BP Exploration & Prod., Inc. v. United States

• Decision Date: 08 April 2019
• Docket Number: No. 18-972C,18-972C
• Parties: BP EXPLORATION & PRODUCTION, INC., Plaintiff, v. UNITED STATES, Defendant
• Court: U.S. Claims Court

BP EXPLORATION & PRODUCTION, INC., Plaintiff, v. UNITED STATES, Defendant

No. 18-972C

United States Court of Federal Claims

April 8, 2019

Suit for leasehold royalty overpayments and interest; jurisdiction; Federal Oil and Gas Royalty Management Act, 30 U.S.C. §§ 1701-59, as amended by the Federal Oil and Gas Royalty Simplification and Fairness Act; jurisdiction under the Tucker Act for a monetary claim; 28 U.S.C. § 1491(a) not displaced by 30 U.S.C. § 1724(h)(2)(B) for a monetary claim; contractual remedy for refund and interest supplanted by the statutory remedial scheme; takings claim for accrued interest

Jonathan A. Hunter and Sarah Y. Dicharry, Jones Walker, LLP, New Orleans, Louisiana, for plaintiff.

Tanya B. Koenig, Trial Attorney, Commercial Litigation Branch, Civil Division, United States Department of Justice, Washington, D.C., for defendant. With her on the briefs were Joseph H. Hunt, Assistant Attorney General, Civil Division, and Robert E. Kirschman, Jr., Director, and Allison Kidd-Miller, Assistant Director, Commercial Litigation Branch, Civil Division, United States Department of Justice, Washington, D.C. Of counsel was Joseph D. Coleman, Attorney-Advisor, Rocky Mountain Regional Solicitor's Office, United States Department of the Interior, Lakewood, Colorado.

OPINION AND ORDER

LETTOW, Senior Judge.

Plaintiff BP Exploration & Production, Inc. ("BP") has brought suit against the United States (the "government") acting through the Department of the Interior's (the "Department's") Office of Natural Resources Revenue ("ONRR") to recover overpayments of royalties made to the government between 2004 and 2007 pursuant to lease agreements on several oil and gas leases in the Gulf of Mexico. The government refunded some, but not all, of the overpaid royalties claimed by BP and refused to pay interest on the amount refunded.

BP seeks $1,536,785 plus interest for royalty overpayments denied by ONRR. Compl. ¶¶ 28, 33-34. In addition, BP seeks interest on the approximately $6.5 million in royalties that ONRR refunded to BP pursuant to an administrative decision rendered in December 2017. Compl. ¶¶ 14, 18, 28-29, 42-43. In its complaint, BP advances four claims against the government. Count I asserts that ONRR owes BP $1,536,785 for royalty overpayments, Compl. ¶¶ 33-35, and Count II avers that ONRR owes BP interest on both the $1,536,785 in unrefunded overpayments and on the approximately $6.5 million in refunded overpayments, Compl. ¶ 42. Counts I and II arise under money-mandating provisions of the Federal Oil and Gas Royalty Management Act of 1982 ("Royalty Management Act"), Pub. L. No. 97-451, 96 Stat. 2447 (codified at 30 U.S.C. §§ 1701-59), as amended by the Federal Oil and Gas Royalty Simplification and Fairness Act of 1996 ("Royalty Simplification Act"), Pub. L. No. 104-185, 110 Stat. 1700 (1996). Compl. ¶¶ 35, 43. Count III alleges that ONRR breached its leases and tolling agreements with BP by refusing to refund overpayments and interest. Compl. ¶¶ 45-47. Count IV claims that ONRR has taken accrued interest owed to BP in violation of the Takings Clause of the Fifth Amendment. Compl. ¶ 52.

The government has moved to dismiss the complaint pursuant to Rules 12(b)(1) and (6) of the Rules of the Court of Federal Claims ("RCFC"). Def.'s Mot. to Dismiss Pl.'s Compl. ("Def.'s Mot."), ECF No. 10. The issues have been fully briefed, see Pl.'s Opp'n to Def.'s Mot. to Dismiss ("Pl.'s Opp'n"), ECF No. 13; Def.'s Reply in Supp. of its Mot. to Dismiss Pl.'s Compl. ("Def.'s Reply"), ECF No. 18, and the court held a hearing on February 26, 2019.

The court concludes that it possesses jurisdiction to hear claims for refunds and interest denied by the government under the Royalty Management Act. Accordingly, the government's motion to dismiss the complaint for lack of subject-matter jurisdiction is denied. In other respects, unresolved legal and factual issues mean that BP may well have stated a claim upon which relief can be granted, although the remedial scheme of the Royalty Management Act limits the types of claims that can be brought. As a result, the government's motion to dismiss for failure to state a claim upon which relief can be granted is granted in part and denied in part.

