future-focused

Healthy Gulf’s Challenge to the 2024–2029 OCS Leasing Program Fails

9 minute read

On August 29, 2025, the U.S. Court of Appeals for the District of Columbia (the “Court” or the “Healthy Gulf Court”) issued its decision in Healthy Gulf v. U.S. Department of the Interior. This case marked the sixth occasion in which this Court has reviewed a challenge to a five-year leasing schedule adopted under the Outer Continental Shelf Lands Act (“OCSLA”). On this particular occasion, a coalition of environmental non-profit petitioners, including Healthy Gulf, (collectively referred to as “Environmental Petitioners”) asked the Court to remand the 2024–2029 National Outer Continental Shelf (“OCS”) Oil and Gas Leasing Program back to the Department of the Interior (“DOI”) for further consideration. The American Petroleum Institute (“API”) intervened and argued that Environmental Petitioners’ claims were not justiciable. Ultimately, the Court held that Environmental Petitioners had associational standing to pursue their claims, but on the merits, there was no basis to disturb the Program at this time. As such, the Court denied Environmental Petitioners’ petition for review.

The 2024–2029 OCS Leasing Program

In July 2017, DOI began the process of developing a new OCS leasing program for the Gulf of Mexico (“GOM”)—while GOM is now referred to as the Gulf of America, this case summary follows the Court’s phrasing and uses GOM, which was the term in use at the time of the challenged action. Six months later, DOI released a draft proposed program and the proposed scope for the programmatic environmental impact statement. In July 2022, DOI released a proposed 2023–2028 leasing program and a draft programmatic environmental impact statement. DOI received nearly three million public comments. After considering the comments, in September 2023, DOI presented the proposed final program to the President and Congress. Thereafter, in December 2023, DOI issued a record of decision that adopted the 2024–2029 National OCS Oil and Gas Leasing Program (the “Program”).

The Program ultimately scheduled three lease sales in the Western, Central, and a small portion of the Eastern GOM Planning Areas—Sale 262 (slated for 2025), Sale 263 (slated for 2027), and Sale 264 (slated for 2029). After the Program was adopted, Environmental Petitioners brought suit challenging the Program. While the litigation was pending, the President issued several Executive Orders that revoked the orders underlying Environmental Petitioners’ environmental justice claims. The Healthy Gulf Court declined to resolve the parties’ dispute over the impact of the Executive Orders issued in early 2025, as the Executive Orders postdated both DOI’s adoption of the Program and the parties’ briefs. Further, the Executive Orders did not alter the Court’s resolution of the case under administrative law and the record in effect when DOI adopted the Program.

Environmental Petitioners Had Associational Standing to Challenge the Program

To challenge DOI’s adoption of the Program, Environmental Petitioners invoked associational standing on behalf of its members, which is the type of standing that environmental groups typically invoke when challenging OCS leasing. To establish associational standing, petitioners must establish three elements: (1) at least one of their members would have standing to sue in their own right, (2) the interests the members seek to protect are germane to the organization’s purpose, and (3) neither the claims asserted nor the relief requested requires the organization’s members to participate individually in the lawsuit. Energy industry groups often attack the first element of associational standing. API did so here and argued that Environmental Petitioners did not meet the first element of associational standing because they did not present (1) an individual who has suffered an injury-in-fact that is concrete and particularized, and actual or imminent, (2) an injury that is fairly traceable to the challenged action, and (3) an injury that is likely to be redressed by a favorable decision. The Court disagreed with API and determined that Environmental Petitioners had associational standing.

The Healthy Gulf Court determined that at least one of the individuals who submitted declarations on behalf of Environmental Petitioners, Robert Wiygul, would have standing to sue in his own right. Mr. Wiygul is a founding member of Healthy Gulf, a Gulf Coast resident, and a recreational fisherman who has fished in GOM for decades. In his declaration, Mr. Wiygul attested that he fishes inshore weekly, visits the Mississippi Barrier Islands monthly, and fishes in OCS waters at least annually when conditions permit. Mr. Wiygul’s declaration identified specific lease blocks made available under the Program that has harmed or, upon release, will imminently harm his favorite fishing and recreation spots. The Healthy Gulf Court determined that Mr. Wiygul’s alleged harms are concrete and particularized opposed to conjectural or hypothetical and, thereby, establish an injury-in-fact. Further, the Court determined that Mr. Wiygul’s declaration established a causal connection between the Program’s adoption and the harms that threaten his continued use and enjoyment of affected areas that could be redressed by a favorable outcome. Having found that Environmental Petitioners established the first element of associational standing, the Court briefly addressed the second and third elements. It found that Environmental Petitioners satisfied the second element of associational standing: the record confirmed, and API did not contest, that the interests Environmental Petitioners sought to protect via this lawsuit—protecting GOM communities’ health and natural resources—align with the Environmental Petitioners’ mission. Finally, the Court concluded that Environmental Petitioners met the third requirement of associational standing: participation of Environmental Petitioners individual members is not required.

Once the Court determined that Environmental Petitioners met all three elements of associational standing, the Court then considered Environmental Petitioners’ challenges to the Program, which required the Court to review three OCSLA provisions commanding DOI to take certain actions when it prepares an OCS lease program.

Environmental Petitioners’ Challenges to the Program Are Premature

Environmental Petitioners argued that (1) the Program did not reflect a holistic assessment of economic, social, and environmental values, as required by 42 U.S.C. § 1344(a)(1); (2) the Program was not based on planning factors tied to the timing and location of oil and gas activity as required by 42 U.S.C. § 1344(a)(2); and (3) when preparing the Program, DOI did not equally balance the benefits of leasing and the environmental and coastal risks of leasing as required by 42 U.S.C. § 1344(a)(3). In particular, Environmental Petitioners took issue with DOI’s failure to properly consider the impact the Program would have on the endangered Rice’s whale and other uses of the OCS, such as recreational uses, commercial fishing, and aquaculture. The Court addressed each of Environmental Petitioners’ concerns in turn.

First, the Court determined that DOI reasonably evaluated how offshore leasing could potentially impact vulnerable communities in accordance with 42 U.S.C. § 1344(a)(1). Environmental Petitioners argued that DOI was required to assess the vulnerability of individual communities in different areas along the Gulf Coast and evaluate how each community would respond to the potential harms of leasing. The Court disagreed. It found that OCSLA does not require DOI to undertake such a granular review during the initial stage of the Program because such a review would be unduly burdensome. It was enough for the Healthy Gulf Court that DOI assessed the potential for harm across the broader GOM Program Area. DOI’s Program highlighted potential burdens across the entire GOM Program Area such as land loss, industrial development, rising sea levels, storm intensification, and pollution. Further, the Program acknowledged that vulnerable, lower-income communities located near oil and gas processing facilities may suffer more severe and longer lasting harm due to their limited access to financial and non-financial resources. Moreover, accompanying the Program was an EIS that also acknowledged the disproportionate impact on vulnerable, lower-income communities, recounted the lasting impacts of hurricanes and the Deepwater Horizon oil spill on the communities located outside Louisiana’s levee protection system, and illustrated how protected wetlands have eroded over the past century of increased GOM leasing activity. DOI’s focus on the impact the Program will have on the Gulf Coast community at large was sufficient for this initial phase of the Program.

