# Petition for Writ of Certiorari — Coastal Petroleum Co. v. Florida Department of Environmental Protection > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386020_1546%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition for Writ of Certiorari - **Published:** January 1, 2004 - **Citation:** 542 U.S. 904 ## Text u Supreme Court, |) .- FILE 031412 APR 7 - 2004 No. IN THE Supreme Court of the United States Coastal Petroleum Company, Charles E. Arnold, et al., and Robert W. Clark, et al., Petitioners, ¥. State of Florida, Department of Environmental Protection, and Board of Trustees of the Internal Improvement Trust Fund, Respondents. Petition for Writ of Certiorari to the District Court of Appeal, First District, State of Florida PETITION FOR WRIT OF CERTIORARI S. CARY GAYLORD ROBERT J. ANGERER™ LORENA H. LUDOVICI ROBERT J. ANGERER, JR. GAYLORD MERLIN ANGERER & ANGERER LUDOVICI DIAZ & BAIN Post Office Box 10468 5001 West Cypress Street Tallahassee, Florida 32302 Tampa, Florida 33607 850-576-5982 813-221-9600 Attorneys for Petitioners “Counsel of Record entation ii QUESTIONS PRESENTED 1) Does a property owner’s agreement to comply with environmental permitting laws operate as an inherent limitation on the property making it a conditional right, constitutionally unprotected against a taking before an environmental permit is granted? 2) Does the possibility that an indefinite government policy may change in the future preclude a finding that the policy effects a taking of a lease issued by that government when the sole use of the lease is prohibited by the application of the policy? LIST OF PARTIES TO THE PROCEEDINGS IN THE COURT BELOW The parties to the proceedings below were the Petitioner, Coastal Petroleum Company, the Respondents, State of Florida, Department of Environmental Protection, and the Board of Trustees of the Internal Improvement Trust Fund. Appearing as Intervenors in the proceedings below and Petitioners here are two groups of individuals herein referred to as Charles E. Arnold, et al., and Robert W. Clark et al. The Charles E. Arnold, et al., Group is comprised of Charles E. Arnold, Robert L. Arnold, Jr., Julian Arnold, Lolly Arnold, Lucile C. Amold, Melissa Arnold, Thomas R. Arnold, William W. Arnold, William W. Arnold, As Trustee, Alice Lucile Schultz, Jean R. Burn, Joseph L. Carrere, John F. Carrere, Jr., Michael L. Carrere, Charles R. Cole, George T. Cole, Richard P. Cole, Almeria T. Cottingham, Leslie L. De Galbert, Elizabeth Fish Carrere Trust, C. Sheldon Lykes Eustis, A. L. Geary, Ann H. Goodhue, Jean B. Grace, Grace A. Graper, H-A Energy, LLC, Joseph H. Hale, Sarah Hale Eagle, Mary A. Hale, William L. Helfenstein, Carol Mckay Irvin, Carla Kelly, Estate Of T. Paine Kelly, III, Jean B. Kelly, T. Paine Kelly, Jr., Helen T. Kerr, Letitia L. Knapp, Shirley L. Knight, Allison Lykes, Bonnie Lykes, Mija, Ltd., Fredrick E. Lykes, Heather Lykes, Joseph T. Lykes, III, Trustee Of The Anne Chandler Lykes Trust Agmt., M. Brinton Lykes, Thompson M. Lykes, Timothy Lykes, William T. Lykes, Andrew K. Macfarlane, Howard P.Macfarlane, Hugh C. Macfarlane, Trustee Of Jean Stanley Trust, Hugh C. Macfarlane, Jr., Sue B. Maclay, Charles A. Mckay, Suntrust Bank As Trustee For Herbert G. Mckay Rev. Trust, Howell A. Mckay, E.W. Netscher, Kay Perez, John Pinkerton, Tom L. Rankin, Frederica M. Thompson, Sarah M. Wiley, Cathryn Ehrlich, Hazel Alexander, and W. T. Morris, Jr.. iii The Robert W. Clark, et al., Group is comprised of Robert W. Clark, Carolyn K. Clark, F. Bowie Ducan, II, Cameron Duncan, Jr., Mayo Lykes, Matilda Webb Brabson, Stella F. Thayer, H. Tyson Lykes, II, Nancy L. Wooten, Ruth W. Bierley, Howell L. Ferguson, Mason M. Lykes And Charles P. Lykes, Jr., as Trustees under Will of Charles P. Lykes, Charles P. Lykes, Jr., Keenan Kelsey, Richard C. Colton, Jr., Elizabeth L. Colton, F.E. Lykes Foundation (f/k/a Aboly Foundation). Pursuant to Supreme Court Rule 29.6, Coastal Petroleum Company, as a corporate filer, hereby lists Coastal Caribbean Oils & Minerals, Ltd. as its parent company. . : iv TABLE OF CONTENTS Page IIIS 5... 5. casgncrsescicrcnconensasenneaesasnnnateeind i Ss ss ais russ cish dens Moandaussensaailaactensaieniaacaiane li ee a cncsscsirucssaccassicortssinidinsousieiheeesanecuaineel Vv IR IO pscscaicexcndssexscansnccorneausncicauiacesananiaeneconeenas 2 eNO Se ey 3 Constitutional Provisions And Statutes Involved................ 3 I I ois isnndns. Whether the regulation is arbitrarily and capriciously applied. In affirming the final order denying Coastal’s permit application, the First District Court of Appeal held the denial was a valid application of Section 377.24, Florida Statutes. 6. The extent to which the regulation curtails investment-backed expectations. Coastal’s post-settlement agreement expectations could only reasonably be that it could drill only if it received a permit, and that such a permit might in fact be denied. Therefore, DEP’s denial of Permit 1281 does not frustrate any reasonable expectation of Coasial’s. Further, as set forth above, Coastal’s expectation of drilling for and producing oil and gas was not reasonable based upon the lack of proof on the statutory factor of “commercial prospectiveness” at the site of Permit 1281. IT IS ADJUDGED that Plaintiff, Coastal Petroleum Company take nothing by this action. Defendants, State of Florida, Department of Environmental Protection, and the Board of Trustees of the Internal Improvement Trust Fund, shall be awarded costs upon appropriate motion and order. ORDERED and ADJUDGED at Tallahassee, Leon County, Florida, on the Copy furnished to: Monica K. Reimer Jonathan A. Glogau Office of the Attorney General PL-01, The Capitol Tallahassee, FL 32399 Teri L. Donaldson Thomas M. Beason Maureen M. Malvern Department of Environmental Protection 3900 Commonwealth Boulevard, M.S. # 35 Tallahassee, Florida 32399-3000 S. Cary Gaylord Gaylord Merlin Ludovici Diaz & Bain 777 S. Harbour Island Blvd. Suite 900 Tampa, Florida 33602 Susan W. Fox Macfarlane Ferguson Post Office Box 1531 Tampa, Florida 33601 day of October, 2002. L. RALPH SMITH, JR. Circuit Judge Robert J. Angerer Robert J. Angerer, Jr. Angerer & Angerer Post Office Box 10468 Tallahassee, Florida 32302 M. Stephen Turner Broad and Cassel P.O. Box 11300 Tallahassee, Florida 32301 Parker D. Thomson Hogan & Hartson Barclays Financial Center 1111 Brickell Avenue, Suite 1900 Miami, Florida 33131 Roger J. Marzulla Marzulla & Marzulla 1350 Connecticut Avenue, N.W. Suite 410 Washington, DC 20036 mete idgthts. Aah baie Sscsatges. SBE EDO Pe Ling NA £E RAE pel DT GIR ee ee Bre S28 SVAN ieteta eS Yt SS 13 IN THE CIRCUIT COURT OF THE SECOND JUDICIAL CIRCUIT IN AND FOR LEON COUNTY, FLORIDA CASE NO.: 01-10] COASTAL PETROLEUM COMPANY, Plaintiff. VS. STATE OF FLORIDA, DEPARTMENT OF ENVIRONMENTAL PROTECTION, and BOARD OF TRUSTEES OF THE INTERNAL IMPROVEMENT FUND, Defendants. ORDER GRANTING MOTION TO STRIKE and JOINT MOTION FOR PROTECTIVE ORDER THIS CAUSE came before the Court upon the Defendant’s Motion to Strike several paragraphs from Plaintiff's complaint. Having considered the complaint, motions, memoranda and relevant case law, the court finds as follows: Plaintiff has filed a complaint alleging that the denial of a drilling permit constitutes a taking of its property. Both Plaintiff and Defendants agree that the permit denial constitutes final agency action sufficient to vest this Court with jurisdiction pursuant to sections 253.763 and 403.90, ‘orida Statutes. The parties also agree, based upon a finding by the First District Court of Appeal, the permit denial was proper. 