Exxon-Mobile Lawsuit Filing

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UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF LOUISIANA
LAKE CHARLES DIVISION
EXXON MOBIL CORPORATION
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CIVIL ACTION
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NO:
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vs.
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DIVISION:
KENNETH SALAZAR, SECRETARY, UNITED *
STATES DEPARTMENT OF THE
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SECTION:
INTERIOR; ROBERT S. MORE, DIRECTOR
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OFFICE OF HEARINGS AND APPEALS;
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MICHAEL R. BROMWICH, DIRECTOR,
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BUREAU OF OCEAN ENERGY
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MANAGEMENT, REGULATION
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AND ENFORCEMENT
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COMPLAINT FOR DECLARATORY
AND INJUNCTIVE RELIEF
NOW INTO COURT, through undersigned counsel, comes plaintiff Exxon Mobil
Corporation (“ExxonMobil”) to allege as follows and to seek the relief set forth below.
1.
ExxonMobil seeks judicial review of a final decision by the United States Department of
the Interior (“DOI” or “Interior”) canceling three valuable offshore federal oil and gas leases and
depriving ExxonMobil of the right to produce a reservoir believed to hold billions of barrels of
oil. In refusing to grant ExxonMobil a suspension of production necessary to maintain these
leases, Interior retroactively applied new legal standards, departed from established agency
practices, and singled out ExxonMobil for unprecedented adverse treatment. Interior’s decision
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contradicts the Outer Continental Shelf Lands Act and Interior’s own regulations, violates the
rulemaking requirements of the Administrative Procedure Act, and violates numerous legal
restraints on agency conduct.
Jurisdiction and Venue
2.
This action arises under the Outer Continental Shelf Lands Act (“OCSLA”), 43 U.S.C.
§§ 1331, et seq.; the Administrative Procedure Act (“APA”), 5 U.S.C. §§ 551, et seq.; and the
United States Constitution.
3.
The Court has jurisdiction over the subject matter of this action pursuant to 28 U.S.C.
§ 1331 (federal question); 43 U.S.C. § 1349(b) (OCSLA); and 5 U.S.C. § 704 (judicial review of
final agency action). Declaratory relief is authorized by 28 U.S.C. §§ 2201 and 2202. Venue is
proper in this district. 43 U.S.C. § 1349(b)(1); 28 U.S.C. § 1391(e).
The Parties
4.
ExxonMobil is a corporation organized under the laws of the State of New Jersey.
5.
ExxonMobil is a lessee under numerous federal oil and gas leases issued pursuant to the
OCSLA by the former Minerals Management Service (“MMS”), a subagency of the United
States Department of the Interior (“DOI” or “Interior”).
6.
The defendants herein are: (a) Kenneth Salazar, Secretary of the Interior; (b) Robert S.
More, Director, Office of Hearings and Appeals (“OHA”), DOI; and (c) Michael R. Bromwich,
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Director, Bureau of Ocean Energy Management, Regulation and Enforcement (“BOEMRE”),
DOI. All defendants are being sued in their official capacity.
7.
Pursuant to the OCSLA, the DOI is responsible for administering the offshore federal
leasing program. During most of the period relevant to this lawsuit, the former MMS was the
sub-agency within DOI responsible for administering offshore federal leases, which
responsibility included the issuance of lease suspensions and extensions. As of the filing of this
lawsuit, the BOEMRE has assumed the former MMS’s responsibility for administering offshore
federal leases, including the issuance of lease suspensions and extensions. The OHA is an
authorized representative of the Secretary of DOI.
8.
By cover letter dated August 3, 2011, pursuant to Section 23 of the OCSLA, 43 U.S.C.
§ 1349, ExxonMobil provided a “Notice of Violation of the Outer Continental Shelf Lands Act”
to the Defendants, as well as to the Honorable Bobby Jindal, Governor of the State of Louisiana.
A copy of this Notice is attached hereto and made a part hereof as Exhibit 1.
Statutory And Regulatory Authority For Offshore Lease Suspensions
9.
In recognition of the inherent operational challenges to offshore exploration,
development, and production, Congress mandated that DOI promulgate regulations to extend the
term of leases granted pursuant to the OCSLA under certain circumstances.
Specifically,
Congress mandated that DOI promulgate regulations “for the suspension or temporary
prohibition of any operation or activity, including production, pursuant to any lease or permit (A)
at the request of a lessee, in the national interest, to facilitate proper development of a lease or to
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allow for the construction or negotiation for use of transportation facilities ... and for the
extension of any permit or lease affected by [such] suspension....” 43 U.S.C. § 1334(a)(1).
DOI, acting through the MMS, has adopted such “suspension” regulations. The current version
of those regulations are found at 30 C.F.R. §§ 250.168-177.
10.
