ExxonMobil Corp. has settled a lawsuit against the Department of Interior for the government’s decision to cancel Gulf of Mexico (GOM) offshore leases that could yield “billions of barrels of oil.”

The parties came to terms on Dec. 30 and the terms of the settlement were entered Friday in U.S. District Court for the Western District of Louisiana, Lake Charles Division (ExxonMobil Corp. v. Kenneth Salazar, Secretary, U.S. Department of Interior, et al., No. 2:11-cv-01474-PM-KK).

ExxonMobil filed the lawsuit in August after Interior canceled three of five leases in the Julia prospect (see Daily GPI, Aug. 19, 2011). Statoil ASA, ExxonMobil’s partner in the Julia unit, had filed a companion lawsuit.

In 2008 ExxonMobil asked Interior for permission to suspend production in the Julia fields, which is allowed and often routinely granted, under federal regulations. The suspension was requested, ExxonMobil said at the time, “to facilitate proper development of a lease.” Interior denied the request in 2009 because it said ExxonMobil “had not demonstrated a commitment to production.”

In Interior’s denying the company’s request to develop the lease, ExxonMobil said it had been deprived “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.”

Under the settlement Interior granted the producer’s request to suspend oil and gas output to Oct. 31, 2013. A second suspension is to be granted until Aug. 31, 2014 if ExxonMobil and Statoil comply with the agreement and take certain steps toward production. The settlement requires the producers to pay a yearly fee on the original leases of $650/acre until 87.5 million boe of oil and gas are produced form the fields, with the first fee owed for 2011.

Under the settlement ExxonMobil will be allowed “to develop this very large, but technically challenging, resource as quickly as possible using a phased approach,” an ExxonMobil spokesman said. The initial phase of the project is expected to produce more than 175 million boe from six wells.

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