14 Defenuants have argued that by including paragraphs 6, 18-19, 24-32, 34-62, 64-65, 67-71, 74-75, and 82-86, in its complaint, Plaintiff is attempting to reargue the propriety of the permit denial. The rationale for the underlying decision is irrelevant to the determination of whether a taking has occurred. See, Manatee County v. Estech General Chemicals Corp., 402 So. 2d 75 (Fla. 2d DCA 1981). Thus, striking the objectionable paragraphs is proper. Plaintiff argues that these allegations are necessary to establish the futility of any future permit applications. While the past conduct of tie Agency could be relevant to a determination of futility, Plaintiff is not required to establish futility to state a cause of action. See, Devon Energy Corp. v. United States, 45 Fed. Cl. 519 (1999), South Florida Blood Bank, Inc. v. Futch, 764 So. 2d 724 (Fla. 4" DCA 2000). Futility is an exception to the ripeness doctrine when a plaintiff has not received a “final” decision. See, Gardens Country Club v. Palm Beach County, 712 So. 2d 398 (Fla. 4" DCA 1998). Once there has been final agency action, a party may proceed directly to circuit court. See, Bowen v. Florida Department of Environmental Regulation, 448 So. 2d $46 (Fla. 2d DCA 1984). Based upon the parties agreement that a final agency decision has been made, the action is ripe and the objectionable paragraphs are unnecessary to _ establish standing and should be stricken. The Court further finds that discovery of facts related to the objectionable allegations are outside the scope of allowable discovery in this case. IT IS THEREFORE ORDERED and ADJUDGED as follows: . Se ay ee ee PO ee ee ee oe ee 15 Defendants’ Motion to Strike is hereby GRANTED. Defendants’ Motion for Protective Order is hereby GRANTED. Plaintiff may file a Motion to Amend the Complaint to allege facts material and relevant to the issues of ripeness and futility within 20 days - of the date this Order is entered. Discovery is hereby STAYED pending a ruling on any Motion filed by Plaintiff in accordance herewith. DONE AND ORDERED this 19" day of September, 2001. /s/ L. RALPH SMITH, JR. Circuit Judge Copies to all counsel of record 16 DISTRICT COURT OF APPEAL OF FLORIDA, FIRST DISTRICT Tallahassee, Florida 32399-1850 Telephone No. (850) 488-6151 Lacan nei January 9, 2004 Case No. 1D02-4712 L.T. No.: 01-101 Coastal Petroleum Co., a State Of Florida, Dept. Of v. Florida corporation, Environmental Etc.etai, Appellant/Petitioner(s), Appellee/Respondent(s). BY ORDER OF THE COURT: Appellant’s motion filed December 18, 2003, for clarification, rehearing, certification and request for written opinion is denied. I HEREBY CERTIFY that the foregoing is (a true copy of) the original court order. Served: Lorena Hart Ludovici Parker D. Thomson R. Adam Carnegie Gino Luzietti M. Stephen Turner Charles S. Stratton Monica Reimer, A.A.G. Susan W. Fox Roger J. Marzulla Robert J. Angerer, Jr L. Linton Morgan Robert I. Scanlan, A.A.G. Robert J. Angerer, Sr. Teri L. Donaldson S. Cary Gaylord Maureen Malvern Charles W. Pittman Jonathon Glogau, A.A.G. jm a /s/ seal JON S. WHEELER, CLERK 4 | j PAS ALE KE 17 377.241 Criteria for issuance of permits. — The division, in the exercise ef 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 hsiness purposes or are in such a location or of such a aiature 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. History. — s. 1, ch. 61-299; ss. 25, 35, ch. 69-106. 18 IN THE CIRCUIT COURT OF THE SECOND JUDICIAL CIRCUIT IN AND FOR LEON COUNTY, FLORIDA CASE NO.: 01-101 COASTAL PETROLEUM COMPANY, Plaintiff, - VS. STATE OF FLORIDA, DEPARTMENT OF ENVIRONMENTAL PROTECTION, and BOARD OF TRUSTEES OF THE INTERNAL IMPROVEMENT FUND, Defendanits. DEFENDANT DEP’S AMENDED MOTION 710 DISMISS COMPLAINT * * * * * FAILURE TO STATE CLAIM: NO PROPERTY INTEREST COMPENSABLE BY INVERSE CONDEMNATION * * * * * The complaint should be dismissed because it fails to allege a property interest compensable by _ inverse condemnation. In determining whether a complaint states a taking claim, the “logically antecedent inquiry” is whether the restriction complained of inheres in plaintiff's property interest. If so, plaintiff has no interest compensable by inverse condemnation. Lucas v. South Carolina Coastal Council, 505 U.S. 1003, 1027 (1992); Coastal Petroleum v. 19 Chiles, 701 So. 2d 619, 623 (Fla. 1* DCA 1997) (focusing on “the nature and extent” of the plaintiff's property interest in denying a taking claim). Not every property interest recognized by law is compensable in an_ inverse condemnation proceeding. Corn v. City of Lauderdale Lakes, 95 F.3d 1066, 1074, 1075 (11™ Cir. 1996) (stating “property” as used in Just Compensation Clause is defined much more narrowly than in Due Process Clause). In addition to the reasons given in the Trustees’ motion, Coastal’s interest is insufficient for a taking claim because it was granted subject to the very restrictions now claimed to be a “taking” of plaintiffs property. A right granted subject to discretionary limitations by the government is not compensable in inverse condemnation. See Democratic Central Committee v. Washington Metropolitan Area Transit Comm'n, 38 F.3d 603, 608 (D.C. Cir. 1994) (holding rights created by a court-approved settlement agreement were not compensable because the court retained discretionary control). When a governmental entity acts to create property rights, but retains the power to alter those rights, exercise of the retained power is not a “taking” for purposes of the Fifth amendment. /d. At 606: see also Glenn P. Sugameli, Lucas v. South Carolina Coastal Council: The Categorical and Other “Exceptions” to Liability for Fifth Amendment Takings of Private Property Far Outweigh the “Rule,” 29 Envtl. L. 939, 945 (1999) (no taking if restriction is inherent in title to property). * * * * >* Respectfully submitted this 12 day of April, 2001. /s/ Teri L. Donaldson, General Counsel 20 Florida Bar No. 784310J John W. Costigan, Deputy General Counsel Florida Bar No. 189320 Maureen M. Malvern, Senior Assistant General Counsei Florida Bar No. 660922 Andrew J. Baumann, Senior Assistant General Counsel Florida Bar No. 0070610 Office of General Counsel, Department of Environmental Protection 3900 Commonwealth Blvd. — MS 35 Tallahassee, Florida 32399-3000 Phone: (850) 488-9314 Fax: (850) 414-1228 fin el ee aed 21 IN THE CIRCUIT COURT FOR THE SECOND JUDICIAL CIRCUIT IN AND FOR LEON COUNTY, FLORIDA COASTAL PETROLEUM COMPANY, Plaintiff, VS. STATE OF FLORIDA, DEPARTMENT OF ENVIRONMENTAL PROTECTION, and BOARD OF TRUSTEES OF THE INTERNAL IMPROVEMENT TRUST FUND, Defendants. CASE NO. 01-101 BOARD OF TRUSTEES’ ANSWER AND AFFIRMATIVE DEFENSES * * * * * AFFIRMATIVE DEFENSES * * * * * AFFIRMATIVE DEFENSE V: Compromise and Settlement In the case styled Coastal Petroleum Co. v. Secretary of the Army, Case Nos. 68-951-CA and 69-699 Div.