In Notice to Lessees (“NTL”) No. 2000-G17, the MMS provided guidance on its
administration of requests for a suspension of production (“SOP”) or a suspension of operations
(“SOO”). The NTL stated that MMS “should receive an SOP request approximately 3 weeks
before the lease expiration date.” The NTL also provides a sample “Activity Schedule” to be
submitted in support of an SOP request, which includes the following initial step in the activities
leading to production: “Commence bids and design of platform and facilities.” A copy of NTL
No. 2000-G17 is attached as Exhibit 2.
11.
MMS has routinely published NTLs or promulgated regulations to establish specific
criteria for suspensions under particular factual and technical circumstances. See, e.g., 30 C.F.R.
§ 250.175(b) (suspensions for subsalt hydrocarbon formations), § 250.175(c) (suspensions for
hydrocarbon formations lying below 25,000 feet true vertical depth), NTL No. 2004-G16 (ultra-
deep wells beneath salt sheets). However, MMS has never promulgated specific criteria for
SOPs for deepwater leases with subsea wells that are tied-back to host production facilities.
12.
In accordance with DOI regulations adopted pursuant to the OCSLA, the United States
Geological Survey, the MMS, and the BOEMRE have granted thousands of SOPs for offshore
leases in the Gulf of Mexico. Thousands of such SOPs were granted by the Regional Supervisor
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of Production and Development of MMS’s (now the BOEMRE’s) Gulf of Mexico Region (the
“Regional Supervisor”). The Regional Supervisor had the authority to grant these SOPs based
on a formal delegation of authority within the DOI. See Exhibit 3 (sample delegations of
authority to the Regional Supervisor). In each case in which the Regional Supervisor granted an
SOP, the Regional Supervisor determined that the SOP was in the national interest, and each
SOP had a binding legal effect on both the United States and the federal lessee(s) who owned the
affected lease(s).
Deep Water Exploration And Production
13.
Aware of the high costs and risks of deep water development and of MMS’s limited
success in leasing in waters deeper than 200 meters, in 1995 Congress enacted the Outer
Continental Shelf Deep Water Royalty Relief Act, Pub. L. No. 104-58 §§ 301-306 (codified at
43 U.S.C. § 1337 (a)(1)(H), (a)(3)(B), (a)(3)(C) & Hist. Notes) (“RRA”). As an incentive to
companies to accept the risks of deep water exploration and development, Section 304 of the
RRA guaranteed companies who acquired deep water leases between 1996 and 2000 that, if they
found commercial quantities of oil or gas, they would have the unconditional right to produce a
specified volume of oil or gas free of royalty. After that “royalty suspension” volume had been
produced, further production would be subject to the full rate of royalty. Congress found these
royalty suspension incentives to be in the national interest, because they would increase
investment in the Gulf of Mexico, increase the domestic energy supply, and create jobs. Further,
the royalty suspension incentives were expected to (and did) dramatically increase the
government’s receipt of upfront cash “bonus” payments that oil companies make to acquire new
leases.
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14.
In May 2009, MMS published OCS Report MMS 2009-016, entitled “Deepwater Gulf of
Mexico 2009: Interim Report of 2008 Highlights” (the “2009 OCS Report”). In the 2009 OCS
Report, the MMS described oil and gas operations in water depths exceeding 5,000 feet as being
in “ultra-deep water,” and MMS noted that there had been 15 ultra-deepwater discoveries
associated with the Lower Tertiary trend. 2009 OCS Report p.10. MMS further noted that
“[d]eepwater operations are very expensive and often require significant amounts of time
between initial exploration and first production.” Id. p.13. A copy of the 2009 OCS Report is
attached as Exhibit 4.
15.
The 2009 OCS Report said the following concerning “hubs” or “host facilities” to which
deepwater subsea wells are “tied-back:”
For purposes of this report, deepwater hubs are defined as surface
structures that host production from one or more subsea projects.
These hubs represent the first location where subsea production
comes to the surface, and the hubs are the connection point to the
existing pipeline infrastructure. Note that potential hubs are
moving into deeper waters, expanding the infrastructure and
facilitating additional development in the ultra-deepwater frontier.
2009 OCS Report p.13. Thus, DOI has recognized that deepwater host facilities both “facilitate
development” and function as “transportation facilities.”
16.
Consistent with Congress’ mandate to allow suspensions “in the national interest, to
facilitate proper development of a lease or to allow for the construction or negotiation for use of
transportation facilities,” Interior has routinely granted SOPs to allow lessees time to undertake
activities (e.g., negotiation, fabrication, installation) associated with tying back subsea wells to
deepwater host facilities. Prior to the Interior decision being challenged in this lawsuit, Interior
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had never articulated that a lessee’s ownership or “control” of a deepwater host facility would be
a determining factor in deciding whether to grant an SOP.
Julia Discovery Leases And Operations
17.
ExxonMobil is the Operator of the Walker Ridge Block 627 Unit (a/k/a the “Julia Unit”),
which is comprised of the following five offshore federal leases granted pursuant to the OCSLA
and located in an ultra-deepwater area of the Gulf of Mexico: OCS-G 20351 (Walker Ridge
Block 584), OCS-G 20361 (Walker Ridge Block 627), OCS-G 20362 (Walker Ridge Block 628),
OCS-G 25251 (Walker Ridge Block 540), and OCS-G 25258 (Walker Ridge Block 583).
