Court Opinion

ID: 2656718
Source: CourtListenerOpinion
Date Created: 2014-03-14 15:24:19.941063+00
Date Added: 2024-06-11T13:00:03.867611
License: Public Domain

United States Court of Appeals
      for the Federal Circuit
                ______________________

 CENTURY EXPLORATION NEW ORLEANS, LLC,
            Plaintiff-Appellant,

                          AND

         CHAMPION EXPLORATION, LLC,
           Third Party Plaintiff-Appellant,

                           v.

                  UNITED STATES,
                  Defendant-Appellee.
                ______________________

                      2013-5073
                ______________________

    Appeal from the United States Court of Federal
Claims in No. 11-CV-0054, Judge Lynn J. Bush.
                 ______________________

                Decided: March 14, 2014
                ______________________

    RICHARD K. LEEFE, Leefe, Gibbs, Sullivan, & Dupré, of
Metairie, Louisiana, argued for plaintiff-appellant. With
him on the brief were MICHAEL R. GELDER and JAMES K.
STICKER, III.

    GUY E. WALL, Wall Bullington & Cook, LLC, of New
Orleans, Louisiana, argued for third party plaintiff-
appellant.
2                              CENTURY EXPLORATION   v. US

    GREGG M. SCHWIND, Senior Trial Counsel, Commer-
cial Litigation Branch, Civil Division, United States
Department of Justice, of Washington, DC, argued for
defendant-appellee. With him on the brief were STUART F.
DELERY, Assistant Attorney General, JEANNE E.
DAVIDSON, Director, and STEVEN J. GILLINGHAM, Assistant
Director. Of counsel on the brief was MATTHEW T.
BALLENGER, Attorney Advisor, Office of the Solicitor,
United States Department of the Interior, of Washington,
DC.
                ______________________

    Before LOURIE, DYK, and WALLACH, Circuit Judges.
DYK, Circuit Judge.
    Appellants Century Exploration New Orleans, LLC
(Century) and Champion Exploration, LLC (Champion)
appeal from a judgment of the Court of Federal Claims
(Claims Court) granting summary judgment to the gov-
ernment on the issue of breach of contract.
    Century and Champion are in the business of oil and
gas exploration, development, and production. They
jointly leased the mineral rights to land on the Outer
Continental Shelf from the government. The terms of
their lease allowed the government to change existing
regulatory requirements under the Outer Continental
Shelf Lands Act of 1953 (OCSLA), 43 U.S.C. § 1331 et seq.
The appellants argue the government breached their
lease because it imposed additional regulatory require-
ments pursuant to the Oil Pollution Act (OPA), 33 U.S.C.
§ 2701 et seq. We agree with the Claims Court that the
government made these changes pursuant to OCSLA, not
OPA, and we affirm.
CENTURY EXPLORATION   v. US                                 3

                       BACKGROUND
     Appellants Century and Champion obtained an oil
and gas lease from the government for a 5760-acre tract
called Block 920, Ewing Bank (EW920) located on the
Outer Continental Shelf. They made an initial bonus
payment of $23,236,314 to acquire the lease and have
paid the government additional rental payments of $9.50
per acre, per lease year—$54,720 per year—since that
initial payment. The lease (Lease No. OCS–G 32293)
became effective on August 1, 2008, and had an initial
term running through July 31, 2016. Section 1 of the lease
provided:
    This lease is issued pursuant to the Outer Conti-
    nental Shelf Lands Act of August 7, 1953, 67 Stat.
    462[,] 43 U.S.C. § 1331 et seq., as amended (92
    Stat. 629), (hereinafter called the “Act”). The lease
    is issued subject to the Act; all regulations issued
    pursuant to the Act and in existence upon the Ef-
    fective Date of this lease; all regulations issued
    pursuant to the statute in the future which pro-
    vide for the prevention of waste and conservation
    of the natural resources of the Outer Continental
    Shelf and the protection of correlative rights
    therein; and all other applicable statutes and reg-
    ulations.
J.A. 88.
    In Mobil Oil Exploration & Producing Southeast, Inc.
v. United States, the Supreme Court interpreted a lease
provision that was nearly identical to the one at issue
here. 530 U.S. 604 (2000). 1 In Mobil Oil, the question was

    1    For the lease language of Mobil Oil, see Conoco
Inc. v. United States, 35 Fed. Cl. 309, 317 (1996), rev’d sub
nom. Marathon Oil Co. v. United States, 158 F.3d 1253
(Fed. Cir. 1998), opinion withdrawn and superseded on
4                               CENTURY EXPLORATION    v. US

