Exxon Mobil is at risk of losing its rights to what might turn out to be the largest oil discovery ever in the Gulf of Mexico, which is why the oil behemoth is suing the federal government.

 

The problem for Exxon is that it allowed its leases to the Julia field to expire two years ago. In 2008, Exxon had applied for a suspension of its lease of the field, but the following year the Department of the Interior denied the suspension on the grounds that Exxon “had not demonstrated a commitment to production.”

 

But it was only after it filed its lawsuit last week in a Louisiana federal court that the company revealed what was at stake: an estimated one billion barrels of recoverable oil.

 

The Department of the Interior informed Exxon that its leases had expired, and it failed to meet the requirements for an extension. In the wake of the BP oil spill last year, the Obama administration does not want to appear soft with the industry’s largest corporation.

 

If Exxon loses its suit, control of the leases would revert back to the government, which could then sell them to another oil company. But going through a protracted legal battle wouldn’t necessarily be in the Obama administration’s interests, because it would mean waiting a long time to earn royalties on the Julia field’s oil development.

 

Based on the current price of oil, the government could reap more than $10 billion over the lifetime of a one billion-barrel field, according to The Wall Street Journal.

 

The largest previous Gulf oil find was BP’s Thunder Horse Field in 1999.

-Noel Brinkerhoff

 

Exxon, U.S. Government Duel Over Huge Oil Find (by Russell Gold, Wall Street Journal)

Exxon Sues U.S. Interior Department Over Canceled Gulf of Mexico Leases (by Phil Milford and David Wethe, Bloomberg)