ExxonMobil owns a fifty percent record title interest in each of the leases within the Julia Unit;
Statoil Gulf of Mexico LLC (“Statoil”) owns the remaining fifty percent record title interest.
18.
The MMS granted leases OCS-G 20351, OCS-G 20361, and OCS-G 20362 (the
“Original Julia Leases”) to ExxonMobil’s corporate predecessor, Mobil Oil Exploration and
Producing Southeast Inc., effective June 1, 1998. The Original Julia Leases were granted
pursuant to Section 304 of the RRA, and therefore those leases include the unconditional right to
produce a specified volume of oil or gas free of royalty. Leases OCS-G 25251 and OCS-G
25258 were granted in 2003, and therefore are not governed by Section 304 of the RRA.
19.
The Julia No. 1 Well was drilled on Walker Ridge Block 627 during the period December
2006 to April 2007 in an approximate water depth of 7100 feet and at a cost exceeding $120
million. The Julia No. 1 Well was drilled to a subsurface depth of 31,800 feet measured depth,
and it encountered more than 300 feet of net pay in the Upper Wilcox and Middle Wilcox
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formations. The primary pay sands are Paleogene-age formations located between 29,094 feet
and 30,302 feet measured depth. Pursuant to 30 C.F.R. § 250.116, MMS deemed the Julia No. 1
Well capable of production in paying quantities by letter dated August 23, 2007.
20.
By letter dated November 7, 2007, ExxonMobil applied to MMS for approval of an
Exploratory, Development and Production Unit comprised of the three Original Julia Leases.
However, following a series of delays in processing ExxonMobil’s application, in March 2008
MMS insisted that any such unit also include Lease OCS-G 25251 (Walker Ridge Block 540),
which was then owned by BP Exploration & Production Inc., and Lease OCS-G 25258 (Walker
Ridge Block 583), which was then owned by BP Exploration & Production Inc. and Devon
Energy Corporation.
21.
With no certainty about approval of a unit, ExxonMobil began to drill the Julia No. 2
Well on Walker Ridge Block 584 on February 17, 2008, conducting drilling operations through
June 16, 2008. The well was drilled to a total depth of 30,955 measured depth at a cost
exceeding $110 million. The Julia No. 2 Well encountered 969 feet of net oil pay in the Upper
Wilcox and Middle Wilcox formations. As with the Julia No. 1 Well, the primary pay sands are
Paleogene-age formations located between 28,015 feet and 30,441 feet measured depth.
Pursuant to 30 C.F.R. § 250.116, MMS deemed the Julia No. 2 Well capable of production in
paying quantities by letter dated October 16, 2008.
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22.
In light of the MMS’s significant delay in approving the Julia Unit, ExxonMobil asked
the MMS to issue an SOP for OCS-G 20361 (Walker Ridge Block 627) by letter dated May 7,
2008, which was the drill site of the Julia No. 1 Well.
23.
After a series of complex transactions, ExxonMobil and Statoil acquired the two
additional leases that MMS stated would be necessary to form a unit at a cost of more than $60
million, only days before the end of the primary term of the Original Julia Leases. By letter to
MMS dated May 16, 2008, ExxonMobil reapplied for a unit, this time including all five blocks in
its proposal. By letter dated May 29, 2008, MMS approved the formation of the five-block Julia
Unit, finding that “formation of this unit will promote and expedite exploration and
development.”
After receiving approval of the Julia Unit, by letter dated June 2, 2008
ExxonMobil withdrew its pending request for an SOP for OCS-G 20361. However, it was clear
at this time that ExxonMobil would likely request an SOP for the entire unit, just as other
operators with similar deepwater discoveries had done.
24.
The discovery identified by the Julia No. 1 and Julia No. 2 Wells is the Julia Discovery, a
Paleogene-age reservoir that is estimated to hold billions of barrels of oil in place. The Julia
Discovery is located in ultra-deepwater in a remote frontier area of the Gulf of Mexico, without
immediately available transportation facilities. The Julia Discovery is one of a series of Lower
Tertiary discoveries that have been made in deepwater Gulf of Mexico in the last ten years. To
date, industry has very little experience with developing Lower Tertiary discoveries in the Gulf
of Mexico.
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25.
For a number of reasons, the development of Lower Tertiary discoveries is inherently
expensive and risky.
See 2009 OCS Report p.58.
Accordingly, it is essential that any
development plan for the Julia Discovery carefully sequence the timing of testing and evaluation
of the reservoir, as well as the timing of developmental drilling, in order to maximize the
ultimate production of hydrocarbons. If ExxonMobil were required to commence drilling a new
well every 180 days after completing operations on a well (as MMS’s regulations would require
in the absence of an SOP), ExxonMobil would have to drill unnecessary and highly expensive
wells. In recognition of the technological challenges to developing Lower Tertiary discoveries
such as the Julia Discovery, the MMS has repeatedly granted suspensions to offshore federal
lessees to allow for a reasonable and properly sequenced development plan.
