Sun Oil Co. v. United States

• Decision Date: 22 February 1978
• Docket Number: No. 806-71.,806-71.
• Citation: 572 F.2d 786
• Parties: SUN OIL COMPANY, the Superior Oil Company and Marathon Oil Company v. The UNITED STATES.
• Court: U.S. Claims Court

572 F.2d 786

SUN OIL COMPANY, the Superior Oil Company and Marathon Oil Company v. The UNITED STATES.

No. 806-71.

United States Court of Claims.

February 22, 1978.

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Henry P. Sailer, Washington, D. C., for Sun Oil Co.; Theodore L. Garrett, Covington & Burling, Washington, D. C., of counsel.

Edgar H. Brenner, Washington, D. C., for The Superior Oil Co.; Abe Krash, James A. Dobkin, David Bonderman, Arnold & Porter, Washington, D. C., Willard B. Wagner, Jr., and R. W. Dye, Houston, Tex., of counsel.

Richard A. Baenen, Washington, D. C., for Marathon Oil Co.; Patricia L. Brown and Wilkinson, Cragun & Barker, Washington, D. C., of counsel.

Myles E. Flint, Washington, D. C., with whom was Asst. Atty. Gen. James W. Moorman, Washington, D. C., for defendant; Andrew F. Walch, Washington, D. C., of counsel.

Before DAVIS, Judge, Presiding, KUNZIG and BENNETT, Judges.

OPINION

PER CURIAM:

This case comes before the court on plaintiffs' motion, filed November 7, 1977, moving that the court adopted, as the basis for its judgment in this case, the recommended decision of Trial Judge Thomas J. Lydon, filed July 15, 1977, pursuant to Rule 134(h), on liability, defendant having failed to file exceptions thereto within the time provided therefor and having by letter of November 1, 1977, informed the trial judge that it would not file exceptions. Upon consideration thereof, without oral argument, since the court agrees with the trial judge's recommended decision, as hereinafter set forth,^* it hereby grants plaintiffs' motion and adopts the said decision as the basis for its judgment in this case. Therefore, the court concludes as a matter of law that plaintiffs are not entitled to any recovery relative to the installation of Platform Hillhouse on the west side of Tract 401 under their lease with defendant and their petitions in this regard are dismissed. The court further concludes as a matter of law that plaintiffs are entitled to recover damages for defendant's breach of plaintiffs' lease rights relative to installation of Platform Henry on the east side of Tract 401, and judgment is entered for plaintiffs to that effect, with the determination of the exact amount of recovery to be made in further proceedings under Rule 131(c). Plaintiffs' petitions setting forth an alternative taking theory of recovery relative to installation of Platform Henry are accordingly dismissed.

OPINION OF TRIAL JUDGE

LYDON, Trial Judge:

This is an action by three major oil companies seeking to recover damages and/or just compensation emanating from an oil and gas lease which the companies, as a group, obtained from the Department of the Interior (Interior) on April 1, 1968. Interior granted the lease on the authority of the Outer Continental Shelf Lands Act, 67 Stat. 462 (1953), 43 U.S.C. § 1331-43 (1970). Under the lease, plaintiffs paid $38,380,032 for the exclusive right to drill for, remove and dispose of all oil and gas (hydrocarbons) deposits from lease Tract OCS-P-0240 (known as Tract 401) in the Santa Barbara Channel off the coast of California. Tract 401 was located on the Outer Continental Shelf Lands (OCSL) approximately 7 1/2 miles southeast of the City of Santa Barbara.

Tract 401 embraced two major oil and gas fields, the Dos Cuadras field and the Carpinteria field. Plaintiffs' claims herein center on their efforts to construct two platforms on Tract 401 in order to drill for, remove and dispose of oil and gas deposits lying within said tract. In the Dos Cuadras field, the concern focuses on Platform Hillhouse, which was located on the west side of Tract 401; in the Carpinteria field, attention settles on Platform Henry, which was to be located on the east side of Tract 401.

As to Platform Hillhouse, the essence of plaintiffs' claim is that defendant unreasonably delayed plaintiffs in their efforts to install Platform Hillhouse on Tract 401 and to drill for and produce oil and gas from said platform. Plaintiffs aver that this breach of lease contract by defendant was responsible for 189 days of delay and seek to recover attendant damages.¹ Platform Hillhouse was installed on Tract 401 and did produce oil and gas from the Dos Cuadras field. As to Platform Henry, plaintiffs contend that defendant's refusal to approve their application to install Platform Henry on Tract 401 constituted a breach of the lease contract entitling them to resulting damages. Further, plaintiffs maintain that defendant's actions relative to Platform Henry resulted in a taking of their leasehold rights, in whole or in part, entitling them to a just compensation award under the Fifth Amendment to the United States Constitution. Plaintiffs have not as of the date proof was closed in this case produced any oil or gas from the Carpinteria field on Tract 401.