Second, the Court examined Environmental Petitioners’ claim that DOI acted arbitrarily in not selecting the endangered Rice’s whale as the GOM region’s representative marine mammal of conservation importance. In Environmental Petitioners’ view, DOI ignored the Rice’s whale proposed critical habitat designation and applied a methodology that was inconsistent and at odds with DOI’s prior decision to exclude the Rice’s whale habitat from offshore wind leasing areas. Given the rarity of the Rice’s whale, its restricted range, and its vulnerability, Environmental Petitioners asserted that DOI was required to designate the Rice’s whale as the representative marine mammal in the Program’s environmental sensitivity analysis. The Court again disagreed with Environmental Petitioners’ position. The Court determined that DOI’s reason for not selecting the Rice’s whale as the GOM’s representative marine mammal was sound: the Program’s proposed areas for leasing (the Western, Central, and a small portion of the Eastern GOM Planning Areas) do not overlap with the core distribution area of the Rice’s whale (Northeastern GOM at depths of 100 to 400 meters). The Court further explained that the sperm whale has served as the conservation-indicator marine mammal of GOM since 2007 because the sperm whale ranges throughout the GOM, undertakes long-distance migrations across various regions of GOM, and dives thousands of meters in search of deepwater squid.

Moreover, the Court approved of the DOI’s decision to consider the Rice’s whale habitat during the leasing stage of the Program. Because the final designation of the Rice’s whale critical habitat was pending during the initial stage of the Program, the DOI committed to revisiting the Rice’s whale critical habitat designation status and, if necessary, making adjustments regarding leasing areas during the second stage of the Program—when specific blocks are selected for development. With this in mind, the Court concluded that Environmental Petitioners’ claim concerning the Rice’s whale is best understood as a claim under the Endangered Species Act, which the DOI is only required to consult when its actions “may affect” a listed species or its critical habitat. Because the Rice’s whale critical habitat was pending during the initial stage of Program, the Court determined that Environmental Petitioners’ claim regarding the Rice’s whale, when considered under the Endangered Species Act, was not ripe for review.

Third, the Court considered Environmental Petitioners’ argument that DOI merely identified other present or anticipated uses of the GOM region without evaluating whether the Program may impede them, and therefore, DOI did not achieve the proper balance that 43 U.S.C. § 1344(a)(3) imposes on it when creating the Program. Essentially, Environmental Petitioners argued that in addition to identifying uses of the OCS that oil and gas leasing may interfere with, DOI should have considered ways to mitigate these potential interferences. The Court disagreed and determined that mitigation is not required during the initial stage of the Program. DOI’s identification of multiple uses of the OCS (including commercial, recreational, and subsistence fishing; tourism; navigation and marine infrastructure; military operations; renewable energy; non-energy marine minerals; and the increased presence of aquaculture projects in GOM) was enough to satisfy OCSLA. The Healthy Gulf Court reasoned that mitigation presupposes that DOI knows which lease blocks will be offered, the specific location of leases, and any site-specific conflicts; however, DOI does not have that knowledge during the initial stage of the Program. DOI identified potential conflicts with the multiple uses of the OCS and adopted a process for addressing same through targeted leasing and coordination with other agencies during later stages of the Program. The Court determined that this was the stage-appropriate analysis that OCSLA contemplates. Accordingly, the Healthy Gulf Court concluded that DOI complied with 43 U.S.C. § 1344(a)(2). Further, the Court rejected Environmental Petitioners’ balancing claim. Environmental Petitioners argued that DOI did not achieve the proper balance as required under 43 U.S.C. § 1344(a)(3) because it failed to (1) quantitatively assign benefits and costs of different demographic groups and (2) fully consider the Rice’s whale environmental sensitivity.

As to the first aspect of Environmental Petitioners’ balancing claim, the Court determined that DOI identified environmental considerations, acknowledged the limits of monetizing same, and incorporated these considerations qualitatively into the Program’s balancing during the initial stage. The Healthy Gulf Court accepted DOI’s representation that it could not quantitatively assign benefits and costs of the environmental considerations during the initial stage and its promise to assess distributional impacts at later stages when location-specific information becomes available. As to the second aspect of Environmental Petitioners’ balancing claim, the Court determined that DOI satisfied 43 U.S.C. § 1344(a)(2) when it applied a consistent methodology to select the sperm whale over the Rice’s whale for the GOM region. The Court’s previous determination that DOI’s decision to select the sperm whale over the Rice’s whale foreclosed Environmental Petitioners’ derivative balancing claim. Moreover, the Court explained that section 1344(a)(3) does not require DOI to isolate or separately quantify the cost of losing a single species, such as the Rice’s whale, so long as relevant environmental harms are reasonably reflected in the aggregate.

Accordingly, the Court denied the Environmental Petitioners’ petition for review.

OBBBA and BOEM’s Recently Initiated 11th Program  

The Healthy Gulf opinion is particularly relevant in light of both the One Big Beautiful Bill Act (“OBBBA”), which was signed into law on July 4, 2025, and the Bureau of Ocean Energy Management’s (“BOEM”) recently initiated 11th National OCS Oil and Gas Leasing Program. Under the OBBBA, DOI must conduct lease sales in the Gulf of America and in the Alaska Region, specifically in the Cook Inlet Planning Area and the National Petroleum Reserve. In total, the OBBBA calls for at least 40 federal offshore lease sales, requiring at least 30 lease sales for the Gulf of America through 2040, at least six lease sales for the Cook Inlet Planning Area through 2032, and at least four lease sales for the NPR-A.  

In response to the OBBBA and in accordance with President Trump’s Unleashing American Energy Executive Order, BOEM released its offshore energy leasing schedule on August 19, 2025. The first Gulf of America Lease Sale titled “Big Beautiful Gulf 1” is set for December 10, 2025. BOEM will publish the final notice at least 30 days prior to the sale. The release of a leasing schedule came shortly after BOEM closed the initial stage, request for information and comment, of the 11th National OCS Oil and Gas Leasing Program (the “11th Program”). Once finalized, the 11th Program will replace the 2024–2029 Program—the Program that Environmental Petitioners unsuccessfully challenged. Before the 11th Program is finalized, the Secretary of BOEM must (1) publish a draft proposed program, which is subject to a 60-day comment period, (2) publish a proposed program, which is subject to a 90-day comment period, (3) present the proposed final program to the President and Congress, whom have a 60-day review period, and (4) approve the 11th Program and post a decision memo on same.

