EXHIBIT 99(b)
IN THE CIRCUIT COURT OF THE SECOND JUDICIAL CIRCUIT
IN AND FOR LEON COUNTY, FLORIDA
COASTAL PETROLEUM COMPANY,
a Florida corporation,
Plaintiff,
CASE NO.:
_____________
vs.
STATE OF FLORIDA, DEPARTMENT OF
ENVIRONMENTAL PROTECTION, and BOARD
OF TRUSTEES OF THE INTERNAL IMPROVEMENT
TRUST FUND,
Defendants.
-----------------------------------/
COMPLAINT
I. Introduction
The Plaintiff COASTAL PETROLEUM COMPANY (hereinafter referred to as
"COASTAL"), sues Defendants STATE OF FLORIDA DEPARTMENT OF ENVIRONMENTAL
PROTECTION (hereinafter referred to as "DEP"), and BOARD OF TRUSTEES OF THE
INTERNAL IMPROVEMENT TRUST FUND (hereinafter referred to as "TRUSTEES"), for an
unlawful taking of its private property described as Drilling Lease 224-A
(hereinafter referred to as "Drilling Lease"), without payment of full
compensation in violation of Article X, ss.6 of the Florida Constitution and
alleges:
II. Parties
1. Plaintiff COASTAL is a Florida corporation authorized to do and doing
business in the State of Florida. Its principal headquarters are in
Apalachicola, Franklin County, Florida.
<PAGE>
2. COASTAL is the owner of the Drilling Lease comprised of over 400,000
acres of submerged lands located between 7.36 statute miles and 10.36 statute
miles off of the west coast of Florida, extending from Franklin County into
Pasco County. As the holder of the Drilling Lease, COASTAL is an owner of
property entitled to the protection of Article X, ss.6 of the Florida
Constitution. A map showing the approximate location of COASTAL's leasehold
ownership is attached hereto and incorporated herein as Exhibit "A".
3. Defendant DEP is an executive agency of the State of Florida which
may be sued and which has the power of eminent domain. DEP is the successor
agency to the Department of Natural Resources (DNR), and was formed by
combining the Department of Environmental Regulation (DER) and the DNR. DEP
has its principal headquarters in Leon County, Florida.
4. DEP is responsible for issuing permits to drill oil wells in Florida
pursuant to the criteria listed in ch. 377, Fla. Stat., including
ss.377.241. DEP performs all staff duties relating to the acquisition,
administration and disposition of lands, title to which is vested in TRUSTEES.
Further, one of the established divisions of DEP is the Division of State
Lands, the director of which is subject to confirmation of the TRUSTEES.
5. Defendant TRUSTEES is composed of the Governor and Cabinet of the
State of Florida and has its principal headquarters in Leon County, Florida.
TRUSTEES were the original lessors of COASTAL's Drilling Lease and have
accepted rental payments from COASTAL under the terms of the lease.
6. Defendant DEP, acting in concert with Defendant TRUSTEES, ultimately
denied COASTAL its application for a drilling permit on the Drilling Lease,
depriving COASTAL of the only reasonable use of its leasehold and giving rise
to the takings claim which is the subject of this suit.
<PAGE>
III. Jurisdiction
7. This is an action for damages in excess of $15,000.00, and as such is
within the jurisdictional limits of this Court.
IV. Original Investment in Drilling Lease 224-A
8. COASTAL acquired its leasehold interest in the submerged lands
identified in Exhibit "A" through a state lease (hereinafter referred to as
"Original Drilling Lease") from TRUSTEES to Arnold Oil Exploration, Inc.
(hereinafter referred to as "Arnold Oil"), dated December 27, 1944 and granted
pursuant to Chapter 20680, Laws of Fla. (1941). TRUSTEES conveyed the Original
Drilling Lease to Arnold Oil based on an exploration contract with Arnold Oil
dated October 4, 1941. In the Original Drilling Lease conveyed to Arnold Oil,
TRUSTEES retained a royalty interest in oil produced from the leased area and
would substantially benefit from oil produced from the leased area. The
moving force in securing both the exploration contract and the Original
Drilling Lease was J. Ray Arnold, the president of Arnold Oil. The Original
Drilling Lease 224-A is attached hereto and incorporated herein as Exhibit "B".
<PAGE>
9. J. Ray Arnold became interested in the production of oil while residing
in Oklahoma, Texas and New Mexico, and believed that oil production would
eventually be accomplished in Florida. J. Ray Arnold, acting as president of
Arnold Oil, employed a nationally renowned geologist to survey Florida's
potential for oil and gas. From 1935 forward, J. Ray Arnold's interest in oil
production in Florida was constant and of consuming importance to him, leading
him to actively and aggressively pursue prospects and equipment needed to
produce oil in Florida. Prior to 1947, J. Ray Arnold committed enormous
personal, family and corporate resources to the exploration for oil in Florida
on all corporate holdings including the area of the Original Drilling Lease.
Arnold's early efforts to acquire land and equipment for oil exploration
occurred during World War II when the equipment and personnel needed for a
successful exploration effort were both unavailable. During this period much of
Arnold's efforts were focused on gaining and preserving the property rights
necessary for his exploration effort.