whether certain oil company leases were subject to a new
statute, the Outer Banks Protection Act, 33 U.S.C. 2753
(1990), 104 Stat. 555 (repealed 1996), which was enacted
after the leases were signed and changed the require-
ments applicable to the lessees. Mobil Oil, 530 U.S. at
611-13. The Court held that the leases were subject to all
statutes and regulations in existence as of their effective
date, but, as to future regulations, were subject only to
OCSLA regulations issued after the effective date of the
leases. Id. at 615. Thus, the Court concluded that the
government’s imposition of new regulatory requirements
pursuant to the Outer Banks Protection Act breached the
leases. Id. at 620. Here, appellants similarly claim that
the government changed regulatory requirements after
the effective date of their lease pursuant to OPA, not
OCSLA.
    On April 20, 2010, an explosion and fire on the Deep-
water Horizon oil rig—a semi-submersible drilling rig
located in the Gulf of Mexico—killed eleven workers and
resulted in an oil spill that lasted several months. Alt-
hough the rig was equipped with a blowout preventer—a
mechanism designed to stop the flow of oil in the event of
a blowout—this device failed to function after the acci-
dent. By the time the drill operator finally managed to
cap the oil well on July 15, 2010, 87 days after the initial
blowout, 4.9 billion barrels of crude oil had been released
into the gulf. As a result of the spill, the government
imposed new regulatory requirements, which the appel-
lants urge increase the cost of their required bond. The
question is whether these requirements were imposed
under OCSLA or OPA.

reh’g, 177 F.3d 1331 (Fed. Cir. 1999), rev’d sub nom. Mobil
Oil Exploration & Producing Se., Inc. v. United States,
530 U.S. 604 (2000), aff’d sub nom. Marathon Oil Co. v.
United States, 236 F.3d 1313 (Fed. Cir. 2000).
CENTURY EXPLORATION   v. US                             5

     On January 25, 2011, Century filed a three-count
complaint in the Claims Court. In its complaint, Century
asserted that, as a result of these new regulations, “the
government breached its lease agreement with plaintiffs
(Count I); that it effected an uncompensated taking of its
private property in violation of the Fifth Amendment
(Count II); and that the government’s activities may have
given rise to other, unspecified causes of action (Count
III).” J.A. 23. In support of its breach claim, Century
alleged that the government’s changes to the applicable
regulations violated various sections of the Administra-
tive Procedure Act (APA), 5 U.S.C. §§ 553, 706, were
therefore unauthorized, and breached the lease. On
September 12, 2011, Champion filed a complaint against
the government, adopting the allegations Century set
forth in its complaint. Since this appeal is exclusively
concerned with the appellants’ breach claims, we confine
our discussion to that issue.
    On July 13, 2012, the government filed a motion for
summary judgment on the appellants’ breach of contract
claims. The government argued that it had not breached
the appellants’ lease. In the alternative, the government
argued that even if it had breached the contract, the
sovereign acts doctrine shielded it from liability. The
appellants filed a cross-motion for partial summary
judgment, seeking a determination that the government
was liable for breach of contract.
    In response to these motions, the Claims Court grant-
ed summary judgment to the government, holding that it
did not breach any express term of the lease. The Claims
Court also found that the government did not breach its
implied duty of good faith and fair dealing. With respect
to the appellants’ APA challenges, the court held that it
did not possess subject matter jurisdiction to hear such
claims. In the alternative, the Claims Court held that the
government was not liable under the sovereign acts
doctrine. The Claims Court entered a final judgment
6                                 CENTURY EXPLORATION     v. US

under Federal Rule of Civil Procedure 54(b) in favor of the
government, dismissing the appellants’ breach of contract
claims with prejudice.
    Century and Champion timely appealed, and we have
jurisdiction pursuant to 28 U.S.C. § 1295(a)(3). We review
the grant of summary judgment de novo. United States v.
Great Am. Ins. Co. of N.Y., 738 F.3d 1320, 1329 (Fed. Cir.
2013). The interpretation of the lease is also an issue of
law that we review de novo. C. Sanchez & Son, Inc. v.
United States, 6 F.3d 1539, 1544 (Fed. Cir. 1993).
                         DISCUSSION
                     I. Express Breach
    The principal issue presented in this appeal is wheth-
er the government breached any express term of Century
and Champion’s lease. As discussed above, the Supreme
Court considered a nearly identical oil lease provision in
Mobil Oil. The Court held that the lease should be inter-
preted to protect the lessees from new statutes, new non-
OCSLA regulations, and changes to the text of OCSLA
itself. Mobil Oil, 530 U.S. at 616. But the lessees were
required to comply with changes in OCSLA regulations.
As the Court explained:
    [t]he lease contracts say that they are subject to
    then-existing regulations and to certain future
    regulations, those issued pursuant to OCSLA [and
    certain other statutes] . . . . This explicit reference
    to future regulations makes it clear that the
    catchall provision that references “all other appli-
    cable . . . regulations,” must include only statutes
    and regulations already existing at the time of the
    contract, a conclusion not questioned here by the
    Government.
Id. at 616 (second omission in original) (internal citation
omitted). This court followed the Supreme Court’s inter-
pretation of the lease language in Amber Resources Co. v.
CENTURY EXPLORATION    v. US                                 7