If you have questions about this decision or the upcoming 11th National OCS Oil and Gas Leasing Program, please reach out to Jana Grauberger or Margaret Chavez.

Healthy Gulf’s Challenge to the 2024–2029 OCS Leasing Program Fails

9 minute read

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On August 29, 2025, the U.S. Court of Appeals for the District of Columbia (the “Court” or the “Healthy Gulf Court”) issued its decision in Healthy Gulf v. U.S. Department of the Interior. This case marked the sixth occasion in which this Court has reviewed a challenge to a five-year leasing schedule adopted under the Outer Continental Shelf Lands Act (“OCSLA”). On this particular occasion, a coalition of environmental non-profit petitioners, including Healthy Gulf, (collectively referred to as “Environmental Petitioners”) asked the Court to remand the 2024–2029 National Outer Continental Shelf (“OCS”) Oil and Gas Leasing Program back to the Department of the Interior (“DOI”) for further consideration. The American Petroleum Institute (“API”) intervened and argued that Environmental Petitioners’ claims were not justiciable. Ultimately, the Court held that Environmental Petitioners had associational standing to pursue their claims, but on the merits, there was no basis to disturb the Program at this time. As such, the Court denied Environmental Petitioners’ petition for review.

The 2024–2029 OCS Leasing Program

In July 2017, DOI began the process of developing a new OCS leasing program for the Gulf of Mexico (“GOM”)—while GOM is now referred to as the Gulf of America, this case summary follows the Court’s phrasing and uses GOM, which was the term in use at the time of the challenged action. Six months later, DOI released a draft proposed program and the proposed scope for the programmatic environmental impact statement. In July 2022, DOI released a proposed 2023–2028 leasing program and a draft programmatic environmental impact statement. DOI received nearly three million public comments. After considering the comments, in September 2023, DOI presented the proposed final program to the President and Congress. Thereafter, in December 2023, DOI issued a record of decision that adopted the 2024–2029 National OCS Oil and Gas Leasing Program (the “Program”).

The Program ultimately scheduled three lease sales in the Western, Central, and a small portion of the Eastern GOM Planning Areas—Sale 262 (slated for 2025), Sale 263 (slated for 2027), and Sale 264 (slated for 2029). After the Program was adopted, Environmental Petitioners brought suit challenging the Program. While the litigation was pending, the President issued several Executive Orders that revoked the orders underlying Environmental Petitioners’ environmental justice claims. The Healthy Gulf Court declined to resolve the parties’ dispute over the impact of the Executive Orders issued in early 2025, as the Executive Orders postdated both DOI’s adoption of the Program and the parties’ briefs. Further, the Executive Orders did not alter the Court’s resolution of the case under administrative law and the record in effect when DOI adopted the Program.

Environmental Petitioners Had Associational Standing to Challenge the Program

To challenge DOI’s adoption of the Program, Environmental Petitioners invoked associational standing on behalf of its members, which is the type of standing that environmental groups typically invoke when challenging OCS leasing. To establish associational standing, petitioners must establish three elements: (1) at least one of their members would have standing to sue in their own right, (2) the interests the members seek to protect are germane to the organization’s purpose, and (3) neither the claims asserted nor the relief requested requires the organization’s members to participate individually in the lawsuit. Energy industry groups often attack the first element of associational standing. API did so here and argued that Environmental Petitioners did not meet the first element of associational standing because they did not present (1) an individual who has suffered an injury-in-fact that is concrete and particularized, and actual or imminent, (2) an injury that is fairly traceable to the challenged action, and (3) an injury that is likely to be redressed by a favorable decision. The Court disagreed with API and determined that Environmental Petitioners had associational standing.

The Healthy Gulf Court determined that at least one of the individuals who submitted declarations on behalf of Environmental Petitioners, Robert Wiygul, would have standing to sue in his own right. Mr. Wiygul is a founding member of Healthy Gulf, a Gulf Coast resident, and a recreational fisherman who has fished in GOM for decades. In his declaration, Mr. Wiygul attested that he fishes inshore weekly, visits the Mississippi Barrier Islands monthly, and fishes in OCS waters at least annually when conditions permit. Mr. Wiygul’s declaration identified specific lease blocks made available under the Program that has harmed or, upon release, will imminently harm his favorite fishing and recreation spots. The Healthy Gulf Court determined that Mr. Wiygul’s alleged harms are concrete and particularized opposed to conjectural or hypothetical and, thereby, establish an injury-in-fact. Further, the Court determined that Mr. Wiygul’s declaration established a causal connection between the Program’s adoption and the harms that threaten his continued use and enjoyment of affected areas that could be redressed by a favorable outcome. Having found that Environmental Petitioners established the first element of associational standing, the Court briefly addressed the second and third elements. It found that Environmental Petitioners satisfied the second element of associational standing: the record confirmed, and API did not contest, that the interests Environmental Petitioners sought to protect via this lawsuit—protecting GOM communities’ health and natural resources—align with the Environmental Petitioners’ mission. Finally, the Court concluded that Environmental Petitioners met the third requirement of associational standing: participation of Environmental Petitioners individual members is not required.

Once the Court determined that Environmental Petitioners met all three elements of associational standing, the Court then considered Environmental Petitioners’ challenges to the Program, which required the Court to review three OCSLA provisions commanding DOI to take certain actions when it prepares an OCS lease program.

Environmental Petitioners’ Challenges to the Program Are Premature

Environmental Petitioners argued that (1) the Program did not reflect a holistic assessment of economic, social, and environmental values, as required by 42 U.S.C. § 1344(a)(1); (2) the Program was not based on planning factors tied to the timing and location of oil and gas activity as required by 42 U.S.C. § 1344(a)(2); and (3) when preparing the Program, DOI did not equally balance the benefits of leasing and the environmental and coastal risks of leasing as required by 42 U.S.C. § 1344(a)(3). In particular, Environmental Petitioners took issue with DOI’s failure to properly consider the impact the Program would have on the endangered Rice’s whale and other uses of the OCS, such as recreational uses, commercial fishing, and aquaculture. The Court addressed each of Environmental Petitioners’ concerns in turn.

First, the Court determined that DOI reasonably evaluated how offshore leasing could potentially impact vulnerable communities in accordance with 42 U.S.C. § 1344(a)(1). Environmental Petitioners argued that DOI was required to assess the vulnerability of individual communities in different areas along the Gulf Coast and evaluate how each community would respond to the potential harms of leasing. The Court disagreed. It found that OCSLA does not require DOI to undertake such a granular review during the initial stage of the Program because such a review would be unduly burdensome. It was enough for the Healthy Gulf Court that DOI assessed the potential for harm across the broader GOM Program Area. DOI’s Program highlighted potential burdens across the entire GOM Program Area such as land loss, industrial development, rising sea levels, storm intensification, and pollution. Further, the Program acknowledged that vulnerable, lower-income communities located near oil and gas processing facilities may suffer more severe and longer lasting harm due to their limited access to financial and non-financial resources. Moreover, accompanying the Program was an EIS that also acknowledged the disproportionate impact on vulnerable, lower-income communities, recounted the lasting impacts of hurricanes and the Deepwater Horizon oil spill on the communities located outside Louisiana’s levee protection system, and illustrated how protected wetlands have eroded over the past century of increased GOM leasing activity. DOI’s focus on the impact the Program will have on the Gulf Coast community at large was sufficient for this initial phase of the Program.

