Century Exploration Sues U.S. Over Drill Ban Changes
Century Exploration New Orleans Inc. sued the U.S. over changes in offshore drilling rules that it said made development of its $23 million Gulf of Mexico lease “commercially impractical.”
The Louisiana oil company filed suit in the U.S. Court of Federal Claims in Washington today over a series of regulatory changes the Interior Department imposed on offshore exploration after the BP Plc oil spill. The Obama Administration halted all drilling in waters deeper than 500 feet in May, after the explosion and sinking of the Deepwater Horizon caused the worst marine oil spill in U.S. history.
Regulators subsequently lifted and reinstituted multiple rounds of changes to offshore drilling policy in ways that effectively rendered Century’s “lease bargain illusory,” according to the complaint.
“The United States unreasonably changed the agreement, unlawfully affected performance and dramatically increased the cost of Century’s performance and decreased the attendant benefits,” Century said in the complaint.
The company isn’t seeking reimbursement for the $23 million it paid to acquire the lease in 2008 or the $164,150 in rental fees paid to hold the parcel until drilling begins. Instead, Century seeks damages equal to profit it could have earned on the 12.7 million barrels of oil equivalent in proven reserves and 2.4 million barrels of oil equivalent in probable reserves the Gulf of Mexico parcel is estimated to contain.
Worst-Case Discharge
Century said the expanded calculation of worst-case discharge that companies must address in their oil-spill response plans “has made it economically impracticable for Century to obtain a bond necessary to demonstrate sufficient oil spill financial responsibility.” Such a bond is required of all offshore-drilling operators.
The new restrictions and safety rules caused the value of the lease’s estimated proven reserves to be “significantly discounted by the senior lender at the time and subsequently by the financial markets,” according to the complaint. This discount forced Century to issue debt at 12.75 percent, “which was the highest interest rate paid by any issuer of high-yield debt in recent months,” according to the complaint.
“The unpredictable manner in which the United States has promulgated its rules has coupled with conflicting and ambiguous guidance from the United States to create a veritable regulatory morass,” the company said.
Ocean Energy Management
Wyn Hornbuckle, a spokesman for the Department of Justice, and Kendra Barkoff, a spokeswoman for the Department of the Interior, declined to comment on the lawsuit.
Century’s claim is unrelated to two industry lawsuits challenging the administration’s offshore drilling moratoriums and attendant safety rules. That litigation, which has bounced back and forth between a New Orleans judge and the appellate court, is awaiting a ruling by U.S. District Judge Martin Feldman, who struck down the initial drilling ban as arbitrary and overly broad.
The case is Century Exploration New Orleans Inc. v. United States of America, 11-54, U.S. Court of Federal Claims Washington).
The related case is Ensco Offshore Inc. v. Salazar, 2:10- cv-01942, U.S. District Court, Eastern District of Louisiana (New Orleans).
To contact the reporter on this story: Laurel Brubaker Calkins in Houston at laurel@calkins.us.com.
To contact the editor responsible for this story: David E. Rovella at drovella@bloomberg.net.
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