Delta Petroleum, the hottest oil stock

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Business News
Fish or cut bait
Oil companies sue Uncle Sam for drilling delay
2/5/02
By MARK VAN DE KAMP
NEWS-PRESS STAFF WRITER

Nine energy companies with interests off the Santa Barbara County coast are suing the U.S. government for $1.2 billion in reimbursement damages for stalling their plans to develop offshore oil and natural gas fields.
The firms have waited decades for permission to develop these fields, for which they and their predecessors paid $1.2 billion cash. They also spent hundreds of millions of dollars to drill dozens of exploratory wells that located substantial petroleum reserves.
Such a payment deal could bring an end to drilling efforts in these disputed fields. The companies want to be paid restitution or reliance damages, whichever is greater, equal to the cash and rentals paid to the federal government for leasing rights.
In the lawsuit, the companies claim they are being prevented from drilling by a series of new laws and court decisions regarding environmental protection issued long after the leases were issued between 1968 to 1984.
In dispute is whether the federal government followed proper procedures for granting suspensions requested by the oil companies to extend the life of each lease. The suspensions are holding each lease in status quo while the companies prepare for review of their exploration and development proposals.
"The government has acted in ways that 'deviate significantly' from the 'procedures and standards' in effect when the leases were acquired, and because in applying the new legislation the government has failed to carry out its own obligations in a 'timely and fair' manner," the complaint states.
That is creating more costly drilling delays, the companies complain. The fields are all at least three miles off the coast of Santa Barbara, Ventura and San Luis Obispo counties, most in the area of Vandenberg Air Force Base. Each of the 40 tracts covers about a nine-square-mile expanse of ocean. Four of the leases expired in 1999 with no moves to renew them.
The complaint cites a similar legal case in North Carolina in which the U.S. Supreme Court ruled that Mobil Oil was deprived of its right to develop offshore properties by the federal Outer Banks Protection Act, which went into effect after Mobil acquired its offshore leases.
The Supreme Court said the statutes and regulations governing offshore energy production could apply only if they were already in place when leases were granted to oil companies.
The lawsuit regarding the local leases was filed Jan. 9 in the U.S. Court of Federal Claims in Washington, D.C. The government is still not ready to comment on the case, according to two Minerals Management Service officials.
But Linda Krop, chief counsel for the Environmental Defense Center in Santa Barbara, said the local situation is different from the North Carolina case.
"They don't have a cause of action here," she said.
Oil company representatives have for years said that a decision about drilling is long overdue in their favor.
"We do have a sizeable investment in these leases and we've carried out all our obligations, but we're prevented from carrying out our plans," said Susan Hersberger, a spokeswoman for Bakersfield-based Aera Energy LLC, which has an ownership interest in 21 of the leases.
"Laws enacted since we acquired the leases have been interpreted in such a way that we have not been able to move forward. We, along with several companies, are seeking compensation for the lease bonuses paid."
The federal Minerals Management Service is in charge of each lease. Several times over the years, that agency has extended the terms of leases by granting a number of suspensions, first at the request of the oil companies, then at agency's own direction.
The fate of the disputed leases is tied up in court.
In 1999, California sued the secretary of the Interior, claiming the Minerals Management Service did not have authority to grant suspensions without first checking for consistency with California's coastal management program.
Then last year, U.S. District Court Judge Claudia Wilken ruled that leases could be extended only upon California's approval and review to ensure those plans are consistent with the state's environmental laws. The Interior Department counters that federal environmental reviews would be conducted before the sites are developed or explored.
That legal battle continues to this day. Siding with California are Santa Barbara and San Luis Obispo counties and 10 environmental groups represented by the Environmental Defense Center based in Santa Barbara.
"We're working to find solutions to resolve the matter," said Mark Pfeifle, Interior Department press secretary.
Offshore accounts
Aera Energy has paid the most of any oil company for its leases, some $771 million, the complaint shows.
Other companies in the lawsuit are:
* Amber Resources Co., based in Denver. It has an ownership interest in seven leases, for which it paid $1.6 million.
* Delta Petroleum Corp., based in Denver. Its ownership interests apply to 13 leases for which it paid $150 million.
* Nuevo Energy Co., based in Houston. It has an ownership interest in 24 of the leases, for which it paid $93 million.
* Ogle Petroleum Inc., whose principal place of business is Santa Barbara. It has an ownership interest in 16 leases for $4 million.
* OLAC Resources LLC, whose principal place of business in Santa Barbara. Its ownership interest is 16Êleases, $24 million.
* Poseidon Petroleum LLC, whose principal place of business in Santa Barbara. Its ownership interest is seven leases, $34 million.
* Samedan Oil Corp., based in Houston, which has an ownership interest in 16 leases, $29 million.
* TotalFinaElf E&P USA Inc., based in Houston, which has an ownership interest in 10 of the leases, $106 million.
The lawsuit was filed by nine of the 15 companies with interests in the leases. Companies not part of the lawsuit at this point include Colton Gulf Coast Inc., Devon Energy Production Co. LP, PRS Offshore LP, Nycal Offshore Development Corp., RAM Energy Inc. and RME Petroleum.

Source: U.S. Court of Federal Claims
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