Second, the Court examined Environmental Petitioners’ claim that DOI acted arbitrarily in not selecting the endangered Rice’s whale as the GOM region’s representative marine mammal of conservation importance. In Environmental Petitioners’ view, DOI ignored the Rice’s whale proposed critical habitat designation and applied a methodology that was inconsistent and at odds with DOI’s prior decision to exclude the Rice’s whale habitat from offshore wind leasing areas. Given the rarity of the Rice’s whale, its restricted range, and its vulnerability, Environmental Petitioners asserted that DOI was required to designate the Rice’s whale as the representative marine mammal in the Program’s environmental sensitivity analysis. The Court again disagreed with Environmental Petitioners’ position. The Court determined that DOI’s reason for not selecting the Rice’s whale as the GOM’s representative marine mammal was sound: the Program’s proposed areas for leasing (the Western, Central, and a small portion of the Eastern GOM Planning Areas) do not overlap with the core distribution area of the Rice’s whale (Northeastern GOM at depths of 100 to 400 meters). The Court further explained that the sperm whale has served as the conservation-indicator marine mammal of GOM since 2007 because the sperm whale ranges throughout the GOM, undertakes long-distance migrations across various regions of GOM, and dives thousands of meters in search of deepwater squid.

Moreover, the Court approved of the DOI’s decision to consider the Rice’s whale habitat during the leasing stage of the Program. Because the final designation of the Rice’s whale critical habitat was pending during the initial stage of the Program, the DOI committed to revisiting the Rice’s whale critical habitat designation status and, if necessary, making adjustments regarding leasing areas during the second stage of the Program—when specific blocks are selected for development. With this in mind, the Court concluded that Environmental Petitioners’ claim concerning the Rice’s whale is best understood as a claim under the Endangered Species Act, which the DOI is only required to consult when its actions “may affect” a listed species or its critical habitat. Because the Rice’s whale critical habitat was pending during the initial stage of Program, the Court determined that Environmental Petitioners’ claim regarding the Rice’s whale, when considered under the Endangered Species Act, was not ripe for review.

Third, the Court considered Environmental Petitioners’ argument that DOI merely identified other present or anticipated uses of the GOM region without evaluating whether the Program may impede them, and therefore, DOI did not achieve the proper balance that 43 U.S.C. § 1344(a)(3) imposes on it when creating the Program. Essentially, Environmental Petitioners argued that in addition to identifying uses of the OCS that oil and gas leasing may interfere with, DOI should have considered ways to mitigate these potential interferences. The Court disagreed and determined that mitigation is not required during the initial stage of the Program. DOI’s identification of multiple uses of the OCS (including commercial, recreational, and subsistence fishing; tourism; navigation and marine infrastructure; military operations; renewable energy; non-energy marine minerals; and the increased presence of aquaculture projects in GOM) was enough to satisfy OCSLA. The Healthy Gulf Court reasoned that mitigation presupposes that DOI knows which lease blocks will be offered, the specific location of leases, and any site-specific conflicts; however, DOI does not have that knowledge during the initial stage of the Program. DOI identified potential conflicts with the multiple uses of the OCS and adopted a process for addressing same through targeted leasing and coordination with other agencies during later stages of the Program. The Court determined that this was the stage-appropriate analysis that OCSLA contemplates. Accordingly, the Healthy Gulf Court concluded that DOI complied with 43 U.S.C. § 1344(a)(2). Further, the Court rejected Environmental Petitioners’ balancing claim. Environmental Petitioners argued that DOI did not achieve the proper balance as required under 43 U.S.C. § 1344(a)(3) because it failed to (1) quantitatively assign benefits and costs of different demographic groups and (2) fully consider the Rice’s whale environmental sensitivity.

As to the first aspect of Environmental Petitioners’ balancing claim, the Court determined that DOI identified environmental considerations, acknowledged the limits of monetizing same, and incorporated these considerations qualitatively into the Program’s balancing during the initial stage. The Healthy Gulf Court accepted DOI’s representation that it could not quantitatively assign benefits and costs of the environmental considerations during the initial stage and its promise to assess distributional impacts at later stages when location-specific information becomes available. As to the second aspect of Environmental Petitioners’ balancing claim, the Court determined that DOI satisfied 43 U.S.C. § 1344(a)(2) when it applied a consistent methodology to select the sperm whale over the Rice’s whale for the GOM region. The Court’s previous determination that DOI’s decision to select the sperm whale over the Rice’s whale foreclosed Environmental Petitioners’ derivative balancing claim. Moreover, the Court explained that section 1344(a)(3) does not require DOI to isolate or separately quantify the cost of losing a single species, such as the Rice’s whale, so long as relevant environmental harms are reasonably reflected in the aggregate.

Accordingly, the Court denied the Environmental Petitioners’ petition for review.

OBBBA and BOEM’s Recently Initiated 11th Program  

The Healthy Gulf opinion is particularly relevant in light of both the One Big Beautiful Bill Act (“OBBBA”), which was signed into law on July 4, 2025, and the Bureau of Ocean Energy Management’s (“BOEM”) recently initiated 11th National OCS Oil and Gas Leasing Program. Under the OBBBA, DOI must conduct lease sales in the Gulf of America and in the Alaska Region, specifically in the Cook Inlet Planning Area and the National Petroleum Reserve. In total, the OBBBA calls for at least 40 federal offshore lease sales, requiring at least 30 lease sales for the Gulf of America through 2040, at least six lease sales for the Cook Inlet Planning Area through 2032, and at least four lease sales for the NPR-A.  

In response to the OBBBA and in accordance with President Trump’s Unleashing American Energy Executive Order, BOEM released its offshore energy leasing schedule on August 19, 2025. The first Gulf of America Lease Sale titled “Big Beautiful Gulf 1” is set for December 10, 2025. BOEM will publish the final notice at least 30 days prior to the sale. The release of a leasing schedule came shortly after BOEM closed the initial stage, request for information and comment, of the 11th National OCS Oil and Gas Leasing Program (the “11th Program”). Once finalized, the 11th Program will replace the 2024–2029 Program—the Program that Environmental Petitioners unsuccessfully challenged. Before the 11th Program is finalized, the Secretary of BOEM must (1) publish a draft proposed program, which is subject to a 60-day comment period, (2) publish a proposed program, which is subject to a 90-day comment period, (3) present the proposed final program to the President and Congress, whom have a 60-day review period, and (4) approve the 11th Program and post a decision memo on same.