10. During the period between 1944 and 1947, the annual rental paid by
Arnold Oil to TRUSTEES for the Original Drilling Lease and all other leases it
owned in Florida was approximately $45,000.00. The annual rental comprised a
major portion of TRUSTEES' budget during that period. When the resources of
Arnold Oil were exhausted, Chester Ferguson, acting as Trustee for the Lykes
family, purchased a 51% interest in Arnold Oil. The money derived from the sale
of this stock was used by Arnold Oil to pay rent to TRUSTEES. Between 1946
and 1947, William F. Buckley and his associates arranged for the purchase of
all of the stock of Arnold Oil for $1,000,000.00, and changed its name to
Coastal Petroleum Company. Members of the Arnold family continued to work
with COASTAL. Believing oil would eventually be produced from the leasehold,
members of the Arnold and Lykes families retained overriding royalty
interests in the Original Drilling Lease. The expectation of oil
production from this leasehold led the Arnold family, the Lykes family, William
F. Buckley and the owners and shareholders of COASTAL to make extraordinary
investments to meet their commitments under the terms of the Original Drilling
Lease.
V. Expectations of the Parties to Drilling Lease 224-A
<PAGE>
11. At the time the Original Drilling Lease was conveyed to Arnold Oil,
the records of the State of Florida revealed a great public interest in the
production of oil. The Original Drilling Lease revenue received by TRUSTEES from
Arnold Oil constituted a major source of revenue from Trustee-owned state
property. The State of Florida, including TRUSTEES, was interested not only in
the rental income from the Original Drilling Lease, but also in the royalty
revenues anticipated from oil production. Interest in these revenues and
interest in oil production for the war effort were so great that the legislature
not only authorized drilling leases, but created a $50,000.00 reward for the
first oil production in Florida by passing Chapter 20667, Laws of Fla. (1941).
It is clear from state records that the State, including TRUSTEES, strongly
encouraged and fostered the efforts of COASTAL and its investors and that all
parties expected that the effort to produce oil would be successful.
12. On February 27, 1947, after Arnold Oil was renamed COASTAL, the
TRUSTEES entered into a modification of the Original Drilling Lease, titled
Drilling Lease 224-A as Modified (hereinafter referred to as "Drilling Lease").
The stated purpose of the modification was to permit a practical performance of
the terms of the lease and to otherwise ratify and confirm its stated purpose of
producing oil from the state-owned submerged lands in the Gulf of Mexico. Since
the first successful offshore oil well had already been drilled in Louisiana
in 1938, there was an expectation in 1947 on the part of both TRUSTEES
and COASTAL that the exploration and drilling of the leasehold would result
in oil production in the State of Florida. Drilling Lease 224-A as Modified
is attached hereto and incorporated herein as Exhibit "C".
13. By the end of 1968, COASTAL and its partners had expended
approximately $16,370,000 on oil exploration on its various leases, including
the Drilling Lease.
VI. The Value of Drilling Lease 224-A
14. At all times from the original granting of the Drilling Lease to the
present, the economic value of the lease was derived from the right of the owner
to explore for and produce oil from the sovereign lands contained within the
Drilling Lease.
<PAGE>
15. The Drilling Lease includes a virgin petroliferous basin identified by
geologists as the Apalachicola Embayment. Geologists have long believed this
basin to contain oil, based, in part, on a clearly identifiable trend of
successful drilling beginning in Texas and Louisiana and stopping at the Florida
coast. The challenge for COASTAL over the life of the Drilling Lease has been to
identify structures beneath the Gulf floor because successful wells could be
drilled only in areas where oil may have been trapped during migration.
16. Improvements in the technology of seismic work and interpretation over
the last 10 years have dramatically improved the ability of geologists and
geophysicists to select attractive drilling sites. Seismic survey data
recently processed by COASTAL with advanced computer technology reveals seismic
expressions of several large underground structures on the Drilling Lease at
depths of 12,500 to 18,000 feet which are well located to have trapped migrating
petroleum.
17. In 1992, COASTAL sought the first drilling permit which could
test these large underground structures. Experts believe these structures
have the potential to produce billions of barrels of oil. To date, none of
these structures have been drilled in the Apalachicola Embayment.
18. Never has the value of the right to explore and drill the Drilling
Lease been greater or its potential to produce oil been clearer. Drilling
blocks within the Drilling Lease and in the vicinity of these underground
structures are extraordinarily valuable. The need for the State of Florida,
including Defendants, to permit this drilling for the benefit of the citizens
of the State of Florida and the United States has never been greater and the
risk to the environment has never been lower. At the time of filing this
suit, COASTAL only needs from the State of Florida, including Defendants,
the cooperation which was promised in its original grant of the Drilling
Lease in order to explore for, drill and produce oil.
<PAGE>
VII. Florida's Efforts to take COASTAL's Property
19. At some point in the history of the Drilling Lease, TRUSTEES' policy
to promote the production of oil as stated in the Drilling Lease shifted to
a policy designed to either stop exploration or production altogether or to
regain the offshore area of the Drilling Lease so that it could be leased to
another entity for greater consideration. With one of these goals in mind,
TRUSTEES sought to terminate the Drilling Lease by challenging its validity in
1968.
