In a closely watched case before the U.S. Court of Appeals for the Fifth Circuit, judges appeared skeptical of a surety company’s effort to recover $11 million from Chevron USA Inc. and BP America Production Co. related to offshore decommissioning costs in the Gulf of Mexico.

Lexon Insurance Co., the surety in the dispute, argued it should be reimbursed under long-established principles of suretyship law after stepping in to cover decommissioning obligations originally transferred to Linder Oil Co., a company that later declared bankruptcy. The case hinges on whether prior leaseholders like Chevron and BP maintain secondary liability even after contractual obligations were assumed by Linder.

During oral arguments, the Fifth Circuit panel pressed Lexon's counsel on contractual language that seemed to absolve Chevron and BP of responsibility. Judge Andrew S. Oldham questioned the enforceability of provisions in the buyer's agreement that allegedly transferred full decommissioning liability to Linder.

Lexon maintains that, by paying the bond, it stepped into the shoes of the federal government under subrogation rights, giving it the authority to seek reimbursement from prior leaseholders. Attorney Brian Ginsberg of Harris Beach Murtha Cullina PLLC stated that “nothing stopped Chevron and the other energy companies from obtaining surety arrangements themselves,” highlighting the industry's standard practices.

However, attorneys for Chevron and BP countered that the surety arrangement was made solely with Linder, and that Lexon's effort to shift the $11 million liability onto past leaseholders who were not parties to the bond contradicts both contract law and federal statute.

At issue is the interpretation of 31 U.S.C. § 9309, which may limit recoupment to the surety’s principal—in this case, Linder Oil. The court also raised concerns about the broader implications for industry and government agreements if Lexon’s claims were allowed to proceed.

The case, Lexon Insurance Co. v. Chevron USA et al., No. 24-20347, could set a precedent in determining the limits of surety rights and corporate liability in offshore energy operations.