26.
The development scenarios for the Julia Discovery are either (a) a tie-back to the Jack-St.
Malo Host (“JSM Host”) being planned to be installed in Walker Ridge Block 718, located
approximately eight miles from the Julia Discovery; or (b) a stand-alone development, which
would involve the construction of a host facility within the Julia Unit. Each development
scenario requires the expenditure of more than $1 billion.
27.
Based on the technical challenges involved in producing the Julia Discovery,
ExxonMobil determined that the most effective development strategy would be to commence
with the drilling of three to six development wells that would tie-back to the JSM Host. A larger
second stage of operations would follow using the data and information developed from the first
set of development wells. The first stage of this development approach, projected to cost well in
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excess of $1 billion, would both (i) lead to the earliest production of oil and (ii) optimize the
design of future production phases. As ExxonMobil expressly communicated to the MMS, this
is the same type of development strategy that MMS approved for other Lower Tertiary
discoveries, including the development of the Cascade and Chinook fields and the Jack and St.
Malo fields. ExxonMobil’s proposed tie-back scenario would achieve first production of oil
approximately two to three years earlier than the alternative “stand-alone” development scenario.
The Jack-St. Malo Host Facility
28.
The JSM Host is to be located on Walker Ridge Block 718, in proximity with the Jack
Unit (Walker Ridge Block 759 Unit) and the St. Malo Unit (Walker Ridge Block 678 Unit).
MMS has granted unit SOPs to both the Jack Unit and the St. Malo Unit in order to allow for the
construction of the JSM Host.
29.
The proposed JSM Host is to be operated by Chevron. However, because ExxonMobil
and Statoil own partial interests in the St. Malo Unit, and because Statoil is a partial owner in the
Jack Unit, both ExxonMobil and Statoil participate in owners’ meetings concerning the JSM
Host. Under the commercial agreement framework negotiated and ultimately executed by the
Jack Unit, St. Malo Unit, and Julia Unit owners, the Julia Unit owners (i.e., ExxonMobil and
Statoil) contributed to Front End Engineering and Design costs and paid millions of dollars for
the construction of the JSM Host. These investments give the Julia Unit owners the right to own
twenty percent of the JSM Host, which is larger than the ownership shares of some of the other
owners of the JSM Host.
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30.
The JSM Host is the type of facility that the 2009 OCS Report recognizes is essential
both for transportation and to facilitate development of subsea tie-backs in remote deepwater
areas of the Gulf of Mexico. MMS has granted multiple SOPs for the Jack Unit and the St. Malo
Unit to allow for time necessary (inter alia) to design, fabricate, and install the JSM Host.
Proceedings Before the DOI
31.
Consistent with the suggestion of MMS personnel that ExxonMobil apply for an SOP for
the Julia Unit, ExxonMobil requested that MMS grant an SOP for the Julia Unit by letter dated
October 21, 2008. In support of its SOP application, ExxonMobil proposed an Activity Schedule
that called for a sequence of development operations with a tie-back to the JSM Host.
ExxonMobil was aware that MMS had approved suspensions for other deepwater discoveries
based on similar proposals for development involving a tie-back to a host facility (including
suspensions granted for the Jack Unit in 2006 and the St. Malo Unit in 2007). Pursuant to
meetings and communications with MMS representatives, ExxonMobil supplemented its original
SOP request with numerous emails and letters which consistently demonstrated ExxonMobil’s
commitment to produce the Julia Discovery. ExxonMobil repeatedly made it clear that, if a tie-
back to the JSM Host was deemed insufficient or otherwise was not possible, ExxonMobil was
committed to development of the Julia Discovery based on a more expensive “stand-alone”
alternative.
32.
In a letter dated February 10, 2009, the Regional Supervisor denied ExxonMobil’s
request for an SOP, concluding that ExxonMobil had not demonstrated a “commitment to
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production” as required by 30 C.F.R. § 250.171. In denying ExxonMobil’s request for an SOP,
the Regional Supervisor relied on a series of four “contingencies” that he determined prevented
ExxonMobil from demonstrating a “commitment to production” as required by MMS
regulations:
Minerals Management Service (MMS) concludes that your
purported commitment is not based on activities within your
control. This asserted commitment is contingent upon 1) the
potential fabrication and installation of a facility by another
operator for another field, 2) a proposed facility of which you are
not a party and have no control, 3) the future success of obtaining a
contract with the operator of the proposed facility in order to tie-
back WR 627 Unit wells, and 4) a proposed facility that would not
likely be designed to handle WR 627 production upon startup.
In citing these four “contingencies,” MMS employed standards and criteria that are not set forth
in the OCSLA, MMS regulations, any published MMS guidance, or any publicly available MMS
decision responding to an SOP request. A copy of this letter is attached hereto and made a part
hereof as Exhibit 5.
33.
