Feds Owe Drilling Firm for Oil Lease Mix-Up

     (CN) - The U.S. government owes a drilling company damages for canceling two Mississippi national forest oil and gas leases, a federal judge ruled.
     The federal government's Bureau of Land Management granted Griffin & Griffin Exploration LLC two oil and gas leases for 160 acres of the Homochitto National Forest before canceling them because they were improperly issued.
     Leases issued by BLM allow companies to drill for oil and gas on the Mississippi national forest land as long as they pay the government royalties on production. The bureau issued Griffin & Griffin one 10-year lease in 2006 and another the next year before canceling them both in 2008 because another company, Bayou Exploration, already had exclusive rights to the land.
     Bayou's 10-year BLM lease was issued in 1997 and BLM considered the lease terminated in 2004 due to nonpayment. The lease was "unterminated" in early 2005 because Bayou ended up paying the past due amounts but an email to BLM from the Minerals Management Service about the Bayou lease was not received because of computer problems or an employee's mistake, according to the ruling.
     Griffin & Griffin along with Robert L. Smith & Associates, Inc. and Robert Smith sued in federal claims court for breach of contract after a long appeals process.
     U.S. Federal Claims Judge Elaine Kaplan granted in part a motion for summary judgment, ruling that BLM breached the contract by failing to give Griffin & Griffin valid leases.
     "BLM violated the granting clause of the lease and the warranty of the title implicit in the lease agreement by failing to convey a valid leasehold interest to plaintiffs," wrote Judge Kaplan. "Plaintiffs are entitled to damages to compensate them for injuries resulting from that breach."
     But Judge Kaplan also ruled canceling the Griffin & Griffin leases was not a breach of contract because the lease terms included a clause that said they can be canceled if they were improperly issued.
     "This court is bound by BLM's conclusion that the Griffin leases were improperly issued and necessarily canceled," she wrote. "According, the cancellation of the leases was consistent with their provisions and cannot serve as the basis for a claim for breach of contract."
     Judge Kaplan ruled that reliance damages may be the best way for Griffin & Griffin to be paid but she gave the parties 30 days "to propose a way forward on the issue of damages," according to the ruling.