United States, 538 F.3d 1358, 1368 (Fed. Cir. 2008), and
held that similar lease language only obligated compli-
ance with future changes to OCSLA regulations. Id. at
1362-63, 1368.
                               A
     Initially, some description of OCSLA and OPA is use-
ful. OCSLA provides that the United States, and not the
individual states, shall have jurisdiction and control over
the submerged lands of the Outer Continental Shelf. 2 43
U.S.C. § 1332(1); see Barker v. Hercules Offshore, Inc., 713
F.3d 208, 213 (5th Cir. 2013) (“OCSLA asserts exclusive
federal question jurisdiction over the OCS.”). Congress
enacted OCSLA to ensure that a “vital national resource
reserve held by the Federal Government for the public”
would be “made available for expeditious and orderly

    2    OCSLA provides the United States with legal ju-
risdiction over:
    the subsoil and seabed of the Outer Continental
    Shelf and to all artificial islands, and all installa-
    tions and other devices permanently or temporari-
    ly attached to the seabed, which may be erected
    thereon for the purpose of exploring for, develop-
    ing, or producing resources therefrom, or any such
    installation or other device (other than a ship or
    vessel) for the purpose of transporting such re-
    sources, to the same extent as if the Outer Conti-
    nental Shelf were an area of exclusive Federal
    jurisdiction within a State[.]
43 U.S.C. § 1333(a)(1). OCSLA defines the Outer Conti-
nental Shelf as all submerged land that is beyond the
outer limits of state jurisdiction (three nautical miles from
shore) and within the limits of national jurisdiction (200
nautical miles from shore). See 43 U.S.C. §§ 1301(a),
1331(a); Amber, 538 F.3d at 1362.
8                                 CENTURY EXPLORATION   v. US

development, subject to environmental safeguards, in a
manner which is consistent with the maintenance of
competition and other national needs.” 43 U.S.C.
§ 1332(3). In furtherance of this objective, the Department
of Interior (Interior Department) enters into mineral
leases with private parties. These mineral leases author-
ize private parties, such as oil companies, to explore the
Outer Continental Shelf for oil and natural gas and
extract any reserves that are discovered. Thus, the only
entities entitled to conduct oil and gas exploration, devel-
opment, and production on the Outer Continental Shelf
are lessees of the federal government. See id. §§ 1333(1),
1334. In enacting OCSLA, Congress was careful to stipu-
late that
    operations in the outer Continental Shelf should
    be conducted in a safe manner by well-trained
    personnel using technology, precautions, and
    techniques sufficient to prevent or minimize the
    likelihood of blowouts, loss of well control, fires,
    spillages, physical obstruction to other users of the
    waters or subsoil and seabed, or other occurrences
    which may cause damage to the environment or to
    property, or endanger life or health.
Id. § 1332(6) (emphasis added).
    OCSLA vests the Secretary of the Interior (Interior
Secretary) with the authority to regulate exploration
under the oil and gas leases, as well as the resulting
development and production activities. Id. § 1334. Specifi-
cally, OCSLA provides that the Secretary
    shall prescribe such rules and regulations as may
    be necessary to carry out [the provisions of
    OCSLA]. The Secretary may at any time prescribe
    and amend such rules and regulations as he de-
    termines to be necessary and proper in order to
    provide for the prevention of waste and conserva-
    tion of the natural resources of the outer Continen-
CENTURY EXPLORATION   v. US                                 9

    tal Shelf, and the protection of correlative rights
    therein, and, notwithstanding any other provi-
    sions herein, such rules and regulations shall, as
    of their effective date, apply to all operations con-
    ducted under a lease issued or maintained under
    the provisions of this subchapter.
Id. § 1334(a) (emphasis added). Thus, OCSLA “author-
ize[s] the [Interior Department], by valid regulations, to
impose anywhere in the OCS all reasonable development
and production conditions it deems necessary to its stew-
ardship of the OCS and administration of OCSLA.” Gulf
Restoration Network v. Salazar, 683 F.3d 158, 169-70 (5th
Cir. 2012) (citing 43 U.S.C. §§ 1334, 1351; H.R. Rep. 95–
1474, at 115 (1978) (Conf. Rep.), reprinted in 1978
U.S.C.C.A.N. 1674). Pursuant to this authority, the
Interior Secretary has promulgated regulations and
orders that govern a lessee’s oil exploration, development,
and production activities on the Outer Continental Shelf.
See 30 C.F.R. pt. 250 (2010). 3
    The Oil Pollution Act, 33 U.S.C. § 2701 et seq., is sim-
ultaneously narrower and broader in scope than OCSLA.
In 1990, Congress enacted OPA in response to “rising
public concern following the Exxon Valdez oil spill.” The
Oil Pollution Act Overview, United States Environmental
Protection      Agency,    http://www.epa.gov/oem/content/
lawsregs/opaover.htm (last visited Feb. 10, 2014). This
law expanded the federal government’s ability to respond
to oil spills by imposing strict liability on parties respon-

