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Saturday, March 2, 2024 | Back issues
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Interest Award Is Gravy in Post-Hurricane Work

(CN) - An energy company that paid $4.4 million too much to decommission an offshore oil-and-gas block after Hurricane Rita can get interest on the refund, a federal judge ruled.

Mariner Energy first filed suit against Devon Energy in February 2008 seeking to limit its liability for cost to decommission a block in the Gulf of Mexico that was originally leased by the U.S. government in 1973.

Devon Energy took over operation of the block in 2001 from Forest Oil, becoming a 76 percent owner of the lease. Forest then assigned its 13.33 percent interest in the block to Devon Energy and co-owner Phillips Petroleum through a letter agreement in February 2002.

Under this agreement, Forest said it would still be liable for its share of abandoning oil wells, platforms and equipment in the block, but only as outlined in a decommissioning liability report prepared by Twachtman, Snider & Bird on orders from Devon.

Mariner Energy acquired Forest Oil's offshore interests in the Gulf of Mexico in 2005, including Forest Oil's abandonment obligations under the letter agreement.

After Hurricane Rita tore through the gulf in September 2005, Devon decided to decommission and abandon the block. But it wanted Mariner pay $25 million of the costs for its 13.33 percent share.

Mariner filed suit for a declaratory judgment to limit its abandonment-cost liability to the costs of the scope of work outlined in the Twachtman report. It also sought to limit its liability in relation to the equipment that was on the block as of Dec. 1, 2010, the date the assignment from Forest Oil to Devon Energy became effective.

U.S. District Judge Lee Rosenthal sided with Mariner Energy in the first phase of litigation for the case, and ruled that Mariner was only responsible for abandonment costs as outlined in the Twachtman report.

Based on Rosenthal's previous rulings in the case, the parties agreed that Mariner paid Devon $4.4 million in decommissioning costs it did not owe, and Devon has to return it.

The parties disagreed over whether Mariner should receive prejudgment interest on the overpayment, and filed cross-motions for summary judgment on the matter.

Rosenthal once again sided with Mariner on Monday.

Under Louisiana law, which governs the parties' contract, Mariner is entitled to prejudgment interest but only from the date of judicial demand, and not from the earlier date when it made the overpayment to Devon, according to the 10-page decision.

Rosenthal ordered the parties to file a proposed order for final judgment of the case by Friday.

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