Producer's Edge
Author: William Grubb

Offshore exploration and production assets and operations can lead to a variety of novel legal issues.  For example, McGinnis Lochridge has represented clients in relation to offshore overriding royalty disputes, decommissioning disputes, construction disputes, injury matters, and regulatory issues.

Given the overlapping rubric of federal regulations, federal substantive law, and even state selected or adopted law, assessing basic issues in an offshore dispute can often be more complicated than you might expect.   Below are a few preliminary considerations when initially assessing an offshore dispute.

Determine the Governing Law Might Not Be as Simple as You Expect

Many in-house lawyers or executives understand that choice of law can be important.  In most cases, sophisticated parties select a certain forum’s law in their contracts.  However, when dealing with an offshore dispute, the parties’ choice of law may not be the end of the inquiry.

For example, in disputes governed by the Outer Continental Shelf Lands Act (“OCSLA”), many courts hold that OCSLA’s statutory choice of law supersedes normal choice of law rules that apply.  Under this framework, the law of the closest adjacent state, as a surrogate to federal law, may apply.  Additionally, federal law could apply.  Thus, when initially assessing an offshore dispute, a thorough analysis is needed to determine which substantive law will govern the dispute.

Decomissioning Obligations Seem Obvious, But Can Very by State

When an operator or record title holder is required to decommission offshore assets, many assume that other and prior record title holders will pay their “fair share” of decommissioning costs.  Often, other owners and record title holders pay a share, but the law is not as clear on the issue as one might think.

Whether other or prior record title holders are liable for decommissioning costs is often complicated and varies from state to state.  Additionally, depending on the circumstances, deed or instrument language in the chain of title or federal regulations may a part in determining liability.

This complexity can be increased with the passage of time, as companies often have more pressing matters and assume that the costs incurred decommissioning offshore assets will eventually be accounted for. 

To make sure your position is adequately protected, those involved in a decommissioning dispute should seek counsel sooner rather than later.  Understanding the chain of title, the applicable law and regulations, and acting quickly will give you the best chance at the desired outcome.


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