20. In 1970, the United States District Court for the Southern District of
Florida disposed of TRUSTEES challenge by holding that the Drilling Lease was
existing and valid. Coastal Petroleum Company v. Secretary of the Army, 315 F.
Supp 845 (S.D. Fla. 1970).
21. Despite this decision, the dispute continued until a settlement was
reached on January 6, 1976. As part of that settlement, TRUSTEES and COASTAL
agreed to reduce the area of sovereign lands included within the Drilling
Lease to the current configuration as stated in Paragraph 2 of this
complaint. This settlement secured the return to TRUSTEES and the State of
Florida of COASTAL's interest in an area of submerged lands from the shoreline
to 7.36 statute miles offshore. In exchange, COASTAL received a royalty interest
in oil produced from the submerged lands from the shoreline to 4.36 statute
miles offshore.
22. Between 1976 and 1984, COASTAL's ability to explore the Drilling
Lease was impacted by Mobil Oil's claim to a 50% interest in the Drilling
Lease. Until this claim was resolved in 1984, exploratory oil and gas
drilling was economically impossible. In 1984, Mobil's claim was settled,
restoring COASTAL's undisputed interest in the Drilling Lease.
23. Between 1984 and 1990, COASTAL prepared for and submitted permit
applications to perform geophysical testing on its leases.
<PAGE>
24. In response to COASTAL's permit application, fearing COASTAL would
begin drilling on its leasehold, on May 8, 1990 the Governor and Cabinet
approved a comprehensive policy prohibiting the production of oil and gas
on sovereign submerged lands. The policy was stated as follows:
The policy of the Governor and Cabinet, sitting as the
head of the Department of Natural Resources and as the
Board of Trustees of the Internal Improvement Trust Fund,
is to prohibit seismic activities using explosives and to
prohibit the drilling, exploration, or production of oil
and gas resources from structures located on the sovereign
waters of the State of Florida, including bays, estuaries,
freshwater lakes, rivers and streams.
This policy statement was adopted by TRUSTEES and DEP (then known as DNR) on May
8, 1990.
25. Defendants' policy statement was soon codified when the legislature
enacted Chapter 90-72, Laws of Fla. (1990), which provides in pertinent part:
After July 31, 1990, no permit to drill a well in search
of oil or gas shall be granted north of 26(degree) 00'00"
north latitude off Florida's west coast to the western
boundary of the state bordering Alabama as set forth in
s.1, Art. II of the State Constitution, or located north
of 27(degree) 00'00" north latitude off Florida's east
coast to the northern boundary of the state bordering
Georgia as set forth in s.1, Art. II of the State
Constitution, within the boundaries of Florida's
territorial seas as defined in 43 U.S.C. 1301.
The Governor approved the law on June 12, 1990.
26. With the passage of the 1990 legislation, the Defendants sought not
only to clearly indicate their intent to prohibit offshore drilling, but also to
protect themselves from litigation by ostensibly exempting COASTAL's Drilling
Lease from the effect of the statute by adopting ss.4 of Chapter 90-72,
Laws of Fla. (1990).
<PAGE>
27. In furtherance of Defendants' policy, ss.377.06, Fla. Stat., was also
changed in 1990 by omitting the following underlined language:
It is hereby declared to be the public policy of the state
. . . to encourage and cause the development in said
state of said natural resources of oil and gas and the
products made therefrom, to encourage the continuous and
economic supply of the demand therefore
. . .
28. In 1990, the legislative changes made to Ch. 377, Fla. Stat., which
add language prohibiting the issuance of drilling permits and omit language
encouraging the development of oil and natural gas in the State of Florida,
signify a complete reversal from the long standing policy of the State,
including Defendants, of encouraging the exploration and production of oil.
29. On or about September 18, 1990, Governor Bob Martinez clarified the
State's (and also the Defendants') intention with regard to drilling when he
stated in an official press release:
. . . we do not want oil drilling anywhere near our coast.
30. On or about July 23, 1990, COASTAL filed an inverse condemnation claim
against TRUSTEES and DEP (then known as DNR), in part, on the grounds that the
application of the policy prohibited production of oil and gas from the leased
land and constituted a taking of COASTAL's leasehold without payment of full
compensation.
<PAGE>
31. The 1990 takings claim as to the leased area was later disposed of on
procedural grounds. However during its pendency, the Court viewed the takings
claim related to the leasehold to be premature because COASTAL had not applied
for a permit to drill. At a hearing on August 23, 1991, the Court stayed the
case pending COASTAL's application for a permit to drill an exploratory well
which would determine whether DEP (then known as DNR) would apply its policy
against offshore drilling to COASTAL's Drilling Lease or allow COASTAL to
explore on its leasehold.
32. At the conclusion of the hearing, Attorney General Robert Butterworth
threatened COASTAL that he would keep COASTAL tied up in litigation for ten
years. He kept his word.
