Oil Well Offshore Calif. Must Be Plugged

(CN) - The federal government properly ordered Noble Energy to plug an oil well off the coast of California, a federal judge ruled Monday in the District of Columbia.

Noble Energy bought an offshore oil and gas lease in 1979 and plugged and abandoned it in 1985. "The well remains temporarily plugged and abandoned today, and the question in this case is whether BSEE can require Noble Energy to permanently plug that well," U.S. District Judge Colleen Kollar-Kotelly wrote, referring to the defendant Bureau of Safety and Environmental Enforcement. (Emphasis in ruling.)

The lease was suspended several times and ultimately revoked for violating amendments to the California coastal management plan. Noble and other lessees received $1.1 billion in 2008, in compensation for the government's material breach of lease.

A year later, the now-defunct Minerals Management Service the Department of the Interior ordered Noble to permanently plug the well and clear the site.

Noble challenged the order, claiming the government had no authority to tell it what to do with the well after the government discharged the lease.

The parties contested the issue in several courts for several years until the Court of Appeals vacated the order and remanded the issue to the Bureau of Safety and Environmental Enforcement (BSEE).

On remand, the Bureau determined that the decommissioning regulations in question were independent from the lease obligations and in April 2014 again ordered Noble to permanently plug the well.

Noble challenged the order again, as arbitrary and capricious.

Kollar-Kotelly sided with the Department of the Interior on Monday and dismissed Noble's complaint.

Citing United States v. Texas, (507 U.S. 529 (1993)), Noble argued that the decommissioning regulations do not apply to it due to the government's material breach of the lease.

Kollar-Kotelly rejected this, saying the court must give deference to an agency's interpretation of its own regulations.

The BSSE says the regulatory language applies to current and former lessees as well as non-lessees, and remains in effect even after a lessee relinquishes a lease.

The Bureau said that it devised the regulations to protect the environment and thus included decommissioning obligations in regulatory and contractual form to further that goal.

Noble claimed there is not enough difference between the regulatory decommissioning obligations and the contractual decommissioning obligations to conclude that they function independently.

Kollar-Kotelly rejected that too, finding that "the expansive scope of the regulatory decommissioning requirements shows that those requirements are independent from the contractual requirements," even if they apply to parties already affected by contractual requirements.

She also shot down Noble's argument that it has no obligation to plug the well because the agency's regulations do not abolish the common law rule of discharge, in which one party's breach of agreement frees the other party from honoring its terms.

The common law rule of discharge applies only to contractual obligations, not regulatory obligations. Since the agency properly concluded that the regulatory obligations differ from contractual obligations, the court cannot read a form of the discharge rule into the regulatory obligations, the ruling states.

"In sum, none of plaintiff's arguments lead the court to conclude that the agency's order is arbitrary, capricious, an abusive of discretion or otherwise not in accordance with the law," Kollar-Kotelly wrote.

Neither party immediately returned requests for comment Tuesday.

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