If you have questions about this decision or the upcoming 11th National OCS Oil and Gas Leasing Program, please reach out to Jana Grauberger or Margaret Chavez.

Environmental Groups Challenge Industrial Development Across the Gulf Coast

3 minute read

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Environmental groups have amplified efforts to challenge the permitting of large industrial projects in the Gulf Coast region, citing public health and legal compliance concerns, among others.  The range and sophistication of these challenges have appeared to increase over the course of the last several years.

Environmental groups have targeted liquified natural gas (“LNG”) facilities, petrochemical plants, and plastics manufacturing complexes by filing petitions seeking judicial review of both state agency-issued environmental permits and local government land use and zoning approvals. Some of the common themes of these lawsuits include allegations of:

  • Use of Improper Emission Factors and Modeling – contending that modeling used for pollution limits is outdated or underestimates potential emissions  
  • Failure to Use Best Available Control Technology (“BACT”) – arguing that pollution controls that do not reflect the best available technology for the industry such that lower limits are achievable based on, e.g., other facilities’ standards
  • Insufficient Monitoring and Compliance – alleging that the agency failed to provide monitoring provisions that are sufficient to ensure compliance with permitted emissions limits
  • Inadequate Environmental Justice (“EJ”) Review – claiming that the agency failed to assess or mitigate adverse impacts on disproportionately affected communities
  • Failure to Adhere to Procedural Requirements – arguing that the local government did not strictly comply with public notice and hearing mandates or follow its own ordinances before granting special land use, zoning, development, or building permits 

Environmental groups have raised these issues in challenges to permits for a variety of industrial projects, and each challenge deals with unique circumstances that vary on a case-by-case basis. These cases highlight the need for industry stakeholders to ensure that any permitting or decision-making record is sufficient to withstand a host of different challenges. The below cases provide a sampling of recent challenges in the Gulf Coast region.

In Rise St. James v. Louisiana Department of Environmental Quality, 2023-CA-0578 (La. App. 1 Cir. Jan. 19, 2024), environmental groups challenged the Louisiana Department of Environmental Quality’s (“LDEQ”) approval of air permits for a new petrochemical manufacturing complex in St. James Parish, Louisiana, arguing, among other things, that LDEQ had not completed an adequate EJ analysis as required by the State’s Public Trust Doctrine. The Louisiana First Circuit Court of Appeal dismissed the groups’ petition for review and upheld the permits, holding that, although the Public Trust Doctrine is broad enough to include EJ analyses, the LDEQ’s EJ analysis at issue was sufficient. Despite the current federal administration’s EJ rollback, states may have their own EJ and/or economic and social consideration requirements that remain applicable and must be considered during permitting. Currently these analyses may have a different look than they did when the Louisiana First Circuit decided the Rise St. James case due to a shift in federal guidance and the removal of federal online tools that aided in EJ analyses. However, state laws and jurisprudence continue to provide potential grounds for legal challenge on this issue.

Recent cases in Texas and Louisiana challenging the air permitting of LNG facilities demonstrate that such permits are being carefully and critically examined by environmental groups. In Port Arthur Community Action Network v. Texas Commission on Environmental Quality, No. 22-60556 (5th Cir. Aug. 12, 2025), an environmental group challenged the Texas Commission on Environmental Quality’s (“TCEQ”) approval of an air permit for a new LNG facility in Port Arthur, Texas, arguing that stricter emissions limits for a nearby LNG facility still in development should be incorporated into the permit at issue as BACT. The U.S. Court of Appeals for the Fifth Circuit denied the group’s challenge, holding that under Texas law, BACT requires emissions control methods that are “already proven … to be operational” and that “theoretical” operability of the unbuilt LNG facility was insufficient to establish BACT for other facilities. Most recently, on August 21, 2025, environmental groups petitioned the U.S. Fifth Circuit for review of two LDEQ air permits for a new LNG facility near Cameron Parish, Louisiana, in Louisiana Bucket Brigade v. Louisiana Department of Environmental Quality, No. 25-60455. There, the groups claim a variety of deficiencies with the permits, including that they were based on improper modeling and failed to incorporate appropriate monitoring requirements to ensure compliance with permitting emissions limits. The Fifth Circuit’s decision in this pending case will shed further light on the planning needed to ensure defensible air permits under the increasing scrutiny of permit challengers. 

Given the abundance of varied challenges, industrial project stakeholders, as well as any applicant for an environmental permit or local government land use decision, need to ensure that they develop a robust administrative record that supports the agency decision. 

This is particularly important in an environment where project opponents perceive that agency decision making or enforcement is unfairly biased against them, as the challenges have become more frequent and sophisticated.

IRS Introduces Electronic Filing for 83(b) Elections

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The Internal Revenue Service (“IRS”) announced a new electronic filing platform for Form 15620 to make an election pursuant to Section 83(b) of the Tax Code. 83(b) elections allow a taxpayer who receives equity compensation in a business that is subject to a substantial risk of forfeiture, such as a vesting agreement, to claim the value of the equity as income in the year of receipt. This allows taxpayers to enjoy capital gain rates on any appreciation.

The new system will make it easier for taxpayers to submit the election and confirm compliance with the 30-day filing requirement. Taxpayers must create an IRS online account to file Form 15620 through the IRS website. Upon filing, taxpayers must also provide a copy of the filing to his or her employer or issuer. For further questions regarding the new filing method, contact Liskow attorneys Leon Rittenberg III, Caroline Lafourcade,  John Rouchell, and Kevin Naccari and visit our Tax practice page.

D.C. Circuit Implements Seven County Principles in Upholding FERC NEPA Analysis

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We’ve been waiting to see how lower courts will interpret and apply the U.S. Supreme Court’s May 2025 decision in Seven County Infrastructure Coalition v. Eagle County, CO. The D.C. Circuit’s August 1 decision in Sierra Club and Public Citizen v. FERC embraces the narrowed scope of review and substantial agency deference articulated by the Supreme Court in upholding FERC’s NEPA analysis.

The court “reiterated that judicial review of NEPA compliance must defer to the agency’s determination of the scope of its environmental analysis, provided it reasonably addresses the direct effects of the project at hand. This furthered the Seven County principle that NEPA does not serve as a substantive barrier to agency action, but rather ensures informed decision making within the bounds of agency authority.”

insideepa.com/…

IRS Private Letter Ruling Recognizes a Valid Nontax Purpose for Aggregating Mineral Interests When Computing Depletion Under Section 611

3 minute read

On July 25, 2025, the Internal Revenue Service (IRS) released Private Letter Ruling 202530002, where it summarized the requirements for aggregating separate nonoperating mineral interests into a single property under Section 614(e) of the Internal Revenue Code (Code) and Section 1.614-5(d) of the Treasury Regulations (Regulations) for purposes of computing the depletion deduction. Under Section 611(a) of the Code, a taxpayer may take a deduction for the depletion of natural resources when determining taxable income from production, permitting a taxpayer to account for the reduction of reserves.

