Ending a long-running dispute between Florida’s state government and petroleum companies with production interests offshore Florida, President Bush on Wednesday announced that the U.S. government will buy back most of the oil and natural gas leases in the Destin Dome area offshore Pensacola, FL, as well as drilling rights in the Florida Everglades ecosystem. While the agreements will preserve some of Florida’s most significant natural treasures, major gas producers said the decision to remove these areas from exploration and development will be a “major hit to natural gas supply” for the country.

The agreements, which were reached between the Departments of Interior and Justice and private energy companies, come almost a year after Florida Gov. Jeb Bush signaled that he would step up efforts to lobby his brother’s administration to deny drilling permits in the Destin Dome gas field (see Daily GPI, Aug. 23, 2001). Last summer, the governor met with Florida Sen. Bob Graham to discuss a possible buy-back by the federal government of the leases.

In July 2000, the Destin Dome 56 leaseholders, which include ChevronTexaco, Conoco and Murphy Exploration & Production, filed a breach-of-contract lawsuit against the government, saying a “regulatory Catch 22” between the Commerce Department and the Environmental Protection Agency has frozen the Destin Dome review process and prevented the project from ever being approved (see Daily GPI, July 25, 2000). The companies claimed the federal government has tied into a “proverbial Gordian Knot” their efforts to develop nine leases in the Destin Dome 56 project, barring them from producing an estimated 2.6 Tcf of gas.

Under Wednesday’s agreements, the government will buy back the development rights for offshore oil and natural gas development rights in Destin Dome, as well as the rights to future oil and gas development in critical parts of the Everglades ecosystem. To resolve the pending lawsuit brought by the producers, the Departments of Interior and Justice will buy out seven of nine leases in the area for $115 million, precluding production of this large field. The remaining two leases that were not bought out are owned solely by Murphy.

Of the settlement, ChevronTexaco and Conoco will each receive $46 million, while Murphy will receive $23 million. The Department of the Interior said that two additional leases in the area that are not included in the litigated nine are held by Exxon Mobil and Samedan Oil Corp. However, under the settlement agreement, Chevron, Conoco and Murphy have agreed to seek to compensate Exxon Mobil and Samedan in exchange for relinquishing these two leases.

“Resolution of this longstanding stalemate responds to the concerns expressed by the State of Florida, while respecting the rights of the lessees by compensating them for the resources they discovered,” Interior Secretary Gale Norton said. “The money paid to the companies under the settlement can be used to make investments elsewhere to help meet the nation’s energy needs.”

In a prepared statement, ChevronTexaco said, “We believe that the safe development of America’s oil and gas resources is vital to a sound national energy strategy. The development of the Destin Dome resource could have been accomplished with the utmost sensitivity to the environment while providing American consumers with a large and stable supply of clean natural gas. While we are very disappointed that we will not be able to develop the Destin Dome resource, this settlement addresses the concerns of the parties involved and reimburses us for the investment that we have made to date.”

The Natural Gas Supply Association, which represents major gas producers, said the fields taken off the table represent enough natural gas to supply a million U.S. families for over 30 years. “The Destin Dome was one of the largest fields in the Gulf of Mexico,” noted NGSA President R. Skip Horvath. “We cannot continue to chisel away at America’s own resources and expect to continue to be self-sufficient in filling future demand. National energy supply has certainly been handed a setback today.” The NGSA noted the country’s natural gas needs are currently 85% supplied by gas that is produced in the United States, 15% by imports from Canada and the remainder is imported as LNG.

“The natural gas is there; what isn’t there are the federal policies to support access to this clean burning energy source, the demand for which is increasing faster than any other fossil fuel today,” Horvath added.

Going forward, Florida and the federal government will each have the ability to object to future development of Murphy’s remaining two unexplored leases. “The stipulation is that we can not file a production agreement plan for development for 10 years,” said Mindy West, a spokeswoman for Murphy Exploration and Production. “Even then, we are still going to have to get approval from the state of Florida and the U.S. government, so there is no guarantee that it will ever happen, but there is that option that it might. A lot can happen in 10 years. Right now, we have no plans.”

As part of the second agreement, the Department of Interior said it will buy out the Collier family’s substantial oil and gas rights in the Everglades’ Big Cypress National Preserve, Florida Panther National Wildlife Refuge and Ten Thousand Islands National Wildlife Refuge. Once the Colliers’ rights are acquired and retired, the Department of Interior said that further development within these areas essentially will be precluded. The Colliers will receive $120 million for the leases (either in cash or in credits that could be used toward other federal oil and gas leases), subject to congressional approval.

The Everglades agreement is part of a joint federal-state Comprehensive Everglades Restoration Plan, a 30-year effort that is the largest habitat restoration ever undertaken. President Bush and Florida Gov. Jeb Bush signed an agreement on Jan. 9 to reserve the water supplies necessary for Everglades restoration.

The president said the agreements are in line with his plan for new environmentalism in the 21st century, which he unveiled in a speech last year at Sequoia National Park. The plan is an agenda based on encouraging personal stewardship and ensuring that the federal government works in partnership with state and local governments and the private sector. In that speech, Bush said that “our duty is to use the land well, and sometimes, not to use it at all.”

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