    3   Unless otherwise indicated, this opinion refer-
ences the version of the Code of Federal Regulations
(C.F.R.) that was in effect when appellants acquired their
lease. The provisions of the C.F.R. governing Outer Con-
tinental Shelf leasing, exploration, and development that
are relevant to this opinion have been relocated from Part
250 of Title 30 to Part 550 of that title.
10                              CENTURY EXPLORATION    v. US

sible for releasing oil into navigable waters. See 33 U.S.C.
§§ 2701-2713; Thomas J. Wagner, The Oil Pollution Act of
1990: An Analysis, 21 J. Mar. L. & Com. 569, 574-76
(1990). OPA also created the national Oil Spill Liability
Trust Fund, which can be used to clean up oil spills when
the party responsible is unknown or refuses to pay. See 33
U.S.C. § 2712; Oil Spill Liability Trust Fund, United
States        Environmental         Protection       Agency,
http://www.epa.gov/osweroe1/content/
learning/oilfund.htm (last visited Feb. 10, 2014). Thus,
unlike OCSLA, which covers all mineral activity on the
Outer Continental Shelf pursuant to leases from the
United States, 43 U.S.C. §§ 1331-1356, OPA is specifically
designed to govern oil spill prevention, clean up, and
compensation in all United States navigable waters
whatever the source of the exploration, development, and
production rights. Inho Kim, Ten Years After the Enact-
ment of the Oil Pollution Act of 1990: a Success of a Fail-
ure, 26 Marine Pol’y 197, 197 (2002); Wagner, supra, at
569; Oil Pollution Act of 1990 (OPA), United States Coast
Guard,       http://www.uscg.mil/npfc/About_NPFC/opa.asp
(last visited Feb. 11, 2014). However, the OPA regulations
involved here only apply to activities on the Outer Conti-
nental Shelf. See 30 C.F.R. ch. II, pt. 254, subpt. B.
    Oil and gas companies leasing land on the Outer Con-
tinental Shelf must comply with both OCSLA and OPA.
These statutes contain some overlapping provisions, in
particular those relating to the remediation of oils spills.
For example, during the relevant period, both OCSLA and
OPA regulations required oil companies to submit Oil
Spill Response Plans. OCSLA regulation 30 C.F.R.
§ 250.219 required all Outer Continental Shelf lessees to
provide such a plan. See also Oil and Gas and Sulphur
Operations in the Outer Continental Shelf—Plans and
Information, 70 Fed. Reg. 51,478-01 (Aug. 30, 2005). OPA
regulation 30 C.F.R. § 254.1 required all owners or opera-
tors of oil handling, storage, or transportation facilities
CENTURY EXPLORATION   v. US                             11

“located seaward of the coast line” (that is, on the Outer
Continental Shelf) to submit a plan. 30 C.F.R. § 254.1.
OCSLA and OPA regulations required these plans to
ensure that oil and gas companies were prepared to
respond to any oil spills that might result from their
activities off the United States coastline.
    Even prior to the execution of the appellants’ lease,
OCSLA and its implementing regulations required lessees
to submit an exploration plan to the government before
commencing any drilling activities. See 43 U.S.C.
§ 1340(c)(1), (e)(2); 30 C.F.R. § 250.201 (2010). Such an
exploration plan detailed the lessee’s proposed exploration
activities on the Outer Continental Shelf and required
government approval before the lessee commenced any
exploration activity. 30 C.F.R. § 250.201 (2010). Im-
portantly, the regulations required that such an explora-
tion plan include an Oil Spill Response Plan that
contained a calculation of the volume of oil that would
result from a worst case discharge scenario. Id.
§ 250.219(a)(2)(iv) (2010). A worst case discharge scenario
was defined as “the daily rate of an uncontrolled flow of
natural gas and oil from all producible reservoirs into the
open wellbore” 4 that would result from a blowout, such as
the one that triggered the Deepwater Horizon disaster.
Worst Case Discharge Determination, Bureau of Ocean
Energy Management, http://www.boem.gov/Oil-and-Gas-
Energy-Program/Resource-Evaluation/Worst-Case-
Discharge/Index.aspx (last visited Feb. 11, 2014). Lessees
were also required to “demonstrate oil spill financial

   4    The wellbore is the hole the lessee or operator has
drilled for the purpose of exploring or extracting natural
gas or oil from the earth. In the oil production context,
reservoirs are subsurface pools of hydrocarbons, such as
crude oil or natural gas, contained in porous or frac-
tured rock formations.
12                               CENTURY EXPLORATION    v. US

responsibility for facilities proposed in [their exploration
plan],” 30 C.F.R. § 250.213(e)(2) (2010), and the appel-
lants elected to comply by posting a bond. See 30 C.F.R.
§ 253.20 (2010) (describing the different methods of
demonstrating oil spill financial responsibility). The
appellants’ bond requirements depended on their worst
case discharge volume: the greater the worst case dis-
charge volume, the larger the bond required to cover their
potential liability. See id. § 253.13 (2010) (setting out the
correspondence between worst case discharge volume and
bond requirement). 5
    OPA did not require oil companies to submit an explo-
ration plan; rather, each company was required to submit
an Oil Spill Response Plan, which included a worst case
discharge scenario. As with the OCSLA requirements,
this only applied to Outer Continental Shelf lessees.