The allowance for depletion, whether it be via cost depletion under Section 612 of the Code or percentage depletion under Section 613 of the Code, depends in part either on the basis in the property for cost depletion, or the gross income from the property for percentage depletion. With respect to mines, wells, and other natural resources, Section 614(a) of the Code defines “property” as “each separate interest owned by the taxpayer in each mineral deposit in each separate tract or parcel of land,” while each “interest” a taxpayer owns is an economic interest in a mineral deposit which is generally, per Section 1.614-1(a)(2) of the Regulations, a working or operating interest, royalty interest, or profits interest. The subject taxpayer owned mineral royalty interests via separate leases, each covering a distinct tract of land – seemingly each a separate “property” for purposes of Section 614 of the Code. However, Section 614(e) of the Code provides that a taxpayer who owns two or more separate nonoperating mineral interests in a single tract of land or in two or more adjacent tracts is, upon the requisite showing, permitted to treat the mineral interests in each deposit as one “property”. The subject taxpayer, who is not responsible for the costs of exploration, development, or production, owns nonoperating mineral interests.

Per Section 1.614-5(d) of the Regulations, a taxpayer owning nonoperating interests in two or more adjacent tracts of land (i.e., tracts that are, depending on the facts and circumstances, “in reasonably close proximity to each other”) can make the requisite showing to the IRS for permission to aggregate by establishing that the avoidance of tax is not a principal purpose for aggregation. Section 1.614-5(d) of the Regulations further states that a substantial reduction in tax from the aggregation of interests is evidence that the principal purpose of aggregation is tax avoidance.

In PLR 202530002, the IRS summarized the three-step process, derived from Section 614(e) of the Code and Section 1.614-5 of the Regulations, that a taxpayer must follow to obtain permission to aggregate nonoperating mineral interests. Specifically, a taxpayer must:

  1. Submit to the IRS an application for permission to aggregate the interests within 90 days after the beginning of the first taxable year for which aggregation is desired, or within 90 days after the acquisition of one of the properties to be included in the aggregation (Section 1.614-5(e)(1) of the Regulations);
  2. Include with the application a description of the interests within the tract(s), accompanied by maps appropriately marked and accurately circumscribing the scope of the aggregation (Section 1.614-5(e)(4) of the Regulations); and
  3. Establish, through the inclusion in the application of a complete statement of facts upon which the taxpayer relies, that a principal purpose for aggregating the interests is not tax avoidance (Sections 1.614-5(d) and (e) of the Regulations).

In PLR 202530002, the taxpayer represented that the principal purpose of the request to aggregate was not tax avoidance, but instead to reduce the administrative burden caused by calculating depletion without aggregation and to implement consistent treatment for accounting and income tax purposes. Finding that the taxpayer satisfied the requirements of Section 614(e) of the Code and Section 1.614-5 of the Regulations, the IRS consented to the taxpayer aggregating its separate nonoperating mineral interests located at the two leased properties. PLR 202530002, in addition to summarizing the time-sensitive requirements for a taxpayer to aggregate nonoperating mineral interests into a single property for purposes of computing depletion under Section 611 of the Code, can serve as a useful reminder to mineral interest owners that the principal purpose of a requested aggregation cannot be the avoidance of tax. In the case of the subject taxpayer, the reduction of the administrative burden of depletion calculations, coupled with the ability to implement consistent treatment for accounting and income tax purposes as a result of aggregation, constituted a sufficient principal purpose.

For further questions regarding this topic, contact Liskow attorneys Leon Rittenberg III, Caroline Lafourcade, and Jack Aguillard and visit our Tax practice page.

 

EPA and Other Agencies Publish Guidance on Referrals for Potential Criminal Enforcement

2 minute read

On July 31, 2025, the Environmental Protection Agency (“EPA”) published a notice in the Federal Register, titled “Guidance on Referrals for Potential Criminal Enforcement,” that discusses EPA’s plans to address criminal regulatory offenses consistent with the Trump Administration’s recent executive order (“EO”) on Fighting Overcriminalization in Federal Regulations.

            The notice provides a “general policy” for EPA to follow when determining whether to refer an alleged violation of a criminal regulatory offense to the Department of Justice (“DOJ”). Specifically, EPA should consider, among other factors:

  • the harm or risk of harm, pecuniary or otherwise, caused by the alleged offense;
  • the potential gain to the putative defendant that could result from the offense;
  • whether the putative defendant held specialized knowledge, expertise, or was licensed in an industry related to the rule or regulation at issue; and
  • evidence, if any is available, of the putative defendant’s general awareness of the unlawfulness of his conduct as well as his knowledge or lack thereof of the regulation at issue.

In addition to the EPA, several other agencies—including the Federal Energy Regulatory Commission and the Departments of Energy, Transportation, and Defense—have published their own policies pursuant to the Trump Administration’s EO on criminal regulatory offenses, with each agency adopting the above factors for deciding whether to refer alleged violations of criminal regulatory offenses to the DOJ.

The overarching concept for all of these agency policies is to reserve criminal enforcement for the kinds of offenses and conduct that the lay public would consider to be criminal—reckless, intentional, and serious infractions—and to avoid criminally pursuing the kinds of unintentional mistakes for which criminal enforcement, while technically available under the law, may seem unfair.

The EPA and other agencies’ policies also state that, by May 9, 2026, each respective agency will provide to the Office of Management and Budget a report that contains: “(1) a list of all criminal regulatory offenses enforceable by [the agency] or [DOJ]; and (2) for each such criminal regulatory offense, the range of potential criminal penalties for a violation and the applicable mens rea standard for the criminal regulatory offense.”

For more information regarding this topic, contact Liskow attorneys Greg L. Johnson, Sean Toomey, Clare Bienvenu, and Colin North, and visit the Louisiana Industrial Insights Hub for further updates.

EPA and Other Agencies Publish Guidance on Referrals for Potential Criminal Enforcement

2 minute read

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On July 31, 2025, the Environmental Protection Agency (“EPA”) published a notice in the Federal Register, titled “Guidance on Referrals for Potential Criminal Enforcement,” that discusses EPA’s plans to address criminal regulatory offenses consistent with the Trump Administration’s recent executive order (“EO”) on Fighting Overcriminalization in Federal Regulations.

            The notice provides a “general policy” for EPA to follow when determining whether to refer an alleged violation of a criminal regulatory offense to the Department of Justice (“DOJ”). Specifically, EPA should consider, among other factors:

  • the harm or risk of harm, pecuniary or otherwise, caused by the alleged offense;
  • the potential gain to the putative defendant that could result from the offense;
  • whether the putative defendant held specialized knowledge, expertise, or was licensed in an industry related to the rule or regulation at issue; and
  • evidence, if any is available, of the putative defendant’s general awareness of the unlawfulness of his conduct as well as his knowledge or lack thereof of the regulation at issue.