Defendant disclaims any unreasonable delay, interference or improper actions relative to installation of and production of gas and oil from Platform Hillhouse. As to Platform Henry, defendant asserts that the actions of the Secretary of the Interior (hereinafter Secretary) relative thereto were legal, proper and justified. Further, in response to plaintiffs' taking claim, defendant advances the view that, in fact, no taking occurred; and that, in any event, the Secretary had no legal authority to effect a taking, in whole or in part, of plaintiffs' leasehold.²

For reasons set forth herein, it is concluded that defendant did not breach the lease contract relative to the installation and operation of Platform Hillhouse. It is my opinion, however, that defendant did breach the lease agreement with respect to denial of plaintiffs' application for installation of Platform Henry. It is also my opinion that, in any event, defendant's actions as to Platform Henry did not constitute a taking, in whole or in part, of plaintiffs' leasehold.

I

A

The OCSL Act came into being in 1953. This Act provided inter alia, for federal jurisdiction over submerged lands on the Continental Shelf which were beyond the 3-mile limit from the coastline.³ See United States v. California, 381 U.S. 139, 85 S.Ct. 1401, 14 L.Ed.2d 296 (1965) and 382 U.S. 448, 86 S.Ct. 607, 15 L.Ed.2d 517 (1966).

Section 8 of the OCSL Act, 43 U.S.C. § 1337(a), authorized the Secretary to grant oil and gas leases on OCSL by competitive bidding. In Union Oil Company of California v. Morton, 512 F.2d 743, 747 (9th Cir. 1975), it was stated that:

* * * A lease issued under this Act OCSL Act, like a mineral lease granted under the Mineral Leasing Act of 1920, 30 U.S.C. § 181 et seq., does not convey title in the land, nor does it convey an unencumbered estate in the oil and gas. See Boesche v. Udall, 373 U.S. 472, 478, 83 S.Ct. 1373, 10 L.Ed.2d 491 (1963); McKenna v. Wallis, 344 F.2d 432, 440-41 (5th Cir. 1965), vacated, 384 U.S. 63, 86 S.Ct. 1301, 16 L.Ed.2d 369 (1966). The lease does convey a property interest enforceable against the Government, of course, but it is an interest lacking many of the attributes of private property. Oil and gas deposits beneath the continental shelf are precious resources belonging to the entire nation. Congress, although encouraging the extraction of these resources by private companies, provided safeguards to insure that their exploitation should inure to the benefit of all. These safeguards are not limited to those provided by covenants in the lease; Congress also authorized the Secretary to maintain extensive, continuing regulation of the oil companies' day to day drilling operations.⁴

Section 5(a)(1) of the OCSL Act, 43 U.S.C. § 1334(a)(1), provided that:

The Secretary shall administer the provisions of this subchapter relating to the leasing of the outer Continental Shelf, and shall prescribe such rules and regulations as may be necessary to carry out such provisions. The Secretary may at any time prescribe and amend such rules and regulations as he determines to be necessary and proper in order to provide for the prevention of waste and conservation of the natural resources of the outer Continental Shelf, and the protection of correlative rights therein, and, notwithstanding any other provisions herein, such rules and regulations shall apply to all operations conducted under a lease issued or maintained under the provisions of this subchapter. In the enforcement of conservation laws, rules, and regulations the Secretary is authorized to cooperate with the conservation agencies of the adjacent States. Without limiting the generality of the foregoing provisions of this section, the rules and regulations prescribed by the Secretary thereunder may provide for the assignment or relinquishment of leases, for the sale of royalty oil and gas accruing or reserved to the United States at not less than market value, and, in the interest of conservation, for unitization, pooling, drilling agreements, suspension of operations or production, reduction of rentals or royalties, compensatory royalty agreements, subsurface storage of oil or gas in any of said submerged lands, and drilling or other easements necessary for operations or production.

Section 4(f) of the OCSL Act, 43 U.S.C. § 1333(f) provided that:

The authority of the Secretary of the Army acting through the Army Corps of Engineers to prevent obstruction to navigation in the navigable waters of the United States is extended to artificial islands and fixed structures located on the Outer Continental Shelf.⁵

Both Interior⁶ and the Army Corps of Engineers⁷ (Corps) issued regulations implementing the OCSL Act.

The lease (Form 3380-1) binding the plaintiffs and the Bureau of Land Management (BLM), Department of the Interior, provided that the lease was entered into "* * * under, pursuant, and subject to the terms of the Outer Continental Shelf Lands Act of August 7, 1953 * * * and to all lawful and reasonable regulations of the...