ExxonMobil will be allowed to continue exploring its Julia find in the Gulf of Mexico's Walker Ridge, but will pay the US additional royalties and fees and agree to start production by 2016, according to a settlement reached between the company and the government.
ExxonMobil and Statoil, which each own 50% of the leases, sued the Interior Department in August over the department's denial of extensions of three leases in the ultra-deepwater Walker Ridge section.
The companies had argued that the former Minerals Management Service improperly canceled the three 10-year leases after they had expired even though wells had been drilled and operator ExxonMobil was acting on a plan to produce hydrocarbons from the leases.
The settlement, filed late Friday, extends the leases in several stages, with production required by June 2016.
"The settlement will allow ExxonMobil to develop this very large, but technically challenging, resource as quickly as possible using a phased approach," ExxonMobil spokesman J. Patrick McGinn said in a statement on Monday. "The Julia project will play an important role in meeting America's energy demand. The initial phase of the project is expected to produce more than 175 million barrels of oil through six production wells."
Under the terms of the settlement, filed in the US District Court for the Western District of Louisiana, the two companies agreed to pay the US "production incentive fee" of $11.2 million per year until the three original Julia leases reach 87.5 million barrels of total production. The original leases had been granted under the Royalty Relief Act, which waived the government's right to collect royalties on oil produced from the leases until a predetermined production level was reached.
The companies also agreed to a higher 18.75% royalty rate instead of the original 12.5% royalty rate. The companies also agreed to boost the rent on the leases to $11/acre from the $7.50/acre when the leases were first issued.
"The proposed settlement ensures the preservation of the important regulatory progress represented by the May 31, 2011, decision of the Director of the Office of Hearings and Appeals (OHA) that is challenged in the litigation, provides incentives for timely and thorough development of the leases, and secures a fair return on those resources to the US Treasury," Interior Department spokesman Melissa Schwartz said in a statement on Monday.
The lawsuit had argued that MMS, improperly applied its regulations for lease extensions, known as "suspension of production," in the case of the three Walker Ridge leases. The companies says that MMS had granted hundreds of similar requests before denying ExxonMobil's.
The Julia find consists of three leases granted by MMS in 1998 and two leases granted in 2003. ExxonMobil said it drilled two wells at a cost of hundreds of millions of dollars. Since the fields were far from any existing pipelines or production facilities, ExxonMobil was negotiating with Chevron to tie the Julia wells into a facility Chevron was planning for its Jack and St. Malo finds, also in the Walker Ridge.
ExxonMobil asked for lease extensions, saying that its plans to tie back the wells to the Chevron facility qualified as a "commitment to production" required by MMS under its rules for an extension.
But the MMS denied the application, saying that ExxonMobil did not own the Chevron facility and had no control over it.
