To Determine A Predecessor Lessee's Liability For Decommissioning Costs, Operating Agreement Language Matters

A recent Eastern District of Louisiana decision addressing a dispute over a predecessor Outer Continental Shelf (OCS) lessee's liability for decommissioning costs underscores that the Operating Agreement language usually controls the outcome. In Ankor Energy, LLC v. Merit Management Partners I, L.P., 2025 WL 3250880 (E.D. La. Nov. 21, 2025), Judge Vance determined that a predecessor lessee had liability for a share of decommissioning costs because the Operating Agreement language failed to extinguish its liability for accrued decommissioning obligations. To reach this conclusion, the court examined a Fifth Circuit decision, Total E&P USA, Inc. v. Marubeni Oil & Gas (USA) Inc., 824 F. App'x 197 (5th Cir. 2020), that addressed predecessor liability under two operating agreements and held that the language in one agreement allowed the predecessor to walk away while the language in the second agreement imposed continuing liability for accrued decommissioning obligations on the predecessor.

With frequent bankruptcies resulting in defaults by current lessees, predecessor OCS lessees routinely face decommissioning orders by the federal government under the joint and several liability regulatory scheme, as well as claims by current or other former lessees seeking contribution to cover decommissioning costs. As the courts' scrutiny of the Operating Agreement language in Ankor and Total reflects, the outcome typically turns on the language used in Operating Agreements that the parties entered into many years before the obligation to decommission the wells and facilities on the leases came due.

Stay tuned for a follow-up decision in the Ankor case. Having succeeded on its claim seeking to recover decommissioning costs from the predecessor lessee, Ankor now has a pending motion for summary judgment asserting that the Operating Agreement language additionally entitles it to recover unpaid lease operating expenses from the predecessor lessee.

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