The legislation known as the Outer Continental Shelf Lands Act (OCSLA) for the exploration and development of the resources offshore applies the state law of the adjacent state if no federal statute applies and if it is not inconsistent with federal law. Specifically, under Section 1333(a)(2)(a) of the OCSLA, it states that “to the extent that they are applicable and not inconsistent with…other federal laws…the civil and criminal laws of the adjacent State are declared to be the law of the United States.”
In a decision rendered in late September 2020, the federal Fifth Circuit court decided Taylor Energy Co. LLC v. United States. Many of us have become familiar with this case because of the news reports that one of Taylor Energy’s wells had leaked oil into the Gulf since 2004 and may have well exceeded the releases from the BP/Deepwater explosion. In this suit, Taylor Energy challenged the U.S. Government’s right to assess the clean-up costs to them. While the Court ruled against Taylor Energy in this case, it is being brought to your attention to clarify how to determine which law applies offshore to these platforms and their operations.
By way of background, Taylor was the lessee and owner of three Outer Continental Shelf leases connected to a single platform. The platform was severely damaged by Hurricane Ivan causing the platform to collapse onto the seafloor, resulting in an oil leak which has not been able to be capped all these years.
In 2008, Taylor sold and assigned its leases with approval by the Mineral Management Service (MMS) which governs such offshore leases. However, as part of the sale, Taylor was required to set aside part of the sale proceeds to fund all decommissioning obligations. To accomplish this, MMS and Taylor entered into a Trust Agreement to “provide additional security for its federal obligation to plug and abandon all wells, remove portions of the platform and facilities, clear the sea floor of obstructions, and take corrective action associated” with the oil leak.
It is important to note that the Trust Agreement incorporated OCSLA’s decommissioning regulations. This required that Taylor’s work conform to the MMS federal regulations. The agreement further incorporated the terms of the OCS leases which included OCSLA federal regulations. However, the reason for this challenge by Taylor Energy was the fact the Trust Agreement contained a choice of law provision causing it to be governed by and construed in accordance with Louisiana law.
Taylor brought this suit against the United States in the Court of Federal Claims. Taylor asserted four claims under Louisiana law: (1) breach of the Trust Agreement for inserting an indefinite term, (2) request for dissolution of the Trust based on impossibility of performance, (3) request for reformation or recission of the Trust based on mutual error, and (4) breach of duty of good faith and fair dealing.
The Court of Federal Claims granted the United States’ motion that federal law under the OCSLA applied, not state law, and would govern its decision. It then ruled against Taylor. Taylor appealed and argued Louisiana contract law would apply that there was a breach of separate contractual obligations which resulted in both a dissolution of the security interest and the decommissioning requirements owed by Taylor.
In its decision, the Fifth Circuit found that OCSLA regulations addressed the relevant issues underlying Taylor’s contract claims. Since federal regulations applied, Louisiana law could not be adopted as surrogate federal law. The decision specifically recognized the Supreme Court’s decision in Parker Drilling Management Services v. Newton which held that a “state law can be applicable and not inconsistent with other federal laws only if federal law does not address the relevant issue.” Because of this Supreme Court precedent, the Fifth Circuit determined that where federal law applied, the same applied in state law on the OCS.
Click here to read the decision in its entirety.