Vitter: Drilling Moratorium Contributing to National Deficit Increase

February 4, 2011

Offshore companies suing federal government for offshore lease breach of contract that could put taxpayers on hook

(Washington, D.C.) – U.S. Sen. David Vitter (R-LA) today sent a letter to the Deputy Secretary of the Department of Interior, David Hayes, demanding answers on possible breach of contract with an offshore company’s lease. Vitter has filed an amendment to the FAA reauthorization bill and is pursuing legislation that would make the Office of Management and Budget account for the projected loss of federal revenues that would otherwise be generated from offshore energy exploration.

Last week, Century Exploration New Orleans, Inc. filed a complaint against the Department of Interior based on a claim for breach of contract due to the ongoing de facto drilling moratorium. Coupled with Judge Feldman’s contempt of court ruling yesterday against Interior’s handling of the moratorium-based litigation, any future lease contract suits could put the federal government on the hook to pay out billions of taxpayer dollars in damages.

“The administration’s energy policy has clearly stifled Louisiana’s coastal economy, and now all American taxpayers could seriously pay the price by having to foot the bill for breach of contracts caused directly by the Interior Department’s actions,” Vitter said. “The Obama administration has made a real mess of the permitting process, and companies can’t just keep waiting around for Interior to meet their contractual obligations. And quite frankly, it’s hard to blame them for suing.”

The text of Vitter’s letter is below.

IMMEDIATE ATTENTION REQUESTED

February 3, 2011

Mr. David Hayes
Deputy Secretary
U.S. Department of the Interior
1849 C Street, N.W.
Washington DC 20240

Dear Mr. Hayes:

I am concerned about the ongoing virtual shutdown of energy production
in the Gulf of Mexico, including the loss of federal revenue and
increase in the federal deficit it produces.

In light of this week’s filing by Century Exploration against the U.S.
Department of the Interior (“Interior”) based on a claim for breach of
contract, I write to ask you about that potential further federal
liability and loss of federal revenue.

In Mobil v. U.S., 530 U.S. 604, 120 S.Ct. 2423, (2000), the U.S. Supreme Court, said
that such changes in offshore oil and gas regulations constitute a breach of
contract by the federal government. “The breach substantially impaired the value of
the contracts…and therefore the Government must give the companies their money
back.” The Supreme Court in Mobil noted that the OCSLA requires in 43 USC
1340(c)(1) that the government act within 30 calendar days to approve exploration
requests. The Court rejected arguments that delays were not a material breach by
noting: “If the companies did not at least buy a promise that the Government would
not deviate significantly from those procedures and standards, then what did they
buy? . . . And lengthy delays matter, particularly where several successive agency
approvals are at stake.”

Given the Supreme Court’s decision in Mobil v. U.S. and last week’s
filing by Century Exploration, I request your responses to the following
questions:

1. As a senior lawyer at Interior, when did you become aware that there may exist
a breach of contract issue for multiple leaseholders in the Gulf of Mexico based on
the agency’s actions and inactions?

1. Were you aware at the time of your meeting on November 29th with industry
executives that there may be breach of contract issue, and did this lead you to
push for a legislative breach of contract by attempting to change the review period
for permits from 30 to 90 days?

1. If Interior is held liable for breach of contracts, how many contracts does
this potentially include, and what is the potential financial liability of the
federal government for reimbursement?

1. Can you provide the anticipated revenue loss to the federal treasury based on
the most recent analysis of anticipated fall-off in domestic production from
Interior’s ongoing permit logjam, and has OMB incorporated this in its latest
revenue and deficit estimates?

1. What does reimbursement of these contracts mean to our federal deficit, and has
OMB taken this into account in any way in its latest estimates?

1. Please provide the statistics on domestic onshore and offshore permitting for
energy production by Interior for the period that you have held your present
position. Please also provide the statistics for the last 15 years, as well as a
graphical analysis/comparison of this information.

I appreciate your timely response to the requested information.

Regards,

David Vitter
U.S. Senator

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