BACKGROUND

A. ONRR's Audit of BP's Royalty Payments

BP leases several oil and gas fields in the Gulf of Mexico from the government, and BP owes royalties to the government based on the value of oil and gas produced from the leased fields. Compl. ¶ 1. BP may deduct transportation costs from the value of oil and gas produced, thus reducing the royalties owed. Compl. ¶¶ 8-11, Ex. 1 at 2.¹ Deductible transportation costs include those incurred for the "construction, operation, and maintenance of non-arm's-length transportation facilities," i.e., where BP owns the transportation infrastructure. Compl. ¶ 11, Ex. 1 at 6; see also Hr'g Tr. at 29:9 to 30:3 (Feb. 26, 2019).²

Royalty obligations are governed by the Royalty Management Act, 30 U.S.C. §§ 1701-59, which establishes obligations for leases executed on federal lands. Amendments by the Royalty Simplification Act in 1996 added, among other things, procedures for conducting auditsand requesting corrections of overpayments and underpayments, as well as a limitation on time for the Department of the Interior to issue a final decision on demands made by lessees. The Royalty Simplification Act also allowed lessees to recover interest on refunds of overpayments, although the provision authorizing interest was repealed in 2015 by the Fixing America's Surface Transportation Act of 2015 ("FAST Act"), Pub. L. No. 114-94, Div. C, Title XXXII, § 32301, 129 Stat. 1312 (Dec. 4, 2015).

On February 7, 2009, ONRR commenced an audit of calculations of costs claimed by BP for transporting oil and gas through BP's Na Kika subsea complex. Compl. ¶ 8, Ex. 1 at 4-5. The audit covered royalties owed between January 1, 2004, and December 31, 2007. Compl. ¶ 10, Ex. 1 at 5. Because BP employed the same methodology to calculate transportation costs for the Na Kika complex as it used for its other Gulf of Mexico leases, ONRR intended to carry over audit findings for that complex to other BP leases (collectively, the "Deepwater Properties"). Compl. Ex. 1 at 5; see also Compl. ¶¶ 15-16 (showing dates covered by BP's refund request).³ The Deepwater Properties included the Holstein property, but excluded the Mad Dog and Mica properties. See Compl. Ex. 3 (fourth tolling agreement, which covered the Na Kika complex and Deepwater Properties and listed covered properties); see also Compl. Ex 1 at 6, 9.

The Royalty Management Act imposes limitations on the periods in which the government and BP may seek corrections to past royalty payments. See 30 U.S.C. §§ 1721a(a)(4) (adjustment period),⁴ 1724(b)(1) (limitation period).⁵ The Royalty Management Actallows the government and a lessee to toll the period by written agreement. 30 U.S.C. § 1724(d); see also id. § 1721a(a)(4). BP and ONRR executed a series of seven tolling agreements from 2010 to 2014. Compl. Ex. 1 at 5. The first tolling agreement, executed on November 19, 2010, tolled the periods for the Na Kika properties from November 30, 2010, through December 31, 2011. Compl. Ex. 1 at 5. The second agreement covered the Na Kika and Deepwater Properties from February 28, 2011, through December 31, 2011. Compl. Ex. 1 at 5. The third, fourth, and fifth agreements tolled the periods for both the Na Kika and Deepwater Properties through February 15, 2014. Compl. Ex. 1 at 5; see also Compl. Ex. 3. The sixth and seventh agreements tolled the periods for the separate Mad Dog property from May 31, 2013, to February 15, 2014. Compl. Ex. 1 at 5. In sum, the agreements tolled 1,173 days for the Na Kika complex, 1,083 days for the Deepwater Properties, and 260 days for the Mad Dog property. Compl. Ex. 1 at 9.

On July 13, 2013, ONRR notified BP by e-mail that it was closing the audit of the Na Kika complex. Compl. Ex. 1 at 7. ONRR issued its final audit report on November 18, 2013, Compl. Ex. 1 at 8, although ONRR continued to ask BP questions pertaining to the audit into 2014, and BP alleges the audit did not actually end until 2014. See Compl. Ex. 1 at 14, Ex. 5 at 8.

During the audit, BP identified allowable transportation costs for months covered by the audit that it had not previously deducted. Compl. ¶ 11, Ex. 1 at 7. BP subsequently submitted two requests for refunds to ONRR. On November 13, 2013, BP requested $6,955,581.89 plus interest for royalty overpayments for January 2004 through August 2007 for the Na Kika andHolstein properties. Compl. ¶ 15, Ex. 1 at 7-8. On February 12, 2014, BP requested $6,619,730.51 plus interest for royalty overpayments for January 2004 through December 2007 for some Deepwater Properties, including additional requests for the Holstein property. Compl. ¶ 16, Ex. 1 at 8. The second request also sought refunds attributable to the Mad Dog and Mica properties. Compl. ¶ 16, Ex. 1 at 8.⁶

In February and June 2014, ONRR partially granted BP's refund requests, refunding BP $5,556,497.32 of the $13,575,312.40 claimed, plus interest. Compl. ¶¶ 14, 18. ONRR concluded that the tolling agreements only operated in favor of the government's claims for underpayments, and, applying the period specified in 30 U.S.C. § 1724(b), held that BP could only request refunds for overpayments within seven years of its request. Compl. ¶ 18. ONRR accordingly denied refunds for months more than seven years from the dates of BP's requests. Regarding BP's November 2013 claim covering the Na Kika and Holstein properties, ONRR granted refunds for October 2006 through August 2007, but rejected refunds covering January 2004 through September 2006. See Compl. Ex. 1 at 8. Regarding BP's February 2014 claim for the Deepwater, Holstein, Mad Dog, and Mica properties, ONRR granted refunds for January 2007 through December 2007, but rejected refunds for January 2004 through December 2006. Compl. Ex....