     5  The appellants also argue that their increased
bonding requirements breached Section 8 of the lease.
Section 8 reads: “The Lessee shall maintain at all times
the bond(s) required by regulation prior to the issuance of
the lease and shall furnish such additional security as
may be required by the Lessor if, after operations have
begun, the Lessor deems such additional security to be
necessary.” J.A. 89. Section 8 refers to 30 C.F.R.
§ 250.213(e)(1)’s “appropriate bond” requirement, also
known as the performance bond requirement. As the
Claims Court accurately explained, “[i]n order to demon-
strate a breach of section 8 of the lease, plaintiffs must
establish that they are now required to furnish a bond
that exceeds the bond required under the regulations in
effect when the lease was executed.” J.A. 40. Because the
appellants’ performance bonding requirement has not
changed, there has been no breach of Section 8 of the
lease.
CENTURY EXPLORATION   v. US                               13

    The OCSLA regulations borrowed and incorporated
the OPA regulation’s method of calculating worst case
discharge volume and the assumptions for that calcula-
tion. Thus, Outer Continental Shelf lessees were required
to follow § 254.27’s methodology when calculating worst
case discharge volume for OCSLA purposes, and all oil
and gas operators were required to follow § 254.27’s
methodology when calculating worst case discharge
volume for OPA purposes. Finally, § 250.103, an OCSLA
regulation, enabled the government to issue Notices to
Lessees and Operators (NTLs) that “clarify, supplement,
or provide more detail about certain requirements,” id., of
the OCSLA statute and regulations. As the Interior
Department has explained, it “issues NTLs to explain and
clarify its regulations.” Oil and Gas and Sulphur Opera-
tions in the Outer Continental Shelf—Plans and Infor-
mation, 70 Fed. Reg. 51,478-01, 51,478 (Aug. 30, 2005).
The OPA statute and the OPA regulations thereunder
made no provision for the issuance of NTLs.
    The appellants contend that the NTLs in this case are
equivalent to new regulations within the meaning of the
lease provisions. Even assuming the NTLs are new regu-
lations, however, they were issued pursuant to OCSLA,
and thus do not breach the lease.
                              B
    The change at issue here concerns the worst case dis-
charge calculation and the bond requirement that corre-
sponds to that calculation. The government issued Notice
to Lessees No. 2010–N06 (NTL-06) and related documents
on June 18, 2010, after the effective date of the lease. This
order and the various documents explaining it required
lessees to make changes to the way they calculated worst
case discharge volume. See infra Slip. Op. at 14-16. The
only identified consequence of this alteration was to alter
the lessees’ bond requirement.
14                              CENTURY EXPLORATION    v. US

    The appellants argue that the government’s issuance
of NTL-06 breached their lease because: (1) it changed the
worst case discharge scenario, thereby imposing addition-
al bonding costs, and (2) the change was made pursuant
to OPA, not OCSLA. There appears to be no dispute as to
the first question. At oral argument, the appellants clari-
fied that, in their view, NTL-06 resulted in four principal
changes to the worst case discharge calculation, which
increased their corresponding bond requirement. 6 First,
and most importantly, after the effective date of the lease,
the government sent an email to Century 7 stating that
under NTL-06, the appellants must “[i]ncrease the length
of time [of] the uncontrolled blowout response from 30 to
120 days.” J.A. 1432. Prior to NTL-06, the OCSLA regula-
tions, by reference to OPA regulation 30 C.F.R.
§ 254.47(a)(3), only required oil company lessees to as-
sume that oil would flow from their wells for 30 days

     6   In addition to these four principal changes, NTL-
06 also rescinded an older order, NTL-08, which had
waived certain regulatory requirements for particular
lessees. As the appellants conceded at oral argument, the
rescission of NTL-08 is not relied on in the complaint.
Therefore, we do not discuss NTL-08 here.
     7   The government sent this email to Century direct-
ly, instead of both Century and Champion, because Cen-
tury was the designated lease operator. As the lease
operator, Century was in charge of submitting the appel-
lants’ exploration plan, meeting the bond requirements,
and applying for permits to drill. See 30 C.F.R. § 250.105
(2013) (“Operator means the person the lessee(s) desig-
nates as having control or management of operations on
the leased area or a portion thereof. An operator may be a
lessee, the BSEE-approved or BOEM-approved designat-
ed agent of the lessee(s), or the holder of operating rights
under a BOEM-approved operating rights assignment.”);
J.A. 88.
CENTURY EXPLORATION   v. US                              15

