost. One of the most widely cited solutions is the “Big Oil Bailout Prevention Act,” introduced by Sen. Robert Menendez (D-NJ), that would raise the liability cap for damages under the Oil Pollution Act of 1990 (“OPA ‘90”)from $75 million to $10 billion. The cap was put in place to limit the liability exposure of individual companies by sharing the risk so that companies would be able to continue to produce oil and gas offshore and tankers would be able to continue to bring oil into the United States. To raise the cap to $10 billion, or even some much lesser amount, would, at minimum, prevent U.S. small and mid-size oil and gas companies from participating in domestic offshore oil and gas development, and at worst, completely shut down almost one-third of our nation’s domestic oil and gas supply. Either of these would destroy tens of thousands of high-paying American jobs.
While such an outcome would be harmful enough on its own, the consequences of such a policy could extend even further. The Menendez legislation would apply the liability cap retroactively to cover existing leases. Such a substantial change to the conditions under which companies have acquired their leases would likely be a material breach of contract, based on Mobil. As stated earlier, the Supreme Court held that companies that acquire leases do so in return for a contractual promise that the Government will follow the terms of pre-existing statutes and regulations. To apply substantial changes to those pre-existing statutes and regulations, except within narrow limits, in this case by materially changing the liability cap under OPA ’90 for existing leases, would likely be a repudiation of the contracts and entitle leaseholders to compensation for ALL existing federal offshore leases, including those already in production. In the Gulf of Mexico alone, there are currently over 6,600 oil and gas leases covering 35 million acres that were bought for an average of about $300 per acre in recent years. By committing a breach of contract on its Gulf of Mexico leases, the federal government would expose the American public to far more than $10 billion in claims from current leaseholders, not counting likely claims for lost profits. An additional $3 billion would be at risk for leases bought offshore Alaska.
Here is his full written testimony:
http://judiciary.senate.gov/pdf/10-06-08ColemansTestimony.pdf
I've pulled out the important parts.
1) His background - Note he was attorney for the department of the interior
Jack Coleman and I am Managing Partner of EnergyNorthAmerica, LLC, an energy consulting firm with offices in Washington, DC, Houston, TX, and Oklahoma.
Early in 2009 I retired after a career of almost 27 years in the federal government – the last six of which were spent working in the House of Representatives. From February 2007 until March 2009, I was the Republican General Counsel of the House Committee on Natural Resources, and prior to that I served from May 2003 until late 2006 as the Energy and Minerals Counsel for the House Committee on Resources.
My work in the House followed my previous fourteen years as a senior attorney at the Department of the Interior.
2) His conclusions:
IV. Application of the Mobil and Amber Decisions to Current Issues
I will address the following in turn – legislative proposals to substantially increase, or eliminate, the OPA 90 $75 million damages limitation and apply this increase to existing leases; proposals to change the OCSLA statutory deadline to approve exploration plans from 30 to 90 days and apply this change to existing leases; and President Obama’s current minimum seven month drilling moratoria on wells in more than 500 feet of water.
Proposals to substantially increase, or eliminate, the $75 million damages limitation (for natural resource damages, lost income, property damage/loss, lost tax revenues) in OPA90 and apply it to existing leases abound, even though the responsible party already has unlimited, strict liability for the entire response cost. One of the most widely cited solutions is the “Big Oil Bailout Prevention Act,” introduced by Sen. Robert Menendez (D-NJ), that would raise the liability cap for damages under the Oil Pollution Act of 1990 (“OPA ‘90”)from $75 million to $10 billion. The cap was put in place to limit the liability exposure of individual companies by sharing the risk so that companies would be able to continue to produce oil and gas offshore and tankers would be able to continue to bring oil into the United States. To raise the cap to $10 billion, or even some much lesser amount, would, at minimum, prevent U.S. small and mid-size oil and gas companies from participating in domestic offshore oil and gas development, and at worst, completely shut down almost one-third of our nation’s domestic oil and gas supply. Either of these would destroy tens of thousands of high-paying American jobs.
While such an outcome would be harmful enough on its own, the consequences of such a policy could extend even further. The Menendez legislation would apply the liability cap retroactively to cover existing leases. Such a substantial change to the conditions under which companies have acquired their leases would likely be a material breach of contract, based on Mobil. As stated earlier, the Supreme Court held that companies that acquire leases do so in return for a contractual promise that the Government will follow the terms of pre-existing statutes and regulations. To apply substantial changes to those pre-existing statutes and regulations, except within narrow limits, in this case by materially changing the liability cap under OPA ’90 for existing leases, would likely be a repudiation of the contracts and entitle leaseholders to compensation for ALL existing federal offshore leases, including those already in production. In the Gulf of Mexico alone, there are currently over 6,600 oil and gas leases covering 35 million acres that were bought for an average of about $300 per acre in recent years. By committing a breach of contract on its Gulf of Mexico leases, the federal government would expose the American public to far more than $10 billion in claims from current leaseholders, not counting likely claims for lost profits. An additional $3 billion would be at risk for leases bought offshore Alaska.