-CA (consolidated), U.S. District Court of the Southern District of Florida, there was a dispute between the Trustees and Coastal as to the validity of Coastal’s drilling leases and the nature and extent of the parties’ obligations under those 22 leases. In 1976, Coastal and the Trustees entered into a Memorandum of Settlement which evidences those parties’ mutual intent to effect a settlement of the dispute by a superceding agreement. he Trustees recognized the validity of Coastal’s right to drill for and produce oil on the leases’ reduced working interest areas as described in the 1976 agreement, and in return Coastal agreed, among other things, that it could exercise its right to explore for and produce oil only after securing permits from all State environmental protection agencies in compliance with the then existing laws and regulations. Memorandum of Settlement, J6 [A copy of the 1976 Memorandum of Settlement is attached as Exhibit A]. As a result of this 1976 agreement, Coastal assumed the risk that a drilling permit could be validly denied based upon future environmental permitting laws. This condition inheres in and is a limitation upon Coastal’s right to explore for and produce oil on Lease 224-A. The First District has found that Coastal’s drilling permit was properly and validly denied by DEP, a state environmental permitting agency, under the then existing laws controlling issuance of such permits. Coastal has no right to drill for oil on Lease 224-A which can be taken, because it does not have the permit which it agreed to obtain pursuant to the 1976 Memorandum of Settlement. Further, Coastal’s claim that it has an absolute right to drill for and produce oil which has been taken is barred by the Memorandum of Settlement, because Coastal’s alleged right to drill without obtaining permits from State environmental agencies was extinguished by the 1976 agreement. RESPECTFULLY SUBMITTED this 2lst day of May, 2001. ROBERT A. BUTTERWORTH ATTORNEY GENERAL ER EN he 23 /s/ Jonathan A. Glogau Special Counsel Fla. Bar No. 371823 Monica K. Reimer Assistant Attorney General Fla. Bar No. 0090069 OFFICE OF THE ATTORNEY GENERAL PL-01, The Capitol Tallahassee, FL 32399-1050 (850) 414-3300, ext. 4817 or 4814 COUNSEL FOR THE TRUSTEES 24 IN THE CIRCUIT COURT FOR THE SECOND JUDICIAL CIRCUIT IN AND FOR LEON COUNTY, FLORIDA COASTAL PETROLEUM CO., Plaintiff, VS. FLORIDA DEPARTMENT OF ENVIRONMENTAL PROTECTION and BOARD OF TRUSTEES OF THE INTERNAL IViIPROVEMENT TRUST FUND OF THE STATE OF FLORIDA, Defendants. CASE NO. 01-101 ANSWER AND AFFIRMATIVE DEFENSES OF FLORIDA DEPARTMENT OF ENVIRONMENTAL PROTECTION * * * * * AFFIRMATIVE DEFENSES * * * * . Compromise and Settlement The 1976 Settlement Agreement between Coastal and the Trustees, here attached, resolved litigation between Coastal and the Trustees regarding the validity of Coastal's leases. In return for the Trustees’ acceptance of the validity of Coastal's three drilling leases and the Trustees' concession that 1941 law would govern the number of wells required to 25 be drilled under the leases, Coastal and its privies agreed to reduce the area covered by the leases and to be bound by all future permitting requirements imposed by _ state environmental agencies. All valid future permitting requirements by state environmental agencies thereby became a background limitation on Coastal's interest under the leases. Coastal assumed the risk that future permits might be denied. Under the settlement agreement, obtaining an environmental permit became a specific and express condition precedent for exercise of Coastal's contractual right to drill under the three leases. Since Coastal agreed that its right to drill would be contingent on future environmentally permitting requirements, no property interest was taken from it by DEP's denial of a permit. RESPECTFULLY SUBMITTED this 21" day of May, 2001. /s/ Teri L. Donaldson General Counsel Fla. Bar No. 784310 Thomas M. Beason Chief Dep. General Counsel Fla. Bar No. 178766 Maureen M. Malvern Sr. Ast. General Counsel Fla. Bar No. 660922 DEPARTMENT OF ENVIRONMENTAL PROTECTION 3900 Commonwealth Blvd. M.S. 35 Tallahassee, FL 32399-3000 Tel. (850) 488-9314 Fax (850) 414-1228 Roger J. Marzulla Marzulla & Marzulla 1350 Connecticut Ave. N.W. Suite 410 Washington, D.C. 20036 Tel. (202) 822-6760 Fax (202) 822-6774 COUNSEL FOR THE DEP 26 IN THE FIRST DISTRICT COURT OF APPEAL STATE OF FLORIDA CASE NO.:1D02-4712 COASTAL PETROLEUM COMPANY, a Florida corporation, Appellant/Cross Appellee, CHARLES E. ARNOLD, et al., and ROBERT W. CLARK, et al., Appellants/Cross-Appellants VS. STATE OF FLORIDA, DEPARTMENT OF ENVIRONMENTAL PROTECTION, and BOARD OF TRUSTEES OF THE INTERNAL IMPROVEMENT TRUST FUND, Appellees. INITIAL BRIEF OF APPELLANT COASTAL PETROLEUM COMPANY * * . * * POINT II THE TRIAL JUDGE ERRED IN HOLDING THAT LEASE 224-A WAS NOT TAKEN x x * x x 3 ( E 3 . ] j 2 4 x ae q i 4 ae ee ete 27 C. THIS COURT MAY PROPERLY DECLARE THAT LEASE 224-A WAS TAKEN AND RETURN THE CASE FOR A JURY TRIAL ON THE ISSUE OF VALUATION. Government action may be' found to be a regulatory taking either as a categorical taking or through an ad hoc factual analysis. A categorical taking requires “compensation without the usual case-specific inquiry ... where the regulation ‘denies all economically beneficial or productive use of land.’ ” Keshbro, Inc. v. City of Miami, 801 So. 2d 864, 869 (Fla. 2001) (quoting Lucas v. South Carolina Coastal Council, 505 U.S. 1003, 1015 (1992)). Where a categorical taking does not exist, the court may find a taking through an ad hoc factual analysis considering a number of factors. See, Penn Central Transp. Co. v. City of New York, 438 U.S. 104 (1978) and Graham v. Estuary Properties, Inc., 399 So. 2d 1374 (Fla. 1981) cert. den., Taylor v. Graham, 454 U.S. 1083 (1981). The record before this Court establishes both types of takings and the Court should declare the denial and application of the policy was a taking of Lease 224-A. . * * * * * Respectfully Submitted, /s/ ROBERT J. ANGERER, SR., ESQUIRE Florida Bar No. 178546 ROBERT J. ANGERER, JR., ESQUIRE Florida Bar No. 995381 ANGERER & ANGERER Post Office Box 10468 Tallahassee, Florida 32302 Tel: 850-576-5982 28 S. CARY GAYLORD, ESQUIRE Florida Bar No. 0180538 LORENA H. LUDOVICI, ESQUIRE Florida Bar No. 847062 R. ADAM CARNEGIE, ESQUIRE Florida Bar No. 0998346 GAYLORD MERLIN LUDOVICI DIAZ & BAIN 777 S. Harbour Island Blvd., Ste. 900 Tampa, FL 33602 Tel: (813) 221-9000 Attorneys for Appellant COASTAL PETROLEUM COMPANY 29 IN THE FIRST DISTRICT COURT OF APPEAL STATE OF FLORIDA CASE NO.:1D02-4712 COASTAL PETROLEUM COMPANY, a Florida corporation, Appellant/Cross Appellee, CHARLES E. ARNOLD, et al., and ROBERT W. CLARK, et al., Appellants/Cross-Appellants VS. STATE OF FLORIDA, DEPARTMENT OF ENVIRONMENTAL PROTECTION, and BOARD OF TRUSTEES OF THE INTERNAL IMPROVEMENT TRUST FUND, Appellees. REPLY BRIEF OF APPELLANT COASTAL PETROLEUM COMPANY * *x x x x ‘. THE TRIAL JUDGE ERRED IN FAILING TO CONCLUDE LEASE 224-A IS COMPENSABLE PROPERTY. The State fails to cite a single case justifying denial of a proprietary right without compensation because of a regulatory permitting requirement. There is no pre-existing limitation on Coastal’s lease making it conditional or 30 noncompensable property. Though Coastal thought the 1976 MOS was reasonable, that was as Coastal read and understood it, not as it is now being construed and contorted. The State’s pre-existing limitation argument is based upon Lucas v. South Carolina Coastal Council, 505 U.S. 1003, 1029 (1992), where the right to prohibit nuisances was found to be a pre-existing limitation. Coastal’s exploration and production right is not a nuisance and no one asserts it Is. No State case addresses permit denials, or removal of constitutional protection based on permit denials, or holds that a permitting requirement is a pre-existing limitation. * * * * * The State also cites cases on federal drilling leases. Federal drilling leases contain completely different contractual provisions from Lease 224-A, are tied to a very specific statutory structure and do not confer a right as great as Coastal’s. Secretary of the Interior v. California, 464 U.S. 312, 339-340 (1984). For instance, on a federal lease, an exploration or production plan must be denied if it would probably cause serious harm to the environment, after which lease may be canceled, entitling the lessee to compensation. /d., at 339. Coastal presented evidence of the federal government buying back drilling leases that were thwarted for environmental reasons, but the trial judge dismissed those rights, saying: “It may be evidence of a great waste of money.” TV 4 P 450 * * * * * Respectfully Submitted, /s/ ROBERT J. ANGERER, SR., ESQUIRE