Regulating the Profits Away

ExxonMobil Sues Obama Administration for Canceling Deepwater Well Worth ‘Billions of Barrels of Oil’

Friday, August 26, 2011
By Matt Cover

(CNSNews.com) – ExxonMobil, the world’s largest energy company, filed a lawsuit against the federal government for canceling an oil-drilling lease in the Gulf of Mexico that held “billions of barrels of oil,” according to the company.

In the suit, filed Aug. 12 in federal court in Louisiana against Interior Department Secretary Ken Salazar and related parties, Exxon alleges that the Interior Department made an “arbitrary, capricious” decision in canceling the deepwater leases, arguing that the government’s action “deprives ExxonMobil of property without due process of law.” ExxonMobil lawsuit filing..pdf

At issue is an ExxonMobil project in a part of the Gulf of Mexico known as the Julia Field, which the company estimates holds “billions of barrels of oil.” ExxonMobil was in the process of connecting the wells drilled in the Julia Field to existing oil platforms in a nearby part of the Gulf when the Bureau of Ocean Energy Management, Regulation, and Enforcement (BOEMRE) canceled the leases, accusing ExxonMobil in 2009 of not having a “commitment to production.”

ExxonMobil had asked for a Suspension of Production (SOP) allowance in 2008 in order to have enough time to tie the wells in the Julia Field to the nearby production facility, something it said the government normally allows.

However, ExxonMobil contends that in arguing it did not show a “commitment to production,” BOEMRE used criteria it had never applied before, and that did not exist anywhere in federal regulations.

“In denying ExxonMobil’s request for an SOP, the [BOEMRE] 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,” the company explained in its court filing. (MMS is the acronym for Minerals Management Service, the forerunner of BOEMRE in the Department of Interior.)

“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,” stated ExxonMobil in its filing.

The OCSLA is the Outer Continental Shelf Lands Act, the federal law that governs drilling in the Gulf of Mexico and other off-shore areas. The government denied ExxonMobil’s request because the nearby production facility the company planned to use is operated by Chevron, not ExxonMobil, prompting BOEMRE to say that ExxonMobil could not demonstrate a “commitment to production” because it did not own or control the facility ExxonMobil had said it planned to use.

However, ExxonMobil pointed out that Chevron had made plans to accommodate ExxonMobil’s new wells, and that in the event those plans did not work out, the oil company was prepared to build a separate production facility specifically for its Julia Fields leases.

The company also noted that the government had approved other deepwater SOP requests and had never made an issue of which company actually operated a production rig that another company’s well was being tied to.

Further, ExxonMobil said that BOEMRE (then the Minerals Management Service) never told the company what it needed to do to show a commitment to production, despite the fact that the company had already spent nearly $300 million drilling two oil wells.

“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,” Exxon explained in its complaint. “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.”

Because of this, Exxon accused the government of cancelling its Julia Field lease in an attempt to gain more revenue by selling the lease a second time.

“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.”

The Interior Department has not responded to the lawsuit, but has 60 days from the Aug. 12 filing to do so.

ExxonMobil employs more than 82,000 people and is the largest publicly traded oil and gas company in the world. In 2010, the company paid $21.6 billion in income taxes, which translates into a tax rate of 45 percent.