Are you considering a mineral rights or similar lease from the government on the Outer Continental Shelf (OCSLA)? It is crucial to understand your potential liabilities and obligations that may arise from provisions not specifically stated in the contract and when you may have a breach of contract claim against the federal government.
Outer Continental Shelf Lands Act (“OCSLA”) Background
Many government contracts, especially those dealing with the Outer Continental Shelf Lands Act (“OCSLA”) provide that the leases contained therein are subject to all statutes and regulations in existence on the effective date. However, if you are also subject to new statutes and regulations, especially when dealing with oil and gas in the Outer Continental Shelf, your financial liability in such a dangerous industry can often increase and cause confusion. The question of whether there was government breach or if you are actually liable often falls under whether the changes were based on new statutory changes or existing regulations.
New vs. Existing OCSLA Regulations
If the amendments to the regulations “impose significantly more burdensome requirements,” and the government imposes those new requirements based on new statutory changes, and not existing regulations provided for in the contract, then this constitutes a breach of contract. Amber Resources Co. v. United States, 538 F.3d 1358 (Fed. Cir. 2008).
When dealing with the OCSLA, the government contracts typically provide that the lessees are subject to changes in OCSLA regulations and regulatory requirements issued after the effective date, but not other statutes enacted or amended after the leases are signed. See Century Exploration New Orleans, LLC v. United States (2014).
Cited Governmental Authority for New OCSLA Regulations
When dealing with the OCSLA, many statutes and regulations can overlap. If new regulations are implemented, often the deciding factor to decide if the new regulation falls under OCSLA or another statute, such as the Oil Pollution Act, Outer Banks Protection Act (“OBPA”), or the Coastal Zone Management Act (“CZMA”), is to look at the government’s chosen source of authority for the new regulation.
In Mobil Oil, the government cited the OBPA for the new requirements, not OCSLA regulations, and the court noted that even if the changes could have occurred under OCSLA, as the government argued, that does not mean it was an Outer Continental Shelf Lands Act regulation change covered in the lease.
A similar situation occurred in Amber Resources, where the government imposed new requirements under the CZMA, and even though the government could have taken the same action pursuant to OCSLA, it did not and therefore the new requirements imposed by a separate statute constituted breach of the contract.
Even if the government breached the contract, you are only entitled to restitution of there was a “substantial” breach. A substantial breach will be found if the company contractor is deprived of the benefit of their bargain. Mobile Oil.
Wondering if you may have a claim against the government for breach of contract?
For Help With OCSLA matters, Contact Watson & Associates, LLC to speak with any of our Federal Government Contract Attorneys at 1-866-601-5518 for a free consultation.