Exxon Settles Lawsuit Over Gulf of Mexico Offshore Oil Lease Against U.S.

Exxon Mobil Corp. (XOM), the largest publicly traded oil company, settled its lawsuit against U.S. Interior Secretary Kenneth Salazar over the government’s decision to cancel offshore leases that may yield “billions of barrels of oil.”

The accord “will allow ExxonMobil to develop this very large, but technically challenging, resource as quickly as possible using a phased approach,” Patrick McGinn, a spokesman for Irving, Texas-based Exxon, said in an e-mail yesterday.

Exxon sued Aug. 12 over a ruling by the department that canceled Gulf of Mexico leases for the so-called Julia Unit. The company and the government entered into settlement agreement on Dec. 30, according to a filing yesterday in U.S. District Court in Lake Charles, Louisiana.

Exxon said in its complaint that it sought a suspension for its Julia leases in 2008 because of drilling complexity. It cited federal regulations that allow oil oil producers to suspend production in their fields, partly “to facilitate proper development of a lease.”

The Interior Department denied the request in 2009, stating that the company“had not demonstrated a commitment to production” according to court papers. Unsuccessful appeals followed.

Suspension of Production

As part of the settlement, the Interior Department granted a suspension of production for the leases from Dec. 13, 2008, to Oct. 31, 2013. The department will grant a second suspension until Aug. 31, 2014, if Exxon and Statoil ASA (STL), a partner in Exxon’s Julia fields, remains in compliance with the terms of the agreement and takes certain steps toward production, according to court documents.

Exxon and Statoil agreed to pay a yearly fee on the original leases of $650 per acre until 87.5 million barrels of oil are produced from the fields. The first fee will be owed for 2011, according to court documents. The minimum royalty rate for the leases was increased to $11 per acre and the yearly rental rate increased to $16 an acre.

“The Julia project will play an important role in meeting America’s energy demand,” McGinn said in the e-mail. “The initial phase of the project is expected to produce more than 175 million barrels of oil through six production wells.”

Melissa Schwartz, a spokeswoman for the Interior Department, said in an e-mailed statement that the proposed settlement affirms the regulatory process, “provides incentives for timely and thorough development of the leases, and secures a fair return on those resources to the U.S. Treasury.”

The case is Exxon Mobil Corp. v. Kenneth Salazar, 11- CV-1474, U.S. District Court, Western District of Louisiana (Lake Charles).

To contact the reporter on this story: Mark Chediak in San Francisco at mchediak@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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