In accordance with MMS’s appeal regulations, ExxonMobil used the sixty-day
administrative appeal period to attempt to resolve the dispute informally. See 30 C.F.R. § 290.6.
During that period, ExxonMobil provided additional information supporting its commitment to
production, including information concerning the progress of its negotiations to tie-back Julia
Discovery wells to the JSM Host, as well as information relevant to ExxonMobil’s alternate
commitment to a “stand-alone” development. In addition, in correspondence, both ExxonMobil
and Chevron (the intended operator of the JSM Host) verified to the MMS that, directly contrary
to MMS’s February 10, 2009 letter, the JSM Host in fact was being designed to accommodate
Julia Unit production.
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34.
In a letter dated April 9, 2009, the Regional Director of the MMS Gulf of Mexico Region
affirmed the Regional Supervisor’s original denial of ExxonMobil’s SOP request. MMS did not
change any of its original findings. A copy of this letter is attached hereto and made a part
hereof as Exhibit 6. The February 10, 2009 and April 9, 2009 letters are collectively referred to
as the “MMS Decision.”
35.
By the time of the MMS Decision, ExxonMobil and its co-venturers had spent more than
three hundred million dollars on the Julia Discovery and had drilled two producible wells. As
explained below, the MMS Decision is believed to be the first instance in which Interior denied
an SOP for a deep water unit.
Moreover, not once during the many meetings and
communications between ExxonMobil and the MMS concerning ExxonMobil’s SOP application
did the MMS clearly specify what ExxonMobil needed to do to receive approval of the requested
SOP. If upheld, the effect of the MMS Decision denying ExxonMobil’s SOP request would be
the cancelation of the three Original Julia Leases.
36.
Pursuant to 30 C.F.R. Part 290 Subpart A and 43 C.F.R. § 4.21, ExxonMobil timely
appealed the MMS Decision to the Interior Board of Land Appeals (“IBLA”). In support of its
appeal, ExxonMobil demonstrated that the MMS Decision contradicted the OCSLA and MMS’s
regulations and violated numerous principles of administrative law. ExxonMobil proved that
MMS had granted SOPs for dozens of other deepwater subsea tie-back developments
notwithstanding the existence of the four “contingencies” that MMS relied upon in denying
ExxonMobil’s SOP application. ExxonMobil further demonstrated that its “commitment to
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production” was plainly stronger than the “commitment” of other operators to whom MMS had
granted numerous SOPs. ExxonMobil also demonstrated that the MMS decision was based on
unsupported conclusions about the ownership and “control” of the JSM Host. Thus, MMS’s
denial of ExxonMobil’s SOP request violated the governing statute and regulations, retroactively
changed the applicable legal standards and criteria, departed from established agency practice,
was inconsistent with MMS’s treatment of SOP requests for deepwater subsea tie-back
developments, and was premised on conclusions concerning the JSM Host that had no record
support.
37.
Notwithstanding the MMS Decision, ExxonMobil continued its negotiations concerning
the JSM Host during the pendency of the IBLA appeal.
For informational purposes,
ExxonMobil apprised the Board of developments in those negotiations, including by informing
the Board that agreement had been reached to use the JSM Host for Julia Unit production.
38.
On December 22, 2009, the IBLA granted ExxonMobil’s appeal, reversing MMS’s denial
of the SOP request and finding that the MMS Decision was legally deficient on virtually all
counts (the “IBLA Decision”). The IBLA found that MMS had misinterpreted the OCSLA and
MMS’s own regulations; that MMS’s nonexistent standard for “commitment to production”
deprived its decision of a rational basis; that MMS’s insistence that ExxonMobil’s application
presented a “unique combination” of factors did not withstand scrutiny; and that MMS had
unlawfully treated ExxonMobil’s SOP application differently than it had consistently treated
other similar applications. A copy of the IBLA Decision is attached hereto and made a part
hereof as Exhibit 7.
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39.
On February 22, 2010, MMS filed a motion requesting that the Director of the DOI
Office of Hearings and Appeals (“OHA”) assume jurisdiction, review portions of the IBLA
Decision, and direct reconsideration of portions of the IBLA Decision.
40.
On May 31, 2011, the Director of the OHA issued a decision (the “Interior Decision”)
assuming jurisdiction, reversing the IBLA Decision, and affirming the MMS Decision.
Therefore, the Interior Decision upheld MMS’s denial of ExxonMobil’s request for an SOP for
the Julia Unit. Both the MMS Decision and the Interior Decision retroactively apply legal
interpretations, standards, and criteria for administering an SOP application that the agency had
never before applied and had never before articulated to the regulated community. A copy of the
Interior Decision is attached hereto and made a part hereof as Exhibit 8.
41.