Florida Bar No. 178546 ROBERT J. ANGERER, JR., ESQUIRE Florida Bar No. 995381 se ee Pea oe 31 ANGERER & ANGERER Post Office Box 10468 Tallahassee, Florida 32302 Tel: 850-576-5982 S. CARY GAYLORD, ESQUIRF Florida Bar No. 0180538 LORENA H. LUDOVICI, ESQUIRE Florida Bar No. 847062 R. ADAM CARNEGIE, ESQUIRE Florida Bar No. 0998346 GAYLORD MERLIN LUDOVICI DIAZ & BAIN 777 S. Harbour Island Blvd., Ste. 900 Tampa, FL 33602 Tel: (813) 221-9000 Attorneys for Appellant COASTAL PETROLEUM COMPANY 32 COASTAL PETROLEUM COMPANY, Appellant, V. FLORIDA WILDLIFE FEDERATION, INC.;SIERRA CLUB, FLORIDA CHAPTER; FLORIDA AUDUBON SOCIETY, INC.; ROBERT A. BUTTERWORTH, ATTORNEY GENERAL; ST. GEORGE ISLAND CIVIC CLUB; and DEPARTMENT OF ENVIRONMENTAL PROTECTION, Appellees. No. 98-1998 District Court of Appeal of Florida, First District Opinion filed October 6, 1999 Opinion on Rehearing June 26, 2000 An appeal from an order of the Division of Administrative Hearings. John K. Aurell of Ausley & McMullen, Tallahassee, Susan W. Fox of Macfarlane, Ferguson & McMullen, Tampa, and Robert J.Angerer and Robert J. Angerer, Jr. of Angerer & Angerer, Tallahassee, for Appellant. David G. Guest, and S. Ansley Samson, Earthjustice Legal Defense Fund, Tallahassee, for appellees Florida Wildlife Federation, Inc., Sierra Club, Florida Chapter, and Florida Audubon Society, Inc. Barbara Sanders, Apalachicola, for appellee St. George Island Civic Club. Maureen M. Malvern, Senior Assistant General Counsel, and Andrew J. Baumann, Senior Assistant General Counsel, — EEE 33 Office of General Counsel, and Jonathan A. Glogau, Assistant Attorney General, for appellee Department of Environmental Protection. Monica K. Reimer, Assistant Attorney General, Tallahassee, for appellee Robert A. Butterworth, Attorney General. BARFIELD, C.J. In what may be one of the final chapters in the continuing saga of the appellant's quest to extract oil from beneath the Gulf of Mexico, it challenges an order of the Florida Department of }invironmental Protection (DEP) denying its application for a drilling permit, ostensibly because oil extraction is potentially too dangerous to the environment. The appellant contends that the order must be reversed because DEP's interpretation of the applicable statute will result in an unconstitutional taking of its property. We affirm the order. The decision in this case turns on the interpretation of section 377.241 Florida Statutes (1997): 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 34 applicant has owned the nights 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. The appellant asserts that in the past, DEP has issued permits when each criterion of section 377.241 "has been met," but that when DEP announced its intention to issue a drilling permit in this case, a group of environmental organizations challenged the decision, arguing that DEP was wrongly interpreting the statute, which requires the agency to "weigh" the criteria of section 377.241 balancing environmental interests against the right to explore for oil. Following an evidentiary hearing and the issuance of an order in which the hearing officer recommended granting the permit with a multi-million dollar surety, DEP reconsidered its past practice and agreed with the environmental petitioners that "meeting" each criterion was not legally sufficient. It then "balanced" the criteria and determined that issuance of a drilling permit was too dangerous to the coastal environment. The appellant contends that DEP cannot "change its mind" about how to interpret the law without notice and rulemaking procedures, especially when the result is an unconstitutional taking of its property. We find that the appellant had adequate opportunity to be heard on the issue of the proper interpretation of section 377.241. DEP correctly determined that its previous practice was not consistent with the proper interpretation of the permitting statute and adequately explained its determination. Section 120.68(12), Fla. Stat. (1997). Cf Dept .of Administration v. Albanese, 445 So.2d 639 (Fla. Ist DCA 1984) (Agency possesses only such authority as is specifically delegated to it We a lke Se tnt tans Saa 35 by statute and cannot- promulgate rules that go beyond that grant of authority or are contrary to the intent of the legislature). 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, § 6. This is a matter to be resolved in the circuit court. AFFIRMED., BOOTH and WOLF, JJ., CONCUR. ON MOTIONS FOR REHEARING, CLARIFICATION OR CERTIFICATION PER CURIAM. ... Whether DEP's denial of the permit constitutes a taking for which compensation is due is not before us, and we decline to comment on the merits of that issue, leaving it to be resolved in the circuit court. Tampa-Hillsborough County Expressway Authority. v. A.G.W.S. Corporation, 640 So.2d 54 (Fla. 1994); State, Department of Environmental Protection v. Burgess, 667 So.2d 267 (Fla. 1st DCA 1995). Except as discussed herein, all motions are denied. BARFIELD, C.J., BOOTH and WOLF, JJ., CONCUR. 36 STATE OF FLORIDA, DEPARTMENT OF ENVIRONMENTAL PROTECTION FLORIDA WILDLIFE FEDERATION, INC.; SIERRA CLUB, FLORIDA CHAPTER; and FLORIDA AUDUBON SOCIETY, INC., Petitioners, and ROBERT A. BUTTERWORTH, ATTORNEY GENERAL, Intervenor, VS. DEPARTMENT OF ENVIRONMENTAL PROTECTION and COASTAL PETROLEUM COMPANY, Respondents ST. GEORGE ISLAND CIVIC CLUB, Petitioner, and ROBERT A. BUTTERWORTH, ATTORNEY GENERAL, Intervenor, VS. DEPARTMENT OF ENVIRONMENTAL PROTECTION, Respondent. 2 ar See eee ee ee eee 37 OGC CASE NOS. 96-2521, 96-2962 DOAH CASE NOS. 96-4222, 96-5039 FINAL ORDER On April 8, 1998, an Administrative Law Judge with the Division of Administrative Hearings (hereafter "DOAH") submitted her Recommended Order to the Department of Environmental Protection (hereafter "Department") . The Recommended Order indicates that a copy thereof was furnished to counsel for the parties. A copy of the Recommended Order is attached hereto as Exhibit A. On April 23, 1998, Petitioners Florida Wildlife Federation, Inc.; Sierra Club, Florida Chapter; Florida Audubon Society, Inc. (hereafter "Environmental Petitioners"); and Petitioner St. George Island Civic Club, jointly with Intervenor Robert A. Butterworth, Attorney General, (hereafter collectively "Petitioners") timely filed with the Department Joint Exceptions to the Recommended Order. Also on April 23, 1998, Respondent Coastal Petroleum Company (hereafter "Coastal") filed Exceptions to the Recommended Order. On May 4, 1998, Coastal filed its Response to the Joint Exceptions. Also on May 4, 1998, Petitioners filed a Joint Response to Coastal's Exceptions, and the Department filed a Response to Coastal's Exceptions. The matter is now before me for final agency action. BACKGROUND Coastal filed Application no. 1281 on March 16, 1992, to drill an exploratory oil and gas well on sovereign submerged lands leased by it nine miles south of St George Island, Florida. On August 16, 1996, the Department notified Coastal of its intent to issue Permit no. 1281 and required Coastal to publish notice of this intent. On August 30, 1996, the Environmental Petitioners timely filed a 38 verified petition for formal administrative hearing pursuant to section 403.412(5), Florida Statutes (1997). Petitions in Opposition to the permit were also timely filed by the St. George Island Civic Club and by the St. George Island Plantation Owners’ Association, Inc., but the Association's petition was later voluntarily withdrawn. The petitions were referred to DOAH, Administrative Law Judge Mary Clark, and consolidated (Case Nos. 96-4222 and 96-5038). Coastal petitioned the First District Court of Appeal (Case No. 96-3226), asserting that it was entitled to a permit from the Department without further