during a blowout when calculating their worst case dis-
charge volumes. The government email to Century ex-
plained that the appellants should revise their OCSLA-
mandated exploration plan in light of NTL-06 and now
assume that oil would flow from their well for 120 days
when calculating the worst case discharge volume.
    Second, prior to the issuance of NTL-06, lessees did
not have to include all reservoirs that a drilling operator
might pass through to reach its intended drilling location
in the calculation of the uncontrolled flow that could
result from a blowout. The parties do not specify the
source of this obligation. However, the frequently asked
questions document (FAQ document) accompanying NTL-
06 apparently modified this requirement. Under NTL-06,
lessees must “consider all reservoirs, not just where
you’re drilling to, but anything you might pass through”
when calculating worst case discharge volume. Oral
Argument            5:57-6:02,        available          at
http://www.cafc.uscourts.gov/oral-argument-
recordings/all/century-exploration.html. More specifically,
lessees must now “determine the daily rate of an uncon-
trolled flow from all producible reservoirs into the open
wellbore.” J.A. 663 (emphasis added).
    Third, NTL-06 changed assumptions regarding what
could be treated as being in the wellbore when calculating
worst case discharge volume. Previously, lessees counted
the fact that certain equipment, such as drillpipe, logging
tools, and drill bits were in the wellbore, thereby reducing
total discharge volume, when they calculated worst case
discharge volume. Again, the source of this requirement is
unclear. However, the FAQ document explained that
lessees “should [now] assume that the wellbore is free of
drillpipe, logging tools, or other similar equipment.” J.A.
665 (emphasis added). Thus, under NTL-06, lessees “no
longer consider anything being in the wellbore.” Oral
Argument             5:47-5:51,         available         at
16                              CENTURY EXPLORATION   v. US

http://www.cafc.uscourts.gov/oral-argument-
recordings/all/century-exploration.html.
     Fourth, NTL-06 prohibits lessees from including the
presence of a blowout preventer (the mechanism that
failed to contain the Deepwater Horizon blowout) in their
worst case discharge calculation. As the appellants ex-
plained at oral argument, “for years beforehand you
counted the fact that you had a blowout preventer on the
well when you determined worst case discharge.” Id. at
17:52-18:02. Once again, the source of this requirement is
not specified. However, the FAQ document stated that
lessees should now assume that a blowout preventer is
not connected to the wellhead.
    Prior to the issuance of NTL-06, the appellants’ worst
case discharge volume was 1,500 barrels and their corre-
sponding bond requirement amounted to $35 million. The
appellants contend, and the government does not contest,
that NTL-06 and the various documents explaining that
order increased their worst case discharge volume to
142,977 barrels per day and their corresponding bond
requirement to $150 million.
                            C
    While not disputing the existence of the changes or
their impact, the government urges that the changes were
made pursuant to OCSLA, not OPA. The appellants argue
that they were made pursuant to OPA. More precisely,
appellants argue that because NTL-06 and related docu-
ments changed the assumptions lessees must follow when
calculating their worst case discharge volume, and the
regulation governing the worst case scenario calculation
is an OPA regulation, NTL-06 effectively changed an OPA
regulation. In response, the government explains that the
OCSLA regulation outlining what oil spill information
lessees must include in their exploration plans,
§ 250.219(a)(2)(iv), simply incorporates the OPA method-
ology for calculating worst case discharge volume through
CENTURY EXPLORATION   v. US                             17

reference. The government points out that NTL-06 did not
change the text of the OPA regulation itself. Rather, in
the government’s view, it altered only OCSLA regulatory
requirements.
    We agree with the government. Initially, it is im-
portant that OCSLA authorized the government to adopt
regulations concerning blowout protection and worst case
discharge scenarios; the government did not need to act
under the authority granted by OPA. Pursuant to Section
1 of the lease, the government could issue new OCSLA
regulations which provide for the “prevention of waste
and conservation of the natural resources of the Outer
Continental Shelf” by the lessees. J.A. 88. This lease
provision can be traced directly to § 1334 of OCSLA: “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 . . . .” 43 U.S.C. § 1334 (emphasis added).
    The case law interpreting § 1334 gives a broad scope
to the phrase “prevention of waste and conservation of the
natural resources,” making clear that it extends to envi-
ronmental protection. See, e.g., Pauley Petroleum Inc. v.
United States, 591 F.2d 1308, 1325 (Ct. Cl. 1979) (explain-
ing that a new regulation imposing absolute liability on
lessees for any pollution resulting from their activities
would be “lawful and reasonable” because OCSLA pro-
vides “‘[t]he Secretary may at any time prescribe and
amend such rules and regulations [] in order to provide
for the prevention of waste and conservation of the natu-
ral resources of the outer Continental Shelf’” (quoting 43
U.S.C. § 1334(a)(1) (1970))); Get Oil Out! Inc. v. Exxon
Corp., 586 F.2d 726, 729 (9th Cir. 1978); Union Oil Co. of
Cal. v. Morton, 512 F.2d 743, 749-50 (9th Cir. 1975)
(stating that the phrase “conservation of the natural
resources of the outer Continental Shelf” “encompasses all
18                               CENTURY EXPLORATION    v. US