In addition to the EPA, several other agencies—including the Federal Energy Regulatory Commission and the Departments of Energy, Transportation, and Defense—have published their own policies pursuant to the Trump Administration’s EO on criminal regulatory offenses, with each agency adopting the above factors for deciding whether to refer alleged violations of criminal regulatory offenses to the DOJ.

The overarching concept for all of these agency policies is to reserve criminal enforcement for the kinds of offenses and conduct that the lay public would consider to be criminal—reckless, intentional, and serious infractions—and to avoid criminally pursuing the kinds of unintentional mistakes for which criminal enforcement, while technically available under the law, may seem unfair.

The EPA and other agencies’ policies also state that, by May 9, 2026, each respective agency will provide to the Office of Management and Budget a report that contains: “(1) a list of all criminal regulatory offenses enforceable by [the agency] or [DOJ]; and (2) for each such criminal regulatory offense, the range of potential criminal penalties for a violation and the applicable mens rea standard for the criminal regulatory offense.”

For more information regarding this topic, contact Liskow attorneys Greg L. Johnson, Sean Toomey, Clare Bienvenu, and Colin North, and visit the Louisiana Industrial Insights Hub for further updates.

 

Fifth Circuit Affirms Surety Cannot Recover from Former Offshore Lessees for Forfeited Bonds Used to Pay for Decommissioning

4 minute read

The Fifth Circuit’s recent decision in Lexon Insurance Co., Inc. v. Chevron U.S.A. Inc., No. 24-20347 (5th Cir. Aug. 19, 2025) (slip op.), addresses who should pay offshore decommissioning costs when a current leaseholder fails to meet its legal obligations. Federal law requires that wells, pipelines, and platforms on the Outer Continental Shelf be safely abandoned once operations cease. That obligation runs not only to the current leaseholder and operator, but to all who have ever held such interests.

In this case, Linder Oil was the most recent operator for an offshore lease. But after going bankrupt and defaulting, its surety, Lexon Insurance Company, paid more than $11 million on performance bonds to the government. The government, in turn, transferred that money to former leaseholders, who completed decommissioning. Although the total costs exceeded the amount of the bonds, Lexon nonetheless sought reimbursement from several former leaseholders. By forfeiting the bonds, Lexon argued it paid a debt to the government on behalf of the former leaseholders who were jointly responsible for decommissioning costs. As a result of its payment, Lexon claimed it was entitled to step into the government’s shoes and recover its money through “subrogation.” Lexon consequently filed suit against the former leaseholders in federal court, alleging its subrogation theory along with theories of contribution and unjust enrichment. But the district judge rejected each of these claims on summary judgment and dismissed Lexon’s lawsuit with prejudice. In response, Lexon sought appellate review.

A unanimous three-judge panel of the Fifth Circuit sided with the trial court. Writing for the majority, Judge Irma Ramirez first addressed Lexon’s federal-law claims. In seeking subrogation, Lexon relied in large part on 31 U.S.C. § 9309. According to Lexon, this statute allows “a surety” who pays “the government under a bond” to “obtain reimbursement from any party whom the government” could have “lawfully” forced to pay. Op. at 6. The panel disagreed with that interpretation. “[C]ontrary to Lexon’s argument,” the Court ruled, § 9309 is far more limited in scope: “[B]y its plain text and title,” the statute simply allows a surety who satisfies a government debt “the same priority as the United States to the insolvent principal’s assets and estate.” Id. at 6–7. On this basis, the surety may bring “a civil action under the bond” against the principal, but not against third-parties uninvolved with the bond agreement. Id. at 7 (quoting 31 U.S.C. § 9309). Because the defendants here were “not parties to the bonds,” the court concluded that § 9309’s plain text foreclosed Lexon’s statutory subrogation argument. Id.

The Court next considered whether Lexon could invoke “equitable subrogation” through “established federal common law.” Id. at 7–8. But this theory fared no better. As the statute governing offshore disputes, the Outer Continental Shelf Lands Act mandates that federal law apply. Yet “[w]hen there is a gap to fill in federal law,” state law, not judge-made federal rules, supplies the rule of decision. Id. at 5, 8. As the Fifth Circuit has recognized, “federal courts should not create interstitial federal common law when the Congress has directed that a whole body of state law shall apply.” Id. at 8 (quoting Matte v. Zapata Offshore Co., 784 F.2d 628, 631 (5th Cir. 1986)). In this case “no federal statute govern[ed] the precise” subrogation issue, so the panel rejected Lexon’s federal common law theory and turned instead to the law of Louisiana.  

Ultimately, however, Lexon’s subrogation argument found no support in the Civil Code. Although Louisiana recognizes “legal subrogation,” the “right is strictly construed.” Id. at 9 (quoting Martin v. La. Farm Bureau Cas. Ins. Co., 638 So.2d 1067, 1068 (La. 1994)). To qualify, the paying obligor must have “recourse” against others who were also bound for the same obligation. Id. (quoting La. Civ. Code art. 1829(3)). Here, the panel concluded that Lexon had shown no such “recourse” against defendants. Id. at 9–10. Between the parties, the relevant regulations and contracts placed the risk squarely on Linder Oil, who expressly agreed to indemnify the others.

For the same reason, Lexon’s state-law contribution claim failed. As the court explained, contribution presumes a “shared, equal burden” among “co-sureties.” Id. at 10–11 (citing La. Civ. Code art. 3055). In this case, however, Lexon was not a co-surety with defendants; it was Linder Oil’s surety alone. And even if the defendants could be styled as “co-sureties,” they had secured indemnity from Linder. Id. at 11. Such a reality, the Court ruled, “rebutted” any “presumption” of a shared “principal obligation.” Id.

Finally, the panel considered Lexon’s unjust enrichment claim. But, like the others, this argument was also meritless. A successful unjust enrichment theory requires that the “enrichment” be without legal “justification.” Id. at 11–12 (quoting Edwards v. Conforto, 636 So.2d 901, 907 (La. 1993), on reh’g (May 23, 1994)). Here, the majority recognized that any benefit defendants received was justified by the “indemnity agreements with Linder Oil.” Id. at 12. Because “equity” had no role in rewriting those valid “bargained-for” transactions, the panel affirmed dismissal of Lexon’s unjust enrichment claim. Id. 11–12.

In the end, Lexon issued bonds to “secure Linder Oil’s decommissioning obligations.” Id. at 12. In fulfilling its responsibility as surety, Lexon paid when Linder defaulted. Neither federal nor Louisiana law allowed Lexon to shift that burden to former leaseholders.