33. On March 16, 1992, COASTAL applied for Permit 1281 which was filed
with DEP (then known as DNR) to drill for oil on the submerged lands of the
Drilling Lease beneath the waters offshore of Apalachicola.
34. Forecasting an ultimate denial of the permit, the Department of
Legal Affairs opined in a memorandum that:
The ultimate decision on the drilling permits will
undoubtedly result in additional litigation or a
continuation of the pending litigation . . . the
possibility exists that eventually COASTAL might be able
to obtain a judgment for millions of dollars. . .
This statement exposes the Defendants' bad faith policy to deny COASTAL the
beneficial use of the Drilling Lease while, at the same time, systematically
dodging any address of the compensation due to COASTAL for a taking of its
property.
35. Instead of directly denying COASTAL's application for Permit 1281
based upon the 1990 policy, on January 11, 1993, DEP (then known as DNR)
indirectly applied the policy by announcing the unprecedented requirement of a
$515,000,000.00 surety in order to make it economically impossible for COASTAL
to drill.
36. In response, COASTAL offered its leases as surety for the
$515,000,000.00. Although DEP (then known as DNR) found COASTAL's permit
application to be adequate and complete; DEP would not accept COASTAL's leases
as surety.
<PAGE>
37. On January 26, 1993 the Governor and Cabinet, acting as head of DEP
(then known as DNR), voted to deny COASTAL's application for Permit 1281
citing COASTAL's refusal to post a $515,000,000.00 bond.
38. COASTAL objected to the requirement of a bond on the grounds that
COASTAL had the option of paying a fee in lieu of surety as provided for in
ss.377.2425(1)(b), Fla. Stat., and that it had in fact paid such fee. Because
there was no lawful basis for requiring the $515,000,000.00 bond, COASTAL
appealed the denial of its application for Permit 1281.
39. On February 9, 1995, the First District Court of Appeal (1st DCA)
reversed the order of DEP denying the permit. The Court held that Permit 1281
had been denied for failure to pay a surety that DEP could not lawfully require.
Upon such ruling, it appeared that Permit 1281 would be granted. However, before
the month was over, State officials again voiced their intent to stop COASTAL
from using its lease.
40. Frustrated with COASTAL's perseverance, at the February 28, 1995
cabinet meeting, Treasurer Bill Nelson, acting with the Attorney General,
questioned why the issue of oil drilling is not "dead":
[B]ack in the 80's . . . we killed this deader than a
doornail . . . and every time we think it's dead, then
[the oil drilling issue] pops up again. And here the
issue has popped up again with a - - a court of appeal.
Treasurer Nelson also indicated:
I think that that statute gives us the authority with
which we can protect against whatever public policy
decision that we think ought to be protected . . .
otherwise, you keep seeing this offshore drilling keep
popping right back up.
<PAGE>
41. On April 26, 1995, the office of the same Attorney General who had
promised in 1991 to keep COASTAL tied up in litigation for ten years represented
in a Motion for Stay filed with the Supreme Court that, in the absence of a
stay, DEP would have to give COASTAL a permit to drill.
42. TRUSTEES and DEP were not focused on addressing the substance of
COASTAL's permit application; their goal was to keep COASTAL from ever
obtaining the permit.
43. At the May 23, 1995 cabinet meeting, Treasurer Bill Nelson, again
addressing COASTAL's application for Permit 1281, indicated that the issue
was not whether or not to grant the permit solely on the merits of the
application, but admitted the overriding question was:
whether or not we're going to have oil drilling off the coast
of Florida.
44. Treasurer Nelson admitted that if TRUSTEES are:
successful in denying them being able to drill for oil,
then it's going to be a question of public taking. And
what is the value of that public taking?
45. Treasurer Nelson then restated the TRUSTEES' policy:
it clearly is not in the interest of the State of Florida to
be drilling off the coast of Florida.
46. Anticipating the inevitable, Treasurer Nelson advised the TRUSTEES
that:
it's time for us just to get into a . . . severe legal
tangle here, and put our foot down, and say in the interest
of the State of Florida, enough is enough . . . we need to
battle this out as to the question . . . of the taking and the
value of that taking. And for us to set our public policy
that we're not going to allow drilling off the coast of
Florida.
47. Treasurer Nelson provided the following clear statement of Defendants'
position that COASTAL would never be permitted to use the Drilling Lease for the
exploration, drilling and production of oil:
I can guarantee you that we are not going to flinch in
this. We can go into court, and we can battle all these
little legal niceties, and ultimately determine whether or
not you have that interest, and was there a taking or not;
and then if there was, what was the value of that taking.
But the public policy question is very, very clear.
48. Attorney General Robert Butterworth at the May 23, 1995, cabinet
meeting also restated his and the TRUSTEES' commitment to prohibiting oil
drilling off the coast of Florida:
And this Attorney General and this Board of Trustees is
going to fight it. We're going to fight it with every
legal tool that we have.
49. By mid 1995, the Defendants, resolved that COASTAL would never receive
the requested permit, determined that they would not give COASTAL a fair hearing
on its permit application.