administrative proceedings and without a requirement that it publish notice of the Department's intent to issue the proposed permit. Over the Petitioners' objection, on October 3, 1996, the Administrative Law Judge (hereafter "ALJ") granted Coastal's request for stay of the administrative proceedings pending disposition of the appellate issues. On February 10, 1997, the District Court of Appeal denied Coastal's Petition for writ of certiorari | Coastal published notice of the Department's Intent to Issue on March 20, 1997. No additional parties filed petitions in response to the published notice. A Petition to Intervene by Attorney General Robert A. Butterworth was granted on July 30, 1997, without objection. Pursuant to section 377.2425, Florida Statutes (1997), the Governor and Cabinet, acting as the Administration Commission, imposed surety requirements recommended by the Department as a condition of the permit. Coastal filed petitions with the Department and the Administration Commission protesting the surety requirements. These petitions were also referred to DOAH (Case Nos. 97-4362 and 97-4591) and consolidated with cases 96-4222 and 96- 5038. The DOAH final hearing of these consolidated cases took place in Tallahassee from October 20, 1997, through November 6, 1997, except for a one day public hearing in - i ee ee eS 39 Apalachicola. A total of 37 witnesses were heard, in addition to public testimony in Apalachicola, and numerous exhibits were received. The hearing transcript was filed on January 29 and 30, 1998, and the parties’ proposed recommended orders were filed on March 2 and 3, 1998. The ALJ'S Recommended Order was addressed to both the Department (as to the permit application) and the Administration Commission (as to the amount of surety) . Each agency is issuing a separate final order. STANDARD OF REVIEW A reviewing agency is authorized to reject or modify an administrative law judge's Conclusions of Law without limitation. § 120.57(1) (j), Fla. Stat. (1997); MacPherson v. School Bd. of Monroe County, 505 So. 2d 682, 683 (Fla. 3d DCA 1987); Siess v. Department of Health & Rehab. Servs., 468 So. 2d 478, 478 (Fla. 2d DCA 1985); Alles v. Department of Prof. Reg., 423 So. 2d 624, 626 (Fla. Sth DCA 1982). The Findings of Fact of an administrative law judge (formerly "hearing officer"), however, may not be rejected or modified by a reviewing agency, "unless the agency first determines from a review of the entire record, and states with particularity in the order, that the findings of fact were not based upon competent substantial evidence." § 120.57(1) (j), Fla. Stat. (1997); Belleau_v. Department of Envtl. Protection, 695 So. 2d 1305, 1307 (Fla 1st DCA 1997); Martuccio v. Department of Prof. Reg., 622 So. 2d 607, 609 (Fla. lst DCA 1993) Petitioners have filed exceptions only to Conclusions of Law, challenging the ALJ'S interpretation of section 377.241, Florida Statutes (1997). The Department reviews these exceptions de novo because it has the responsibility to interpret the statutes it administers. Public Employees 40 Relations Comm' n v. Dade County Police Benevolent Ass'n, 467 So. 2d 987, 989 (Fla. 1985) (upholding agency's authority to overrule hearing officer's interpretation of law); Alles, 423 So. 2d at 626 (holding that the agency need not defer to a hearing officer's interpretation of legislative intent). GOVERNING STATUTE This case turns on the meaning of the following statutory criteria for issuance of a permit for oil and gas exploration: 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 au.horized. (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. § 377.241, Fla. Stat. (1997) (emphasis added) The specific examples in section 377.241(1) refer to SO a ae ee ee 41 uplands rather than to submerged sovereignty lands. However, this section should be construed in harmony with the rest of chapter 377 and with other laws affecting submerged sovereignty lands.’ Unruh v. State, 669 So. 2d 242, 245 (Fla. 1996) (courts should "construe related Statutory provisions in harmony with one another"); V.C.F. v. State, 569 So. 2d 1364, 1365 (Fla. Ist DCA 1990) (courts should read all provisions in a chapter in pari materia) Section 377.24 prohibits any well from being drilled without a permit, while specifying locations (including submerged lands leased after specified dates) where the legislature has removed the Department's discretion to issue permits. Because Coastal's lease was executed before 1991, the Department retains discretion to make permitting decisions with regard to sovereign submerged lands covered by Coastal's lease, guided by the criteria in section 377.241. In addition, the Department's interpretation of statutes governing its authorization of oil and gas wells should be consistent with state policies declared in the Florida Air and Water Pollution Control Act and the Florida Constitution: Pollution of air and waters constitutes a menace to public welfare and to aquatic life, § 403.021, Fla. Stat. (1997), and "[i]t shall be the policy of the state to conserve and protect its natural resources and scenic beauty," Art. IL, § 7(a), Fla. Const. Laws should be construed "with reference to the ' As noted by Petitioners, the law enacting section 377.241 contained a section expressly stating that its provisions "shall be cumulative and supplemental to all other provisions contained in chapter 377, Florida Statutes, on the same subject" and also "cumulative and supplemental to all other provisions of law relating to submerged or sovereignty lands or relating to the powers of the trustees of the internal improvernent fund." Ch. 61-299, § 1, at 595, Laws of Fla. This provision was "repealed as being redundant" in 1977, Ch. 77-104, § 120, Reviser's Note, at 288, Laws of Fla., but its original presence corroborates the legislative intent that in pari materia principles apply to section 377.241. 42 constitution and the purpose designed to be accomplished, and in connection with other laws in pari materia, though they contain no reference to each other." American Bakeries Co. v. Haines City, 131 Fla. 790, 801, 180 So. 524, 528 (1938). RULINGS ON PETITIONERS' EXCEPTIONS Exception to Conclusion of Law 187 Petitioners challenge the introductory language in Conclusion of Law 187 ("[a]fter the three criteria of section 377.121 [sic] have been satisfied"), asserting that the term "satisfied" incorrectly interprets section 377.241 as a checklist of requirements to be passed or failed.” Petitioners correctly point out that section 377.241 does not constitute a pass-fail checklist, but rather guidelines for balancing interests. The statute "should be interpreted as calling for a weighing process where each criterion is evaluated and then weighed against the other factors." (Joint Exceptions at 2.) By its own terms as well as in the context of other sections of chapter 377, section 377.241 charges the Department with balancing the interests of the fee simple Owner against the interests of the mineral rights lessee. The title of the enacting legislation describes the statute as "relating to," among other matters, "the protection of surface rights of landowners" and "providing criteria . . . to issue permits for drilling or exploring and extracting through well holes." Ch. 61-299, at 591. The preamble also refers to > By implication, Petitioners also challenge the last sentence of Conclusion of Law 180, which states that Coastal "has met" its burden of establishing entitlement to the permit it seeks. > Coastal argues that the purpose of the law was to protect landowners from strip-mining, versus exploration through a well hole. (Coastal's Response to Joint Exceptions, Attachment C, unnumbered page 10.) FBR tad ah Sp Ran dit hat 43 