This decision reinforces the valuable role performance bonds in favor of the government play in backstopping offshore decommissioning obligations. While the government retains discretion to decide whether to call for the forfeiture of bonds when a lessee or operator defaults on its obligations (unless the bonds are dual-obligee bonds in favor of both the government and a predecessor), when it does so, predecessors who step up to perform decommissioning can accept bond proceeds to help defray the associated costs. This certainty supports reliance by sellers, at least in part, on government bonds in connection with assumption of decommissioning liabilities by purchasers in purchase and sale agreements and related indemnity provisions.

Note: Liskow & Lewis represented defendants Chevron U.S.A Inc. and BP America Production Company. Jana Grauberger and Michael Rubenstein represented the companies at the trial court. Liskow’s appellate team, Kelly Becker and Kathryn Gonski, handled the appeal. Ms. Becker argued for the companies at the United States Fifth Circuit Court of Appeals.

Fifth Circuit Affirms Surety Cannot Recover from Former Offshore Lessees for Forfeited Bonds Used to Pay for Decommissioning

4 minute read

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The Fifth Circuit’s recent decision in Lexon Insurance Co., Inc. v. Chevron U.S.A. Inc., No. 24-20347 (5th Cir. Aug. 19, 2025) (slip op.), addresses who should pay offshore decommissioning costs when a current leaseholder fails to meet its legal obligations. Federal law requires that wells, pipelines, and platforms on the Outer Continental Shelf be safely abandoned once operations cease. That obligation runs not only to the current leaseholder and operator, but to all who have ever held such interests.

In this case, Linder Oil was the most recent operator for an offshore lease. But after going bankrupt and defaulting, its surety, Lexon Insurance Company, paid more than $11 million on performance bonds to the government. The government, in turn, transferred that money to former leaseholders, who completed decommissioning. Although the total costs exceeded the amount of the bonds, Lexon nonetheless sought reimbursement from several former leaseholders. By forfeiting the bonds, Lexon argued it paid a debt to the government on behalf of the former leaseholders who were jointly responsible for decommissioning costs. As a result of its payment, Lexon claimed it was entitled to step into the government’s shoes and recover its money through “subrogation.” Lexon consequently filed suit against the former leaseholders in federal court, alleging its subrogation theory along with theories of contribution and unjust enrichment. But the district judge rejected each of these claims on summary judgment and dismissed Lexon’s lawsuit with prejudice. In response, Lexon sought appellate review.

A unanimous three-judge panel of the Fifth Circuit sided with the trial court. Writing for the majority, Judge Irma Ramirez first addressed Lexon’s federal-law claims. In seeking subrogation, Lexon relied in large part on 31 U.S.C. § 9309. According to Lexon, this statute allows “a surety” who pays “the government under a bond” to “obtain reimbursement from any party whom the government” could have “lawfully” forced to pay. Op. at 6. The panel disagreed with that interpretation. “[C]ontrary to Lexon’s argument,” the Court ruled, § 9309 is far more limited in scope: “[B]y its plain text and title,” the statute simply allows a surety who satisfies a government debt “the same priority as the United States to the insolvent principal’s assets and estate.” Id. at 6–7. On this basis, the surety may bring “a civil action under the bond” against the principal, but not against third-parties uninvolved with the bond agreement. Id. at 7 (quoting 31 U.S.C. § 9309). Because the defendants here were “not parties to the bonds,” the court concluded that § 9309’s plain text foreclosed Lexon’s statutory subrogation argument. Id.

The Court next considered whether Lexon could invoke “equitable subrogation” through “established federal common law.” Id. at 7–8. But this theory fared no better. As the statute governing offshore disputes, the Outer Continental Shelf Lands Act mandates that federal law apply. Yet “[w]hen there is a gap to fill in federal law,” state law, not judge-made federal rules, supplies the rule of decision. Id. at 5, 8. As the Fifth Circuit has recognized, “federal courts should not create interstitial federal common law when the Congress has directed that a whole body of state law shall apply.” Id. at 8 (quoting Matte v. Zapata Offshore Co., 784 F.2d 628, 631 (5th Cir. 1986)). In this case “no federal statute govern[ed] the precise” subrogation issue, so the panel rejected Lexon’s federal common law theory and turned instead to the law of Louisiana.  

Ultimately, however, Lexon’s subrogation argument found no support in the Civil Code. Although Louisiana recognizes “legal subrogation,” the “right is strictly construed.” Id. at 9 (quoting Martin v. La. Farm Bureau Cas. Ins. Co., 638 So.2d 1067, 1068 (La. 1994)). To qualify, the paying obligor must have “recourse” against others who were also bound for the same obligation. Id. (quoting La. Civ. Code art. 1829(3)). Here, the panel concluded that Lexon had shown no such “recourse” against defendants. Id. at 9–10. Between the parties, the relevant regulations and contracts placed the risk squarely on Linder Oil, who expressly agreed to indemnify the others.

For the same reason, Lexon’s state-law contribution claim failed. As the court explained, contribution presumes a “shared, equal burden” among “co-sureties.” Id. at 10–11 (citing La. Civ. Code art. 3055). In this case, however, Lexon was not a co-surety with defendants; it was Linder Oil’s surety alone. And even if the defendants could be styled as “co-sureties,” they had secured indemnity from Linder. Id. at 11. Such a reality, the Court ruled, “rebutted” any “presumption” of a shared “principal obligation.” Id.

Finally, the panel considered Lexon’s unjust enrichment claim. But, like the others, this argument was also meritless. A successful unjust enrichment theory requires that the “enrichment” be without legal “justification.” Id. at 11–12 (quoting Edwards v. Conforto, 636 So.2d 901, 907 (La. 1993), on reh’g (May 23, 1994)). Here, the majority recognized that any benefit defendants received was justified by the “indemnity agreements with Linder Oil.” Id. at 12. Because “equity” had no role in rewriting those valid “bargained-for” transactions, the panel affirmed dismissal of Lexon’s unjust enrichment claim. Id. 11–12.

In the end, Lexon issued bonds to “secure Linder Oil’s decommissioning obligations.” Id. at 12. In fulfilling its responsibility as surety, Lexon paid when Linder defaulted. Neither federal nor Louisiana law allowed Lexon to shift that burden to former leaseholders.

This decision reinforces the valuable role performance bonds in favor of the government play in backstopping offshore decommissioning obligations. While the government retains discretion to decide whether to call for the forfeiture of bonds when a lessee or operator defaults on its obligations (unless the bonds are dual-obligee bonds in favor of both the government and a predecessor), when it does so, predecessors who step up to perform decommissioning can accept bond proceeds to help defray the associated costs. This certainty supports reliance by sellers, at least in part, on government bonds in connection with assumption of decommissioning liabilities by purchasers in purchase and sale agreements and related indemnity provisions.

Note: Liskow & Lewis represented defendants Chevron U.S.A Inc. and BP America Production Company. Jana Grauberger and Michael Rubenstein represented the companies at the trial court. Liskow’s appellate team, Kelly Becker and Kathryn Gonski, handled the appeal. Ms. Becker argued for the companies at the United States Fifth Circuit Court of Appeals.