50. Despite the February 9, 1995 1st DCA ruling that DEP was without
authority to require surety from COASTAL in addition to the annual fee specified
by ss.377.2425(1)(b), Fla. Stat., Defendants continued to pursue a strategy of
imposing a high surety requirement as a means of denying COASTAL its drilling
permit.
<PAGE>
51. The ultimate goal of TRUSTEES and DEP was to prevent COASTAL from
ever drilling off the coast of Florida and, to that end, the Governor and
Cabinet were encouraged to be unsparing in the bond to be required of COASTAL.
The question was how to get around the 1st DCA opinion and achieve the goal.
While strategizing on how to respond to COASTAL's request for an amended final
order based upon the 1st DCA opinion, the assistant general counsel for DEP
admitted,
An amended final order, based on that opinion, would grant
[COASTAL] a permit to drill. I don't believe that we want
to do that.
52. Instead of granting the permit, TRUSTEES and DEP chose to improperly
interpret ss.253.571, Fla. Stat., so as to allow TRUSTEES to impose a bond.
Thereafter, counsel for DEP recommended that DEP inform COASTAL that TRUSTEES
had imposed a $1.9 billion ($1,900,000,000.00) bond pursuant to ss.253.571, Fla.
Stat., and that DEP not issue Permit 1281 until the bond was posted. DEP and
TRUSTEES followed that advice.
53. Turning to the appellate court a second time, COASTAL appealed DEP's
second denial of Permit 1281 based on COASTAL's refusal to pay the permit
surety, as well as TRUSTEES' requirement of posting a $1.9 billion
($1,900,000,000.00) bond in order to perform offshore drilling.
54. In April, 1996 the Appellate Court again sided with COASTAL. In twin
decisions, the Court held that: (1) TRUSTEES could not require COASTAL to pay
a $1.9 billion ($1,900,000,000.00) bond because the bond requirement would
constitute an impairment of contract, and (2) DEP could not deny the permit
on the basis of failure to pay the surety, because the requirement of a surety
was unlawful. Coastal Petroleum Company v. Chiles, 672 So.2d 571
(Fla. 1st DCA 1996); Coastal Petroleum Company v. DEP, 672 So.2d 574
(Fla. 1st DCA 1996).
55. Acknowledging defeat once again at the 1st DCA, Assistant General
Counsel for DEP warned that another denial of the permit would expose government
officials and government entities to liability.
<PAGE>
At this point, the denial of the permit without lawful
basis would trigger more litigation by COASTAL, i.e., a
likely petition for writ of mandamus and a revival of its
takings case against the State. It would also trigger
questions of liability of responsible public officials and
entities.
56. Following the second appellate reversal, DEP issued a Notice Of Intent
To Issue Permit on Permit 1281, but not without a strategy formed by the
TRUSTEES and the Attorney General's office. Lacking the ability to directly
oppose COASTAL's permit without risking both professional and personal
liability, DEP required COASTAL to publish the Notice which would allow
third parties to contest the issuance of the permit in DEP's place. Even after
two rulings from the 1st DCA, DEP was not ready to choose between issuing Permit
1281 or acting lawfully to take COASTAL's property by paying COASTAL full
compensation in accordance with the law. Instead, DEP chose to drag the process
out as long as possible.
57. By requiring publication of a Notice of Intent to Issue, DEP
was not announcing it would grant Permit 1281, but rather was recruiting
public opposition to the issuance of the permit. In its own words, DEP had
been working diligently hand in hand with the Attorney
General's Office for several years pursuing every legal
avenue possible to halt this process.
58. On August 30, 1996, before a public notice was ever filed, the Sierra
Club and other groups filed for an administrative hearing. DEP never intended
to issue Permit 1281, but neither did it intend to compensate COASTAL for
denying it the beneficial use of its property. DEP intended to delay and
deny the issuance of the permit while dodging responsibility for a taking.
<PAGE>
59. Throughout 1996, the TRUSTEES and DEP did not give up on their
strategy to stop the issuance of a permit to COASTAL by imposing an
extraordinary surety. In the next legislative session following the 1st DCA's
two 1996 rulings, the Defendants backed an amendment to ss.377.2425, Fla.
Stat., allowing DEP to recommend and require a surety based on projected clean
up expenses associated with a hypothetical, maximum oil spill, the likelihood
of which is unsupported by any reasonable evidence. This amendment, in the form
of Chapter 97-49, Laws of Fla., was signed into law on May 7, 1997.
60. At the direction of the Governor and Cabinet, DEP applied Chapter
97-49, Laws of Fla., to COASTAL's permit application and required surety in the
amount of $4,249,637,886.00, more than eight times the surety it had required
in 1993 for the same permit.
61. The administrative hearing requested by the Sierra Club and other
groups began on October 27, 1997. At the onset of the hearing, COASTAL objected
to the massive surety set by the Administration Commission. Knowing that the
recommended surety had been approved by the Administration Commission, and that
the Defendants had recruited the Sierra Club to continue the DEP's fight against
issuing Permit 1281, DEP articulated at the hearing that Permit 1281 should
be granted.