concerms of "the owners of the fee simple title" that mineral rights grantees not "unduly interfere with" the fee simple owners’ use of their lands and "deems it to be in the public interest" to provide a remedy for the absence of "any system for the orderly determination" as to whether drilling or other operations should be permitted. Ch. 61-299, at 592, Laws of Fla. The terms "give consideration to," "be guided by," and "criteria" also indicate that section 377.241 calls for balancing interests rather than simply checking off requirements. § 377.241. These terms imply a greater degree of discretion than do terms such as "condition," "shall," or "must," which the legislature uses to indicate specific requirements for permits. § 377.2424, Fla. Stat. (1997). A similar balancing of interests is suggested by section 377.06, which declares, in pertinent part, that it is the public policy of the state "to provide for the protection and adjustment of the correlative rights of the owners of the land wherein [oil and gas] lie and the owners and producers of oil and gas resources," as well as "to safeguard the health, property, and public welfare of the citizens" of Florida. § 377.06, Fla. Stat. (1997). For the above reasons, Petitioners’ exception to the introductory language of Conclusion of Law 187 is granted. Exception to Conclusion of Law 181 The first criterion to be considered by the Department is the "nature, character, and location of the lands involved." § 377.241, Fla. Stat. (1997). This criterion focuses on the Protection against strip-mining was one of the law's purposes, but the language of the law itself, the title, and the preamble also express the legislature's intent to protect landowners against the drilling of unduly burdensome wells. 44 interests of the fee simple owner. In this case, the fee simple owner is the Board of Trustees of the Internal Improvement Trust Fund of the State of Florida (hereafter "the Trustees") . The Trustees hold title to the lands and resources of Florida "in trust for all the people." Art. X, § 11, Fla. Const.; § 253.03, Fla. Stat. (1997). The ALJ found that Coastal's proposed oil and gas well would be drilled "in the Gulf of Mexico within waters of the State of Florida, approximately nine miles south of St. George Island in Franklin County." (Finding of Fact 8.) She found that the impact of the drilling rig on the immediate site would be minimal. ‘Findings of Fact 11, 32, and 34.) The ALJ also found that "[t]he obvious threat to St. George and other sensitive barrier islands, to Apalachicola Bay (a special management area), to the world-renown[ed] beaches, and to the commercially and envirormentally treasured lands along the Florida panhandle coast, would be from an oil spill." (Finding of Fact 37.) The ALJ noted that special management areas are designated because of their unique habitats, living resources, recreational use, aesthetic importance, and other ecological, educational, consumptive, intrinsic, scientific, and economic values, (Finding of Fact 125), and that "[mJost of the area in question is within some form of special management area as defined by statute," (Finding of Fact 126). She also found that nursery and breeding habitats are sensitive to even small amounts of oil. (Finding of Fact 167.) The ALJ further found that "the chance of a damaging spill from drilling the proposed exploratory well is extremely remote," (Finding of Fact 38), that blowouts are rare, but they do happen, (Finding of Fact 92), and that a hypothetical discharge, although originating outside of any special management area, will impact natural resources within the Apalachicola Bay special management area, (Finding of Fact 168). These Findings of Fact are unchallenged. However, 45 Petitioners challenge the ALJ's Conclusion of Law 181, which reads as follows: 181. The first criterion, on its face, has a more limited application than that proposed by the Environmental Petitioners. The legislature's intent to preclude drilling in coastal waters is effectuated not in section 377.241, Florida Statutes, but in section 377.242, Florida Statutes, which includes a specific exception for leases entered prior to June 7, 1991. As found above, Coastal's permit meets the first criterion. This Conclusion of Law discounts or overlooks the importance of the first statutory criterion of section 377.241, the "nature, character and location of the lands involved." The effect of Coastal's exclusion from the prohibitions of section 377.242 is simply to leave the Department's permitting decision subject to the criteria of section 377.241. As discussed above, these criteria are not tests to be "met," but considerations to guide the Department's discretion in determining whether to grant or deny a permit. Apparently the ALJ reaches her conclusion that Coastal's permit "meets" the first criterion on the basis that the chance of an oil spill is remote. (Finding of Fact 38.) However, Petitioners correctly point out that the relevant criterion is not the chance of a blowout, but the nature of the lands involved. The generality of the term "lands involved" suggests that the Department should look beyond the immediate footprint of the drilling rig. § 377.241(1). Moreover, as noted above, the overall purpose of the statute was to institute a permit process in order to protect landowners from undue burdens from mineral leases. Ch. 61-299, at 592, Laws of Fla. This remedial purpose should be liberally construed. Conner v. Division of Elections, 643 So. 2d 75, 46 77 (Fla. lst DCA 1994) (remedial statutes "should be liberally construed so as to suppress the evil identified by the legislature, and to advance the remedy intended") The "evil identified" by the legislature was the lack of a permitting process, leaving landowners under a threat that mineral rights lessees might "unduly interfere with" the "proper and appropriate use as might be indicated by the character or location of the land."* Ch. 61-299, at 592. The policies enunciated in Chapter 403 of the Florida Statutes and in Article II, Section 7(a) of the Florida Constitution, as discussed above, also suggest that the Department should consider lands and waters potentially impacted by pollution. Unruh, 669 So. 2d at 245 (construing related statutory provisions harmoniously) The special characteristics of the lands involved, as noted in Findings of Fact 37, 125, 126, 167, and 168, are crucial to evaluation of the first permit criterion, the landowner's interest. The public trust interest in these special lands weighs heavily against issuance of a drilling permit. The Department grants Petitioners’ exception to Conclusion of Law 181. Exception to Conclusion of Law 182 On the other hand, the second and third criteria to be * Coastal attempts to exclude environmental considerations from the statute by restricting the Department from considering land uses other than those specifically enumerated in section 377.241(1) (eg... agricultural, urban, residential). (Coastal's Response to Joint Exceptions, Attachment C, unnumbered page 12.) However, this interpretation would thwart application of the statute: to submerged lands held in public trust. Cf. Smalley Transp. Co. v. Moed's Transfer Co., 373 So. 2d 55, 57 (Fila. Ist DCA 1979) (warning that the "Expressio unius" maxim should be used with caution to avoid thwarting legislative intent, for "it is not of universal application") 47 considered by the Department both address the interest of the owner of the mineral rights. The second criterion directs the Department to consider "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." § 377.241(2). Rather than recounting in detail the "50 + years' history" of Coastal's leases, the ALJ refers to factual