the natural resources of the shelf, not merely the mineral
resources” (citations omitted)); Gulf Oil Corp. v. Morton,
493 F.2d 141, 145 (9th Cir. 1973) (“[I]n authorizing the
Secretary to issue regulations, [OCSLA] speaks of ‘con-
servation of the natural resources of the outer Continen-
tal Shelf,’ not just of conservation of oil, gas, sulphur and
other mineral resources. . . . Its natural meaning would
encompass all such resources, not just oil and gas, sul-
phur and other minerals.” (quoting 43 U.S.C. § 1334(a))).
Thus, the case law supports a finding that OCSLA en-
dows the government with the authority necessary to
regulate worst case discharge scenarios and to require
adequate bonding. See also 43 U.S.C. § 1337(a)(7)(A)
(authorizing the Interior Secretary to require lessees to
post a bond in accordance with the applicable regula-
tions).
    Nevertheless, the appellants point out that the mere
existence of government authority to act under OCSLA
does not immunize the government from liability for
regulatory changes. To avoid liability for changes, the
government must also have acted pursuant to OCSLA
authority. In Mobil Oil, the government argued that,
irrespective of the statutory change at issue in that case,
the government could have undertaken the exact same
action pursuant to OCSLA. 530 U.S. at 615-16. The
Supreme Court rejected this argument, recognizing that
the new requirements were “created by [the Outer Banks
Protection Act], a later enacted statute,” Mobil Oil, 530
U.S. at 616, not an OCSLA regulation. The court ex-
plained that “[t]he fatal flaw in [the government’s] argu-
ment [] arises out of the Interior Department’s own
statement—a statement made when citing the Outer
Banks Protection Act to explain its approval delay.” Id. at
617-18. Thus, even though OCSLA may have permitted
the government to require the exact same actions the
Outer Banks Protection Act required, because the gov-
ernment cited the Outer Banks Protection Act as the
CENTURY EXPLORATION   v. US                            19

authority for carrying out these actions, the Court found
that the government effectuated them pursuant to the
Outer Banks Protection Act and was liable for breach. In
reaching this conclusion, the Supreme Court emphasized
the government’s chosen source of authority: the govern-
ment cited the Outer Banks Protection Act, not OCSLA
regulations. Id.
    We confirmed this approach in Amber. In Amber,
Congress amended the Coastal Zone Management Act to
impose new regulatory requirements. 538 F.3d at 1366.
Thus, Amber turned on whether these new requirements
breached the oil companies’ contracts. Id. Relying on
Mobil Oil, we reasoned that “[b]ecause the 1990 [Coastal
Zone Management Act] amendments . . . imposed signifi-
cantly more burdensome requirements for granting lease
suspensions, the new statute in this case breached the
lease agreements in the same way as the new statute in
Mobil Oil.” Id. at 1371. The government argued that it
could have undertaken the exact same action pursuant to
the OCSLA regulations in effect at that time. Id. at 1372.
Nevertheless, because the government imposed new
requirements based on the new statutory changes to the
Coastal Zone Management Act, not existing OCSLA
regulations, we held that these requirements breached the
contract. Id.
    Here, we reach a different conclusion. Although, as
discussed above, both the OCSLA and OPA worst case
discharge scenario regulations are limited to OCS lessees,
we conclude that the government changed the appellants’
worst case discharge calculation pursuant to OCSLA.
First, NTL-06 itself identified OCSLA regulation
§ 250.103 as its source of authority. NTL-06 only refer-
enced and discussed OCSLA regulations and require-
ments. As NTL-06 explains, OCSLA regulations § 250.219
and § 250.250 required “all [OCSLA exploration] plans” to
be “accompanied by information regarding oil spills,
including calculations of [the lessee’s] worst case dis-
20                             CENTURY EXPLORATION   v. US

charge scenario.” J.A. 657. Although OCSLA regulation
§ 250.219(a)(2)(iv) instructed lessees to calculate their
worst case discharge volume according to the OPA regula-
tion methodology, NTL-06 never mentioned the OPA
regulations. NTL-06 simply augmented the factors lessees
must consider when calculating their worst case discharge
scenario for OCSLA purposes. 8
    Second, there has been no showing or even suggestion
that the NTL-06 changes applied outside the OCSLA
context. Critically, NTL-06 states that it only changes a
lessee’s worst case discharge scenario “required by
[OCSLA regulation] 30 C.F.R. § 250.219(a)(2)(iv).” J.A.
658. NTL-06 did not change the text of the relevant OPA
regulation, § 254.47, and nothing suggests that NTL-06
altered any part of the OPA regulation. Indeed, the appel-
lants do not claim that NTL-06 changed the text of rele-
vant OPA regulation. NTL-06 merely changed the way an
OCSLA regulation incorporates an OPA calculation.
Moreover, for three out of the four alleged alterations to
the worst case discharge calculation, it is not even clear
that the original requirement was an OPA requirement. A
change to an OCSLA regulation does not breach the
express terms of the lease language as interpreted by the
Supreme Court in Mobil Oil and this court in Amber. 9