62. Interestingly, the Attorney General who represented DEP and assisted in
drafting the permit, appeared in the matter on his own behalf to contest the
issuance of the very permit he drafted. In so doing, the Attorney General
opposed DEP, the client he had been representing to that point. Moreover, the
Attorney General's office agreed to pay for the discovery costs incurred by
the Sierra Club in contesting Permit 1281.
<PAGE>
63. Despite the objections of the Sierra Club, on April 8, 1998, the
presiding Administrative Law Judge issued a Recommended Order in favor of the
issuance of Permit 1281 and reduction of the surety to $224,488,511.00, a
sum which was approximately 5% of the surety sought by DEP.
64. However, rather than issue Permit 1281, DEP then chose to employ its
last strategy: it would construct a basis for deviating from the
recommendation by the Administrative Law Judge to issue the permit and
reinterpret ss.377.241, Fla. Stat. (1997), which reads as follows:
377.241 Criteria for issuance of permits. - The division,
in the exercise of its authority to issue permits as
hereinafter provided, shall give consideration to and be
guided by the following criteria:
(1) The nature, character and location of the lands
involved, whether rural, such as farms, groves, or
ranches, or urban property vacant or presently developed
for residential or business purposes or are in such a
location or of such a nature as to make such improvements
and developments a probability in the near future.
(2) The nature, type and extent of ownership of the
applicant, including such matters as the length of time
the applicant has owned the rights claimed without having
performed any of the exploratory operations so granted or
authorized.
(3) The proven or indicated likelihood of the presence
of oil, gas or related minerals in such quantities as to
warrant the exploration and extraction of such products on
a commercially profitable basis.
<PAGE>
65. At all times prior to the DEP's review of COASTAL's Permit 1281
application and at all times since COASTAL's application for Permit 1281, DEP
issued permits when each criterion of ss.377.241, Fla. Stat. had been met.
However, in COASTAL's case, after receiving the Administrative Law Judge's
Recommended Order, DEP decided to switch gears and weigh the criteria of
ss.377.241, Fla. Stat., instead of determining whether each criteria was met.
For the first time in the eight year period since receiving COASTAL's
applications, DEP balanced the environmental interests against the right to
explore for oil. When it balanced the criteria, DEP determined that issuance
of a drilling permit was too dangerous to the coastal environment. Almost ten
years after the adoption of TRUSTEES' no drilling policy set forth in Paragraph
24 of this complaint, DEP simply reinterpreted ss.377.241, Fla. Stat., to
fit the Defendants' policy prohibiting offshore drilling in Florida in
contravention of the property rights granted by the State of Florida to COASTAL
almost 60 years ago in the Original Drilling Lease, and ratified in the
modified Drilling Lease.
66. Even after adopting all of the findings of fact contained in the
Recommended Order, on May 22, 1998, DEP denied Permit 1281 for a third time,
forcing COASTAL to make yet another appeal to the 1st DCA. On October 6, 1999,
the Appellate Court issued its opinion upholding DEP's denial of Permit 1281
and concluding that COASTAL's remedy lies in an action in inverse condemnation
for the taking of its property rights. Specifically, the Court held:
With respect to the constitutional challenge to DEP's
interpretation of the statute, the issues of contract
impairment and taking go hand-in-hand. There is no dispute
that the appellant has a viable contract with the State of
Florida to explore for and extract oil from submerged
sovereignty lands. DEP's interpretation and application of
the permitting statute, based on its determination that
there is a compelling public purpose in not allowing the
appellant to drill off shore, effectively prevents the
appellant from exercising its rights under the contract.
DEP's action would be unconstitutional only if just
compensation is not paid for what is taken. Fla. Const.
Art. X, ss.6. This is a matter to be resolved in the
circuit court.
Coastal Petroleum Co. v. Florida Wildlife Federation, Inc., 766 So.2d 226, 228
(Fla. 1st DCA 1999)(emphasis added).
<PAGE>
67. Despite concluding that oil extraction is too dangerous to allow the
issuance of Permit 1281, DEP accepted and adopted the following findings of fact
from the Recommended Order of the Administrative Law Judge:
Finding of Fact 34. The drilling rig and operation will have
virtually no effect on the immediate site. The experience of
offshore operations in Louisiana and elsewhere is that fishing
is enhanced in the area by the attraction of fishes to
the artificial reef created by a rig.
Finding of Fact 40. The risk of oil spills from
exploratory oil and gas drilling operations is very small
because of the redundant systems and multiple lines of
defense against uncontrolled blowouts. The lines of
defense include hydrostatic pressure control by the use of
weighted drilling fluids, well control systems including
redundant blowout preventors, a well control service
company, and the use of trained and certified personnel.
Most blowouts are gas, not oil, and most blowouts stop
themselves by bridging within a few days.
Finding of Fact 41. The proposed Permit no. 1281 well is
less likely to spill any oil because it will be a zero
discharge well; the well will be drilled by one of the
largest drilling contractors in the world, Nobel Drilling;
the rig will be drilled with federally-certified crews
trained in well control; the rig will be surrounded by a
high seas oil fence with locks; there will be onsite oil
spill equipment and personnel; there is redundant blowout
equipment on this rig; and the environmental compliance
officer will train all workers to observe proper
procedures. The operations will be comparable to that of
Getty Oil's exploration project in East Bay, which in the
words of DEP's oil and gas section administrator, was "an
absolutely first class operation. You could eat off the
deck. Well, I wouldn't, but it looked clean enough."