narratives in court opinions such as Watson v. Holland, 20 So. 2d 388 (Fla. 1945), and Coastal Petroleum v. Chiles, 701 So. 2d 619 (Fla. Ist DCA 1997), review denied~ 707 So. 2d 1123 (Fla. 1998). (Findings of Fact 46, 49.) The original lease to Coastal's predecessor was executed in 1944. Watson, 20 So. 2d at 389. It was not a disposition of title, but "the granting of a limited right to take [minerals] from the lands or water bottoms owned by the State." Id. at 392. Between 1947 and 1968, Coastal conducted geologic and seismic studies and drilled 22 wells, finding nothing except in one inland site. Coastal, 701 So. 2d at 622. In a 1976 settlement agreement Coastal surrendered all but the outermost portion of its lease area. (Finding of Fact 49.) In 1992 Coastal submitted five offshore drilling applications to the Department, later reduced to one. (Finding of Fact 13.) The ALJ found that Coastal had not abandoned oil exploration in favor of a "greenmail" attempt to incite the State to buy its leases. (Finding of Fact 50.) "For many of the 50 years, litigation has eclipsed oil, gas and mineral exploration in the vast leases," but not all of the litigation was initiated by Coastal and none was found to be frivolous. (Id.) These Findings of Fact are likewise unchallenged. However, Petitioners challenge Conclusion of Law 182, which reads as follows: 182. Coastal's lease 224-A includes 48 requirements for lease payments and for certain minimal drilling or exploration activity. As found above, Coastal has satisfied those requirements and there is no competent evidence that it has abandoned its drilling rights under the lease. Coastal's permit meets the second criterion. This interpretation oversimplifies the governing statute. Certainly abandonment of the lease would weigh heavily against issuance of the permit, but again this is not a simple pass-fail test. Facts well short of "abandonment" are also relevant. The ALJ correctly points out that "[nJothing in the text of the three criteria require[s] consideration of the applicant's ‘motive. (Conclusion of Law 184.) However, the fact that for many years the applicant held its lease without exercising its exploration rights, (Finding of Fact 50), is expressly made relevant to the second criterion. § 373.241(2), Fla. Stat. This criterion weighs somewhat against issuance of the permit. To this extent, the Department grants the Petitioners' Exception to Conclusion of Law 182. Exceptions to Conclusions of Law 183 and 186 Like the second criterion, the third criterion also evaluates the applicant's interest in oil and gas rights: "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." § 377.241(3), Fla. Stat. The ALJ makes extensive Findings relevant to the third criterion: The target of exploration is an anticipated structure within the Jurassic Smackover and Norphlet formations, which provide commercially-viable oil production in the Jay field in northwest Florida, (Findings of 49 Fact 9 and 59); in the experience of one witness, the standard . industry expectation is a one in ten chance in a frontier well such as this "wildcat" well (a well drilled outside of a producing field), (Finding of Fact 51); the Department has rarely used this criterion to deny an application, (Finding of Fact 52); Department statistics show a success rate for wildcat wells throughout Florida of about 2-3 %, (F inding of Fact 53); Department staff determined that the siting of permit 1281 was reasonable, and this determination was supported by the evidence, (Findings of Fact 54, 66): "Coastal presented sufficient evidence of the anticipated commercial profitability of the well," (Finding of Fact 55); geologists agree that "the only way we can determine whether oil is present is to dig a hole," (Finding of Fact 56): the contour lines interpreted by Coastal's experts "show a promising geologic structure at the site of Permit no 1281" and contribute to their credible opinions that the site is commercially viable, (Findings of Fact 58, 76); the process of determining whether the essentials for an oil field exist requires acquisition of data from prior wells, including dry wells, (Finding of Fact 64); magnetic, seismic, and gravity testing also yields valuable data, and the more data available the more accurate the map, but prospects have been drilled without expensive and possibly subjective site-specific tests, (Findings of Fact 64, 65). - Again these Findings of Fact are unchallenged. However, Petitioners challenge Conclusion of Law 183. which reads as follows: 183. The third criterion does not suggest that the prospect for finding oil must be a sure thing. Every expert testifying on this issue in_ this proceeding agreed that petroleum exploration is a risky business. Even in a proven productive field, dry holes are drilled. Petroleum geologists rely on data obtained from a variety of sources to select a drilling 50 site, but only the drilling itself can determine with certainty what lies beneath that site. A wealth of credible evidence was presented by the parties on this issue. No evidence could utterly foreclose the possibility that Phillip Ware's prospect is all that he predicts. The greater weight of the evidence establishes that it is a[t] least worth a look. Petitioners also take exception to Conclusion of Law 186, which states in part: "Mere speculation that oil exists or does not exist does not offend the third criterion in the grant of a drilling permit." Although otherwise well-founded, these Conclusions of Law again misread the statutory criterion as a pass-fail test. Certainly, if the Department were simply checking off a list of requirements Coastal would have met this requirement. However, the Department is charged instead with balancing interests, and Petitioners correctly point out that "at least worth a look," (Conclusion of Law 183), rates fairly low on the statutory scale of "proven or indicated likelihood," § 377.241(3). (Joint Exceptions at 9) To this extent, the Department grants Petitioners' Exceptions to Conclusions of Law 183 and 186. Exception to Conclusion of Law 184 Petitioners’ final exception is to Conclusion of Law 184, which reads as follows: 184. Nothing in the text of the three criteria require consideration of the applicant's "motive." If the Environmental Petitioners are correct in their apprehension of "Greenmail" by Coastal to induce the state to buy its lease or to support a claim of inverse condemnation or "taking," the surest way to dissipate those motives is to vermit the drilling. 51 Petitioners contend instead that "one of the harms" that section 377.241 is intended to prevent "is the issuance of oil drilling permits to persons whose motive is to use the permit as a device to force the surface owner to purchase oil and mineral rights." (Joint Exceptions at 3.) However, the Department agrees with the ALJ that nothing in the language or history of the statute suggests that the Department should consider the applicant's motive. Instead, as discussed above, the statute charges the Department with balancing the interest of the landowner against the interest of the owner of mineral rights, looking to specific, relatively objective factors. For these reasons, Petitioners' Exception to Conclusion of Law 184 is denied. RULINGS ON COASTAL'S EXCEPTIONS Exception to Findings of Fact 16 and 75, Conclusion of Law _ 1738 Coastal's Exception no. 4 challenges Findings of Fact 16 and 75 and Conclusion of Law 178, which address permit conditions imposed by the Department in addition to the surety: a magnetometer and sidescan survey, a_ spill trajectory analysis, an inventory of oil spill equipment, and a hydrogen sulfide dispersion model.” (F indings of Fact 73-74; Coastal's Exceptions at 6.) The ALJ found that the agency "had a sound rational basis to require each item" and that the issue is moot since Coastal has already complied with the conditions. (Finding of Fact 75.) She concluded that "[t]he conditions imposed by DEP on Coastal's permit are well within the ambit" of the agency's statutory authority. : Coastal's challenges to the surety (Exceptions 1-3) are addressed by the Governor and Cabinet sitting as the Administration Commission and are not addressed in the Department's Final Order. 