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Thursday, August 18, 2011

ExxonMobil Seeks to Retain Julia Leases in GOM

- ExxonMobil Seeks to Retain Julia Leases in GOM

Thursday, August 18, 2011
Rigzone Staff
by Karen Boman

ExxonMobil has filed a lawsuit against the U.S. Department of the Interior (DOI) to retain three federal offshore leases that are part of the Julia unit in the deepwater Gulf of Mexico.

The company filed the suit in the U.S. District Court in Lake Charles, La., stating that DOI has retroactively applied new legal standards in canceling the leases, departed from established agency practices, and singled out ExxonMobil for unprecedented adverse treatment. ExxonMobil also said the cancellation would prevent it from producing a reservoir believed to hold billions of barrels of oil.

ExxonMobil is operator of the Julia unit on Walker Ridge Block 627, which is comprised of Walker Ridge Blocks 584, 627, 628, 540 and 583; the first three are the original leases issued to ExxonMobil’s predecessor, Mobil Exploration and Production in 1998. The two additional leases were acquired by ExxonMobil and partner Statoil at the request of the U.S. Minerals Management Services (MMS) when it applied to develop the Julia discovery. ExxonMobil holds a 50 percent title interest in each of the leases within the Julia unit. Statoil holds the remaining 50 percent interest. ExxonMobil and Statoil announced the Julia discovery in the deepwater Gulf in January 2008.

The company contends that it is allowed under the law to suspend production in their fields in recognition of the time and planning needed to tie back subsea wells to deepwater host facilities. ExxonMobil had originally filed for a suspension of production (SOP) order for the three original Julia leases in 2008, saying it needed time to determine its drilling and development program for the Julia discovery, one of several pre-Tertiary deepwater discoveries made over the past decade.

MMS told ExxonMobil it needed to include Walker Ridge Blocks 540 and 583 to promote an expedite exploration and development. The company withdrew its original SOP request with the intent of submitted a new SOP for the entire Julia unit with the additional leases. ExxonMobil and Statoil acquired the two additional leases at a cost of over $60 million days before the end of the primary term of the original Julia leases. In the meantime, it continued drilling and development plans, investing $300 million dollars on the Julia discovery and drilling two producible wells. However, MMS denied the SOP request in 2009, saying it failed to show commitment to development the discovery.

ExxonMobil said MMS did not clearly specify what ExxonMobil needed to do to receive approval of the requested SOP and supplemented its original SOP request with numerous emails and letters demonstrating its commitment to produce the Julia discovery. ExxonMobil said it also made clear that if a plan to tie-back Julia to the Jack-St. Malo host facility was deemed insufficient that it would develop the Julia discovery as a standalone alternative.

The company said that MMS had granted more than 2,200 requests for SOPs for individual leases in the Gulf from 1994 through 2008 and denied only 33 such requests, and had often granted a series of sequential SOPs for a single lease or unit, resulting in delays in production commencement for periods of longer than five years after the initial SOP was granted. ExxonMobil noted that cancellation of the leases would give DOIG the opportunity to collect millions of dollars in bonuses and royalties that it would be entitled to collect if the original Julia leases are not canceled.

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