The Interior Decision held that (inter alia): (a) ExxonMobil did not demonstrate a
“commitment to production” as required by MMS regulations; (b) in the MMS Decision
(rendered in 2009 months after ExxonMobil submitted its SOP application in 2008), MMS
provided ExxonMobil adequate notice of the agency’s standards for granting an SOP; (c) the
JSM Host will not serve a “transportation” function and instead is a “production facility,” and
neither OCSLA nor the MMS regulations provide for an SOP for construction or negotiation for
use of a “production facility;” (d) an SOP cannot be granted to allow the lessee time to tie-back
to a deepwater host facility unless the lessee either planned to build its own host facility or has
executed a contract with the owner of the host facility before lease expiration; (e) the thousands
of SOPs granted by the MMS before denying ExxonMobil’s request for an SOP were not issued
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by an official with authority to bind the agency and therefore are not precedential, binding, or
otherwise relevant; (f) the IBLA failed to consider whether an SOP for the Julia Discovery is in
“the national interest.”
42.
The Interior Decision is the first time that Interior has determined that a “production
facility” will “facilitate development” when the lessee owns the “production facility,” but will
not “facilitate development” when the lessee does not own the “production facility.” 42 OHA at
300-302. The Interior Decision is the first time that Interior has determined that “[l]essees are
expected to conclude arrangements for the construction of production facilities before the end of
the lease term, even if they are still negotiating for the use of transportation facilities.” 42 OHA
at 302. While the Interior Decision found that the JSM Host will be used “to develop the Jack
and St. Malo Fields,” 42 OHA at 279 n.20, the Interior Decision also found that the same JSM
Host does not satisfy the OCSLA’s “facilitate development” standard for purposes of the Julia
Unit.
43.
The Interior Decision is final agency action subject to judicial review. If upheld, the
effect of the Interior Decision would be the cancelation of the three Original Julia Leases. Thus,
Interior would achieve cancelation of the Original Julia Leases by retroactively applying new
legal standards that differed from the standards that Interior had previously applied to SOP
applications, and without ExxonMobil having had prior notice of the new legal standards.
44.
As ExxonMobil demonstrated in the administrative proceedings below, Interior’s
economic incentive to cancel the Original Julia Leases is clear. Cancelation of the Original Julia
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Leases would enable Interior to grant new leases on Walker Ridge Blocks 584, 627, and 628.
Because producible wells have been drilled on Walker Ridge Blocks 584 and 627, the lease
bonuses to be paid to Interior for new leases of those blocks would be very high. Moreover, new
leases of Walker Ridge Blocks 584, 627, and 628 would not be subject to the mandatory royalty
relief that applies to the Original Julia Leases under Section 304 of the RRA. Accordingly, by
enabling Interior to grant new leases on blocks with proven reserves, cancelation of the Original
Julia Leases would give Interior the opportunity to collect millions of dollars in bonuses and
royalties that it otherwise would not be entitled to collect if the Original Julia Leases are not
canceled.
Established DOI Practices Concerning SOPs In The Gulf Of Mexico
45.
During the period from 1994 through 2008, MMS granted more than 2,200 requests for
SOPs for individual leases in the Gulf of Mexico and denied only 33 such requests. During this
same period, MMS granted 101 unit SOPs, while denying only two unit SOP requests. In every
case in which the MMS granted an SOP, MMS determined that the SOP was in the national
interest.
MMS’s years of practice in interpreting and applying the OCSLA and related
suspension regulations is the clearest indication of the meaning of the agency’s requirements for
granting an SOP.
46.
The denial of ExxonMobil’s request for an SOP for the Julia Unit is one of the only two
instances in which MMS denied a request for a unit SOP. MMS’s only other denial (dated
February 24, 1999) involved a shallow water unit (West Delta Block 30) for which the operator
had conceded that it had no intention to return the unit to production. Thus, during the fifteen
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years (and likely longer) before MMS denied ExxonMobil’s request for an SOP for the Julia
Unit, MMS had not denied a single request for an SOP for a deepwater unit, nor had MMS
denied a unit SOP without the unit operator first conceding that it would not produce from the
unit. Thus, the denial of ExxonMobil’s request for an SOP for the Julia Unit is unprecedented.
47.
Before denying ExxonMobil’s request for an SOP, MMS had granted SOPs for more than
fifty deepwater subsea tie-back developments (i.e., developments in which subsea wells on the
lease or unit for which the SOP was granted were to be tied-back to a host facility). This
included SOPs in situations involving the following circumstances:
(a) the lessee applying for the SOP had not yet decided on a development concept;
(b) the lessee had not yet selected a host facility;
(c) fabrication of the host facility had not yet commenced;
(d) the host facility had not yet been installed;
(e) the lessee applying for the SOP changed the development concept that had been the
basis on which an earlier SOP had been granted;
(f) the lessee applying for the SOP changed the host facility that had been the basis on
which an earlier SOP had been granted;
(g) ownership of the host facility differed from ownership of the lease/unit for which the
SOP was requested;
(h) the lessee applying for the SOP had not yet negotiated a production handling
agreement with the owner of the host facility;
(i) the lessee applying for the SOP did not “control” the host facility;
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(j) commencement of production would not occur for more than five years after an SOP
was granted.
48.