<PAGE>
Finding of Fact 42. The U.S. Department of Interior,
Minerals Management Service (MMS) maintains statistical
data based on reports of accidents occurring on the outer
continental shelf (OCS) resulting in oil spills greater
than one barrel (42 gallons). MMS regulations require that
oil and gas operators report orally and in writing all
spills of oil and liquid pollutants to the MMS District
Supervisor. Data from the reports are relied on by the
industry, by scientists and by regulatory agencies.
According to MMS data for the years 1971-1995, out of a
total 24,237 well starts, 999 barrels of crude oil and
condensate were spilled from offshore wells under federal
jurisdiction.
Finding of Fact 43. When oil is spilled on the water,
natural weathering processes immediately begin to work on
the oil: evaporation reduces the volume of the oil, with
light oils evaporating quickly; bacteria literally begin
eating the oil and oil products; sunlight degrades the
oil; and the oil begins to dissolve and dissipate into the
water. These natural processes are especially effective at
this site because the oil involved would likely be a very
light 50 API gravity oil, as is other Smackover oil in
Florida; the climate is warm and the bacteria which eat
the oil and oil products are plentiful in this region; the
area receives much sunlight; and warmer water promotes the
dissolution and dissipation of the oil into the water.
Finding of Fact 44. Oil is a naturally-occurring
substance. Natural oil seeps in the Gulf of Mexico release
large quantities of oil and gas into the sea that is
weathered and dissipated as described above. The seeps,
discovered through satellite photography, are estimated to
produce as much as 120,000 barrels a year from vents in
the continental shelf off the Louisiana coast.
Florida Wildlife Federation, Inc., 21 F.A.L.R. 671, 692-694 (Dep't Envtl. Prot.
1998).
68. It is clear from these findings that over a 24 year period, 999
barrels of crude oil were spilled from all the offshore wells under federal
jurisdiction, a little more than 40 barrels per year.
<PAGE>
69. During the course of a year, natural seeps in the Gulf of Mexico
release an estimated 120,000 barrels of oil per year into offshore water. This
seepage of oil is in an amount almost 3,000 times greater than the amount of
oil spilled from all offshore rigs in federal waters in an average year.
Of the slight amount of oil that makes it into the water, nearly all is quickly
evaporated, dissolved or degraded by natural processes.
70. Since the objective evidence adopted by DEP is that the threat to the
environment from any drilling on Permit 1281 is minimal, it is probable that
the future energy needs of the United States will shift Florida's future
policy in favor of drilling and away from the policy articulated by TRUSTEES
in 1989.
71. If Defendants are permitted to deprive COASTAL of its use of the
Drilling Lease without the payment of compensation, it will confer a great
benefit on the State of Florida at the great expense of COASTAL and its
investors.
72. To the present date, COASTAL has paid and TRUSTEES have accepted all
annual rentals due and owing on the Drilling Lease and received studies, reports
and information prepared by COASTAL.
73. At all times since its grant, the Drilling Lease has been and remains
in full force and effect. COASTAL has the absolute right to explore for and
develop oil in the outermost three miles of Florida's three league
territorial waters from Apalachicola to Pasco County. COASTAL's right extends
through January 6, 2016.
74. The same policy and reasoning that has resulted in the denial of Permit
1281 makes it futile for COASTAL to seek other permits within the Drilling
Lease.
<PAGE>
75. Oil exploration and drilling is the use for which the Drilling Lease
was granted by TRUSTEES and the use for which COASTAL acquired it. It is the
only economically viable use to which COASTAL's Drilling Lease can be put.
While nothing the Defendants do can diminish the capacity for oil production
inherent in the Drilling Lease, the actions of the Defendants have deprived
COASTAL of all use and value of its Drilling Lease. COASTAL asserts that it
is far more harmful to the people of Florida that oil residing beneath the
Drilling Lease remain unproduced than would be any of the hypothetical dangers
rejected by the Administrative Law Judge, but given as DEP's reasons for denying
Permit 1281.
VIII. Inverse Condemnation - Claim for Compensation
76. The allegations contained in paragraphs 1 through 75 are incorporated
herein by reference.
77. This is a claim for compensation against TRUSTEES and DEP arising from
a taking of the Drilling Lease without payment of full compensation in
violation of Article X, ss.6 of the Florida Constitution.
78. For 56 years, COASTAL and its predecessors in interest have been
the holders of the Drilling Lease, including the Original Drilling Lease.
COASTAL is the owner of a property interest entitled to protection under the
Florida Constitution from a taking without payment of compensation.
79. COASTAL procured its leasehold interest from TRUSTEES for the
specific purpose of exploring in the offshore areas of the Drilling Lease and
drilling for and producing oil. COASTAL sought Permit 1281 for this use and
the permit was denied by Defendants.
