Mobil Oil Exploration & Producing Southeast, Inc. v. United States
The Supreme Court ruled that the federal government broke its contracts with two oil companies by refusing, under a new law, to timely approve their offshore drilling plans as it had promised in their lease agreements.
Because that broken promise counted as a repudiation of the leases, the Court ordered the government to return the full $156 million the companies had paid up front, rejecting the argument that the companies deserved nothing because state objections would have blocked the project anyway.
“The breach was "substantia[l]," depriving the companies of the benefit of their bargain.”
The Court's conclusion that the government's delay was a material breach justifying restitution.
How it got here: The Court of Federal Claims ruled for the companies, but the Federal Circuit reversed; the Supreme Court agreed to review the Federal Circuit's decision.
The Case in Depth
What happened
In 1981, two oil companies paid the federal government about $156 million for 10-year leases to explore for oil off North Carolina's coast, contingent on obtaining a series of governmental approvals under federal environmental and coastal statutes. After years of environmental review, Congress passed a new law days before the companies submitted their final exploration plan, barring approval of any such plan for at least 13 months.
The question before the Court
When a new federal law forced the government to break its promise to quickly review oil companies' drilling plans, could the companies get back the $156 million they had paid for their leases?
The Court's answer
Yes — the Court ruled that the oil companies could recover their full $156 million in lease payments. The government had promised, through statutes incorporated into the lease contracts, to approve a qualifying exploration plan within thirty days. When a new law forced Interior to refuse approval for at least thirteen months even after telling the companies their plan fully complied with the law, that amounted to the government communicating its intent to break an important promise.
Because this broken promise substantially impaired the value of the leases—cutting off the gateway to all the companies' other rights—it counted as a repudiation under ordinary contract law principles. That entitled the companies to get their money back regardless of whether the venture would have ultimately succeeded, and regardless of the companies' continued efforts to keep the project moving forward.
Curious how the Court got there? See the step-by-step legal reasoning →
Why it matters
The decision means companies that pay the government large sums for regulatory permission rights can get their money back in full if the government later reneges on procedural promises, even through new legislation, rather than being limited to smaller damages for actual harm caused by the delay.
What changes now
The case is remanded to the Federal Circuit for further proceedings consistent with the Court's ruling, meaning the companies are entitled to recover their $156 million in lease payments. This is a final merits decision on the legal question of repudiation and restitution, not a temporary order, though further proceedings on remand may address implementation details.
What this does not decide
The Court did not decide whether the underlying new statute, the Outer Banks Protection Act, was itself unwise or improper policy; it only addressed whether the law's effect on the government's contractual promises entitled the companies to restitution.
Concurrences and dissents
Dissent — Justice Stevens
“A breach that itself caused at most a delay of two months in a protracted enterprise of this magnitude does not justify the $156 million draconian remedy that the Court delivers.”Stevens' core objection that the remedy was disproportionate to the actual harm caused.
Justice Stevens agreed the government breached its contract by missing the 30-day deadline but argued this was not a repudiation or total breach justifying full restitution. He emphasized the government kept trying to perform after the new law passed, and that North Carolina's independent objections, not the new law, were the real reason the project stalled. He would have limited the companies to modest damages for about two months of delay rather than a $156 million refund.
How the Court got there
The legal reasoning, step by step
- The Court applied basic restitution principles from contract law: when one party repudiates a contract by stating it will break an important promise, the other party can recover money paid, regardless of whether the deal would have ultimately paid off.
- The Court found the lease contracts incorporated existing federal statutes and regulations as binding promises, including a requirement that the Interior Department approve a qualifying exploration plan within thirty days of submission.
- The Court determined that a newly enacted law could not be read into the contracts, because the leases were only subject to future regulations issued under specific existing statutes, not brand-new laws like the one Congress passed just before the companies submitted their final plan.
- Interior's own letter told the companies their plan fully complied with legal requirements, yet the agency refused to approve it for at least thirteen months solely because of the new law, which the Court treated as the government communicating its intent to break its promise, i.e., a repudiation.
- The Court held this delay was not a minor, technical shortfall but substantially impaired the value of the contracts, since the approval process was the gateway to all the companies' other rights under the leases.
- The Court rejected the government's argument that the companies had waived their right to a refund by continuing to seek permits and accepting lease suspensions, finding those actions were just the companies urging performance rather than receiving real benefits from the government after the repudiation.