Based on the public record, the Interior Decision is the only time that Interior has denied
an SOP for a Lower Tertiary discovery in the Gulf of Mexico. During the period 2006-2008,
MMS granted SOPs for the following Lower Tertiary discoveries, all of which (like the Julia
Discovery) are located in deepwater areas of the Gulf of Mexico: Cascade (Walker Ridge Block
206 Unit), Chinook (Walker Ridge Block 425 Unit), Jack (Walker Ridge Block 759 Unit), St.
Malo (Walker Ridge Block 678 Unit), Great White (Alaminos Canyon Block 857 Unit), and
Tobago (Alaminos Canyon Block 859 Unit). These SOPs are consistent with MMS’s public
recognition that “the Lower Tertiary trend is in very deep water, has target depths below 25,000
ft (7,620 m), has the potential for high-pressure/high-temperature conditions, and many of the
discoveries underlie a thick salt layer, all of which complicate drilling and development
operations.” 2009 OCS Report p.58.
49.
MMS has often granted a series of sequential SOPs for a single lease or unit, resulting in
delays in the commencement of production for periods much longer than five years after the
initial SOP was granted. For example, MMS granted eight SOPs for the Telemark development
(OCS-G 13198 and OCS-G 13199), approving six changes in the proposed development system
and authorizing the commencement of production more than nineteen years after the leases were
granted. Similarly, MMS granted nine SOPs for the King Kong development (OCS-G 5097,
OCS-G 5922, OCS-G 5923), involving at least four changes to the proposed development system
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and the commencement of production nearly ten years after the first SOP was granted and nearly
twenty years after lease OCS-G 5097 was granted.
50.
It is not possible to determine from MMS/BOEMRE’s records whether a given operator
does or does not “control” the ownership of a given lease, unit, or host facility, in situations
where there are co-owners. It is also not possible to determine from MMS/BOEMRE’s records
the precise ownership of the host facility by the host facility operator.
This is because
MMS/BOEMRE records typically do not contain information reflecting the private contractual
arrangements among co-owners of a lease, unit, or host facility. A party’s status as “designated
operator” of a lease or host facility does not conclusively establish that party’s “control” over the
host facility.
51.
The record reflects that, after the MMS Decision was rendered, the former MMS
Regional Supervisor spent approximately three hundred hours reviewing thousands of pages of
MMS records dating back to 1979 pertaining to SOPs for deepwater leases. Based on this
research and his more than thirty-five years experience working for the MMS (including being
Regional Supervisor during the period 1996-2007), the former MMS Regional Supervisor
testified as follows:
After having reviewed the lease files for hundreds of deep water
leases, I could find no situation in which the MMS had denied a
request for an SOP under circumstances similar to those that
ExxonMobil presented in support of its request for an SOP for the
Walker Ridge Block 627 Unit. To the contrary, I found that the
MMS had consistently granted SOPs under circumstances similar
to those presented by ExxonMobil’s application for an SOP, or
under circumstances in which the lessee requesting the SOP had
not demonstrated as firm a “commitment to production” as
ExxonMobil has demonstrated in this matter. Based on my
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experience and research, I can see no defensible basis for the MMS
to deny ExxonMobil’s request for an SOP fore [sic] the Walker
Ridge Block 627 Unit.
Affidavit of J. Michael Melancon.
52.
ExxonMobil seeks reversal of the Interior Decision on the following grounds.
Count I
53.
The allegations of paragraphs 1 - 52 are incorporated by reference.
54.
ExxonMobil based its request for an SOP on the very reasons that Congress directed DOI
to grant SOPs – i.e., “in the national interest, to facilitate development of a lease or to allow for
the construction or negotiation for use of transportation facilities.” 43 U.S.C. § 1334(a)(1)(A).
In support of its request, ExxonMobil introduced uncontradicted evidence that an SOP would
both “facilitate development” of the Julia Unit and would “allow for the construction or
negotiation for use of transportation facilities.” The Interior Decision erroneously interpreted the
applicable OCSLA provisions (including the terms “development,” “transportation,” and
“national interest”) and ignored uncontradicted record evidence that supported ExxonMobil’s
satisfaction of these statutory standards. Accordingly, the Interior Decision is in excess of
statutory authority or limitation, and is arbitrary, capricious, an abuse of discretion, or otherwise
contrary to law.
Count II
55.
The allegations of paragraphs 1 - 52 are incorporated by reference.
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56.
The Interior Decision substantially altered the agency’s well-established regulatory
interpretation and retroactively applied new standards and criteria for obtaining an SOP.
Accordingly, the Interior Decision applied a new substantive rule that Interior adopted in
violation of the notice and comment rulemaking requirements of the APA.
Count III
57.
The allegations of paragraphs 1 - 52 are incorporated by reference.
58.
Alternatively, due to the substantial adverse effects upon ExxonMobil resulting from the
Interior Decision’s retroactive application of newly announced standards for obtaining an SOP,
Interior’s use of an adjudication to formulate and retroactively impose its new standards is
arbitrary, capricious, an abuse of discretion, or otherwise contrary to law.