80. At the time both the Original Drilling Lease and modified Drilling
Lease were conveyed by TRUSTEES, it was the distinct and reasonable expectation
of both TRUSTEES and COASTAL that oil would be produced from drilling on the
leasehold. This expectation of oil production has been backed by investments
of COASTAL and the denial of Permit 1281 has deprived COASTAL of all beneficial
use of its Drilling Lease, including the realization of oil production.
<PAGE>
81. Since the conveyance of the Original Drilling Lease and the modified
Drilling Lease, substantial amounts of money, time and human resources have been
invested by COASTAL in research, study, accumulation of data, geophysical
testing and drilling, as well as defending its leasehold, with the sole purpose
of producing oil.
82. For more than ten years, Defendants have adopted a policy and strategy
of denying COASTAL all beneficial use of the Drilling Lease, while at the same
time avoiding any payment of compensation for the denial of that use.
83. The only value of the Drilling Lease is its value for exploring for and
producing oil. The conduct, policy and strategy of Defendants have deprived
COASTAL of all the economically beneficial or productive use of its Drilling
Lease and have rendered the lease valueless for the purpose for which it was
sold and purchased.
84. Due to the actions, policy and strategy of Defendants that led to the
denial of Permit 1281, it is futile for COASTAL to apply for other oil
exploration and drilling permits within the Drilling Lease.
85. In pursuit of Defendants' policy and strategy, Defendants and their
officers have acted in bad faith and inconsistent with the interests of the
State of Florida. Not only is the risk of damage to the environment as a result
of granting Permit 1281 negligible, but Defendants' actions have deprived the
citizens of Florida of access to the oil resources of the Drilling Lease and
the enormous revenues to the state which would follow production.
<PAGE>
86. The actions, policy and strategy of Defendants prevent no public harm,
but confer an enormous public benefit to the State of Florida, including
Defendants. Once TRUSTEES, and therefore, State of Florida, secure the Drilling
Lease from COASTAL, all Defendants need do is change their "policy" so as to
support oil exploration and production, and the State of Florida, including
TRUSTEES, will then be able to derive billions of dollars from the marketplace
for the right to drill and produce oil on what is now COASTAL's Drilling Lease.
87. The taking of the Drilling Lease is permanent in nature and occurred on
May 22, 1998, the date of the final denial of Permit 1281.
88. COASTAL has retained the undersigned attorneys and has been obligated
to pay for not only their services, but also other costs and expenses incurred
as a result of this action.
89. Since the date of taking, COASTAL has been deprived of the use
of its property without compensation and is entitled to interest on the award
of compensation from the date of taking through the date of payment of
compensation.
90. A time line of the events contained within this complaint is attached
hereto as Exhibit "D".
IX. Reservation of Jurisdiction
91. COASTAL has rights guaranteed to it under the takings and due
process clauses of U.S. Constitution Amendments V and XIV, and has additional
statutory rights including rights pursuant to 42 U.S.C. ss.1983, which legal
rights have been violated by Defendants as a result of actions set forth in the
Complaint. COASTAL hereby reserves the right to all claims over which
subject matter jurisdiction presently lies, or which may later become ripe,
in the courts of the United States. This reservation of claims for later
adjudication in federal court, if necessary, is made pursuant to Jennings v.
Caddo Parish School Board, 531 F.2d 1331 (5th Cir. 1976), cert. denied, 429
U.S. 897 (1976), as applied to claims by COASTAL in this Florida court.
<PAGE>
WHEREFORE, Plaintiff, COASTAL PETROLEUM COMPANY, respectfully requests
that this Court grant the following relief against Defendants:
A. Enter an Order of Taking establishing the date of taking of COASTAL's
leasehold interest in the Drilling Lease as of May 22, 1998;
B. In the event that Defendants grant Permit 1281 and agree to
grant all other permits necessary to fully explore the oil
resources of the Drilling Lease to end this taking, to
determine that COASTAL's leasehold interest in the Drilling
Lease was temporarily taken without full compensation from May
22, 1998 to the date Permit 1281 is granted;
C. Impanel a jury of 12 persons pursuant to Chapters 73 and 74, Fla. Stat.
(Supp. 2000), to determine the amount of full compensation due to
COASTAL for the taking of its property;
D. Award statutory attorneys' fees, costs and interest to COASTAL for
the prosecution of this action; and
E. Grant such other relief that this Court deems proper.
Respectfully submitted,
ROBERT J. ANGERER, ESQUIRE S. CARY GAYLORD, ESQUIRE
Florida Bar No. 178546 Florida Bar No. 0180538
ROBERT J. ANGERER, JR., ESQUIRE LORENA HART LUDOVICI, SQUIRE
Florida Bar No. 995381 Florida Bar No. 847062
ANGERER & ANGERER R. ADAM CARNEGIE, ESQUIRE
P.O. Box 10468 Florida Bar No. 0974196
Tallahassee, FL 32302 GAYLORD MERLIN LUDOVICI
TEL: (850) 576-5982 DIAZ & BAIN
777 S. Harbour Island Boulevard,
Suite 900
Tampa, FL 33602
TEL: (813) 221-9000
Attorneys for Coastal Petroleum Company