     8  At oral argument, the appellants also contended
that the changes NTL-06 brought about were made pur-
suant to OPA because a later issued NTL, NTL No. 2012-
N06, altered OPA regulation § 254.47(b). Issued on Au-
gust 10, 2012, after the appellants filed their complaint
and after the government moved for summary judgment,
NTL No. 2012-N06 is irrelevant to this appeal, and we
decline to discuss it. The same is true of NTL 2013-N02.
    9   The appellants suggest that in adopting OCSLA
regulation 30 C.F.R. § 250.219, the Interior Department
recognized that the worst case discharge calculation was
CENTURY EXPLORATION   v. US                            21

included in the OCSLA regulation merely as a “stream-
lined” means to comply with OPA. Century’s Reply Br. 12
(quoting Oil and Gas and Sulphur Operations in the
Outer Continental Shelf—Plans and Information, 70 Fed.
Reg. at 51,486). This is not correct. The OCSLA regula-
tion in question states that lessees may provide, as an
alternative to an individual Oil Spill Response Plan
(OSRP), “[r]eference to [an] approved regional OSRP (see
30 C.F.R. 254.3) [that must] . . . include: . . . [1] The
calculated volume of your worst case discharge scenario
(see 30 C.F.R. 254.26(a)), and [2] a comparison of the
appropriate worst case discharge scenario in your ap-
proved regional OSRP with the worst case discharge
scenario that could result from your proposed exploration
activities.” 30 C.F.R. § 250.219(a)(2)(iv) (2010).
    The comment in the Federal Register on which the
appellants rely was directed to the second aspect of the
regulation. The Interior Department’s summary of the
comment reads: “With respect to paragraph (a)(2)(iv), [the
Offshore Operators Committee] inquires regarding the
purpose of providing a comparison between the site specif-
ic worst case discharge and that in the regional OSRP.”
The Interior Department’s response to the comment was
similarly limited: “No change. . . . MMS uses the infor-
mation required under paragraph (a)(2)(iv) as a stream-
lined means to ensure compliance with requirements of
the Oil Pollution Act of 1990.” Oil and Gas and Sulphur
Operations in the Outer Continental Shelf—Plans and
Information, 70 Fed. Reg. 51,478-01, 51,486 (Aug. 30,
2005) (codified at 250.219(a)(1)(iv) (2010)). Neither the
comment nor the response concerned the requirement to
provide a worst case discharge scenario. See Summary of
the Offshore Operators Committee’s Comments on Sub-
part B Proposed Regulation at 35-40, Bureau of Safety
and Environmental Enforcement (on file with Bureau of
Safety and Environmental Enforcement).
22                                CENTURY EXPLORATION    v. US

     II. Implied Breach and Administrative Procedure Act
                          Challenges
    We have considered the appellants’ other arguments
and find them to be without merit. Appellants cannot rely
on the implied covenant of good faith and fair dealing to
change the text of their contractual obligations. As this
court recently clarified in Metcalf Construction, Inc. v.
United States,
      the ‘implied duty of good faith and fair dealing
      cannot expand a party’s contractual duties beyond
      those in the express contract or create duties in-
      consistent with the contract’s provisions.’ . . .
      [O]ur formulation means simply that an act will
      not be found to violate the duty (which is implicit
      in the contract) if such a finding would be at odds
      with the terms of the original bargain, whether by
      altering the contract’s discernible allocation of
      risks and benefits or by conflicting with a contract
      provision. The implied duty of good faith and fair
      dealing is limited by the original bargain: it pre-
      vents a party’s acts or omissions that, though not
      proscribed by the contract expressly, are incon-
      sistent with the contract’s purpose and deprive
      the other party of the contemplated value.
No. 2013-5041, Slip Op. at 10 (Fed. Cir. Feb. 11, 2014)
(quoting Precision Pine & Timber, Inc. v. United States,
596 F.3d 817, 831 (Fed. Cir. 2010)); see also Precision
Pine, 596 F.3d at 829-31 (Fed. Cir. 2010) (“The govern-
ment may be liable for damages when the subsequent
government action is specifically designed to reappropri-
ate the benefits the other party expected to obtain from
the transaction, thereby abrogating the government’s
obligations under the contract.”); 13 Samuel Williston &
Richard A. Lord, A Treatise on the Law of Contracts
§ 63:22 (4th ed. 2000) (“As a general principle, there can be
no breach of the implied promise or covenant of good faith
CENTURY EXPLORATION   v. US                             23

and fair dealing where the contract expressly permits the
actions being challenged, and the defendant acts in ac-
cordance with the express terms of the contract.”). We
hold that the government has not breached its implied
duty of good faith and fair dealing because the lease
expressly authorized the government action at issue here:
changes to OCSLA regulatory requirements.
    We also affirm the Claims Court’s holding that it is
without subject matter jurisdiction to decide the appel-
lants’ APA challenges. See Lion Raisins, Inc. v. United
States, 416 F.3d 1356, 1370 n.11 (Fed. Cir. 2005) (“Of
course, no APA review is available in the Court of Federal
Claims.”). 10 Because we have found no breach in this case,
we need not reach the government’s sovereign acts de-
fense. 11
                      AFFIRMED

   10   The appellants also argue that the term “other
applicable statutes” in Section 1 of the lease should be
interpreted to incorporate the APA. Appellant Century’s
Br. 8, 28. However, as the Claims Court correctly conclud-
ed, the APA is not an applicable statute in the sense of
the lease language.
    11  In arguing that the government breached its im-
plied duty of good faith and fair dealing, the appellants
mention other post-Deepwater Horizon changes to the
regulatory requirements such as two separate govern-
ment-issued moratoria on drilling, a new Drilling Safety
Rule, and another NTL (NTL-10). We do not discuss these
changes because the appellants have not articulated a
theory under which they form a basis for breach liability.