Count IV
59.
The allegations of paragraphs 1 - 52 are incorporated by reference.
60.
Interior was required to articulate with ascertainable certainty the legal standards for
obtaining an SOP before ExxonMobil submitted its SOP application. However, in both the
MMS Decision and the Interior Decision, Interior denied ExxonMobil’s request for an SOP, and
would thereby cancel the Original Julia Leases, without first giving ExxonMobil fair notice of
the standards and criteria that it employed in making its decision. Accordingly, the Interior
Decision is arbitrary, capricious, an abuse of discretion, or otherwise contrary to law.
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Count V
61.
The allegations of paragraphs 1 - 52 are incorporated by reference.
62.
By denying ExxonMobil’s request for an SOP and attempting to cancel the Original Julia
Leases, Interior treated ExxonMobil’s request differently than it had consistently treated other
similar requests for SOPs. Accordingly, the Interior Decision is arbitrary, capricious, an abuse of
discretion, or otherwise contrary to law.
Count VI
63.
The allegations of paragraphs 1 - 52 are incorporated by reference.
64.
By denying ExxonMobil’s request for an SOP and attempting to cancel the Original Julia
Leases, the Interior Decision departs from well-established agency rules and practices. Interior’s
retroactive change in its established rules and practices is arbitrary, capricious, an abuse of
discretion, or otherwise contrary to law.
Count VII
65.
The allegations of paragraphs 1 - 52 are incorporated by reference.
66.
By denying ExxonMobil’s request for an SOP and attempting to cancel the Original Julia
Leases, the Interior Decision failed to consider all relevant factors, ignored uncontradicted
evidence in the administrative record, lacked a rational connection with the facts presented, and
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lacked a rational basis. Further, the Interior Decision is internally inconsistent in numerous
respects. Accordingly, the Interior Decision is arbitrary, capricious, an abuse of discretion, or
otherwise contrary to law.
Count VIII
67.
The allegations of paragraphs 1 - 52 are incorporated by reference.
68.
The Interior Decision contradicts Interior’s own regulations. Accordingly, the Interior
Decision is arbitrary, capricious, an abuse of discretion, or otherwise contrary to law.
Count IX
69.
The allegations of paragraphs 1 - 52 are incorporated by reference.
70.
If the Interior Decision is upheld under Interior’s regulations, then those regulations are
themselves in excess of statutory authority or limitation and are arbitrary, capricious, an abuse of
discretion, or otherwise contrary to law.
Count X
71.
The allegations of paragraphs 1 - 52 are incorporated by reference.
72.
The Interior Decision is otherwise arbitrary, capricious, an abuse of discretion, or
otherwise contrary to law.
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Count XI
73.
The allegations of paragraphs 1- 52 are incorporated by reference.
74.
The Interior Decision is contrary to constitutional right, power, privilege, or immunity.
Without limitation, the Interior Decision deprives ExxonMobil of property without due process
of law, and it denies ExxonMobil equal protection of the laws.
Count XII
75.
The allegations of paragraphs 1 - 52 are incorporated by reference.
76.
The arguments asserted by ExxonMobil and Statoil in support of their appeals in IBLA-
2009-190-OCS, IBLA-2009-188-OCS, and DIR-2010-0027 are incorporated by reference, and,
for the reasons set forth therein, the Interior Decision is in excess of statutory authority or
limitation, and is arbitrary, capricious, an abuse of discretion, or otherwise contrary to law.
Prayer For Relief
WHEREFORE, ExxonMobil prays that this Court:
(a)
Render a judgment setting aside the Interior Decision on the grounds that it is in
excess of statutory authority or limitation and/or is arbitrary, capricious, an abuse
of discretion, or otherwise contrary to law;
(b)
Enter an order enjoining the BOEMRE and/or the DOI from enforcing the Interior
Decision;
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(c)
Enter an order requiring the BOEMRE to grant a suspension of production for
leases OCS-G 20351, OCS-G 20361, OCS-G 20362, OCS-G 25251, and OCS-G
25258, effective October 21, 2008 (the date ExxonMobil requested the SOP for
the Julia Unit), and declaring that such leases and the Julia Unit are fully in force
and effect;
(d)
Award ExxonMobil its costs of litigation, including attorney and expert witness
fees;
(e)
Grant such other relief as may be appropriate under the circumstances.
Respectfully submitted,
/s/ Jonathan A. Hunter
Jonathan A. Hunter, T.A. (Bar #18619)
Shannon S. Holtzman (Bar #19933)
Lesley Pietras (Bar #33628)
LISKOW & LEWIS
One Shell Square
701 Poydras Street, Suite 5000
New Orleans, Louisiana 70139-5099
Telephone: (504) 581-7979
Attorneys for Exxon Mobil Corporation
DEFENDANTS WILL BE
SERVED PURSUANT TO
FEDERAL RULE OF CIVIL
PROCEDURE 4(i)
1044162_1.Docx
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