52 (Conclusion of Law 178.) Coastal's Exception no. 4 is without merit. The Department is authorized to issue orders "governing all phases of" oil and gas exploration in order to minimize damage. § 377.22(2), Fla. Stat. (1977). Statutory language such as “appropriate safety equipment," § 377.22(2) (c), prevention of "injury to neighboring . . .property," § 377.22(2) (i), and minimiz[ing] the impact on hydrology and biota of the area," § 377.22(2) (v), indicate the appropriateness of the required conditions, and the record provides support for the ALJ's Conclusion that the conditions were appropriate. (Tr., Vol. 25, at 3311-15.) In addition, the issues concerning permit conditions are moot for the reasons given by the ALJ. Therefore, Coastal's Exception no. 4 (to Findings of Fact 16 and 75, Conclusion of Law 178) is denied. Exception to Finding of Fact 172 Coastal challenges Finding of Fact 172, in which the ALT denies both Petitioners’ and Coastal's requests for costs and attorney's fees. The ALJ states that "[t]his lengthy proceeding, competently and diligently tried by all parties, yields no evidence of bad faith or improper purpose or any other basis for award of fees cognizable under Chapter 120." (Finding of Fact 172.) Review of the entire record indicates no basis to overturn this Finding. Additionally, the Petitioners have become the prevailing party in this Final Order. Coastal's Exception no. 5 (to Finding of Fact 172) is denied. CONCLUSION Applying the statutory criteria of section 377.241 to the facts determined by the ALJ, the Department must balance the Trustees’ interest in lands they hold in public a. * . >» oe ae = 53 trust against the interest of the applicant. On the one hand, the "lands involved" include sensitive barrier islands, Apalachicola Bay (a special management area), world- renowned beaches, and "commercially and environmentally treasured lands along the Florida panhandle coast." (Finding of Fact 37.) On the other hand, the applicant's mineral rights were unexercised over a long period, (Findings of Fact 49, 50), and are speculative, (Findings of Fact 51, 53, 56; Conclusions of Law 183, 186). Weighing evidence is the province of the trier of fact, but balancing policy interests is the province of the agency. Cross v. Department of Health & Rehab. Servs., 658 So. 2d 1139, 1143 (Fla. Ist DCA 1995) ("Striking the proper balance between . competing policy considerations" is a decision to be made by an agency, as guided by the legislature); Fl w V. Reg., 638 So. 2d 545, 546 (Fla. Ist DCA), review denied, 650 So. 2d 149 (Fla. 1994) (affirming DER's determination "that the public interest in the extent of the impact on the environment .. . was a policy matter for its determination and not a question of fact to be resolved by the hearing officer") . In the present case, the balance tips against issuance of a permit to drill an exploratory well nine miles south of St. George Island. It is therefore ORDERED: A. The ALJ's Findings of Fact are adopted in their entirety and incorporated herein by reference. B. The ALJ's Conclusions of Law 180, 181, 182, 183, 186 and 187 are rejected or modified as indicated above. Conclusions of Law 173-79 and 184-85 are adopted and incorporated herein by reference ° C. The Notice of Intent to Issue Permit issued by the Department on August 16, 1996, is REVERSED. ° Conclusions of Law 188-202 concern issues regarding the surety to be imposed and are not addressed in the Department's Final Order. 54 D. Coastal's application filed with the Department requesting issuance of a permit in connection with their proposed drilling of a well for exploration of oil and gas, Permit no. 1281, is DENIED. Any party to this proceeding has the right to seek judicial review of the Final Order pursuant to section 120.68, Florida Statutes, by the filing of a Notice of Appeal pursuant to Rule 9.110, Florida Rules of Appellate Procedure, with the clerk of the Department in the Office of General Counsel, 3900 Commonwealth Boulevard, M.S. 35, Tallahassee, Florida 32399-3000; and by filing a copy of the Notice of Appeal accompanied by the applicable filing fees with the appropriate District Court of Appeal. The Notice of Appeal must be filed within 30 days from the date this Final Order is filed with the clerk of the Department. DONE AND ORDERED this 22nd day of May, 1998, in Tallahassee, Florida. STATE OF FLORIDA DEPARTMENT OF ENVIRONMENTAL PROTECTION /s/ by Kirby B. Green, I for VIRGINIA B. WETHERELL Secretary Marjory Stoneman Douglas Building 3900 Commonwealth Boulevard Tallahassee, Florida 32399-3000 FILING AND ACKNOWLEDGMENT FILED, ON THIS DATE, PURSUANT TO §120.52 FLORIDA STATUTES, WITH THE DESIGNATED DEPARTMENT CLERK, RECEIPT OF WHICH IS HEREBY ACKNOWLEDGED /s/ 5/22/98 CLERK 55 STATE OF FLORIDA DIVISION OF ADMINISTRATIVE HEARINGS Case No. 96-4222, Case No. 96-5038, Case No. 97-4362, Case No. 97-4591 FLORIDA WILDLIFE FEDERATION, INC.: SIERRA CLUB, FLORIDA CHAPTER: and FLORIDA AUDUBON SOCIETY, INC., Petitioners, and ROBERT A. BUTTERWORTH, ATTORNEY GENERAL, Intervenor, VS. DEPARTMENT OF ENVIRONMENTAL PROTECTION and COASTAL PETROLEUM COMPANY, Respondents. ST. GEORGE ISLAND CIVIC CLUB, Petitioner, and ROBERT A. BUTTERWORTH, ATTORNEY GENERAL, 56 Intervenor, VS. DEPARTMENT OF ENVIRONMENTAL PROTECTION, Respondent. COASTAL PETROLEUM COMPANY, Petitioner, VS. ADMINISTRATION COMMISSION, Respondent. COASTAL PETROLEUM COMPANY, Petitioner, VS. ADMINISTRATION COMMISSION, Respondent. RECOMMENDED ORDER Pursuant to notice, the Division of Administrative Hearings, by its duly designated Administrative Law Judge, 57 Mary Clark, held a formal hearing in the above-styled consolidated cases beginning on October 20, 1997, and continuing until completed on November 6, 1997. The hearing was held in Tallahassee, Florida, with the exception of the public hearing on October 29, 1997, in Apalachicola, Florida. APPEARANCES For Environmental Petitioners: David Guest, Esquire S. Ansley Samson, Esquire Earthjustice Legal Defense Fund Post Office Box 1329 Tallahassee, Florida 32302-1329 For St. George Island Civic Club: Barbara Sanders, Esquire St. George Island Civic Club Post Office Box 157 Apalachicola, Florida 32320-0157 For Department of Environmental Protection: Andrew J. Baumann, Esquire John W. Costigan, Esquire Tony Ettore, Esquire Department of Environmental Protection 3900 Commonwealth Boulevard Tallahassee, Fiorida 32399-3000 For Administration Commission: s Michael Takac, Esquire . Room 209, The Capitol 58 Tallahassee, Florida 32399-0001 For Attorney General of Florida: Denis Dean, Esquire Monica Reimer, Esquire Department of Legal Affairs The Capitol, Plaza Level 01 Tallahassee, Florida 32399-1050 For Coastal Petroleum Company: Robert J. Angerer, Sr., Esquire Robert J. Angerer, Jr., Esquire Post Office Box 10468 Tallahassee, Florida 32302-0468 STATEMENT OF THE ISSUES The issues in these consolidated cases are whether Coastal Petroleum Company is entitled to an oil and gas exploration permit (Permit no. 1281) and, if so, what conditions should attach, including a reasonable surety amount. PRELIMINARY STATEMENT On August 16, 1996, the Department of Environmental (DEP) notified Coastal Petroleum Company (Coastal) of its intent to issue Permit no. 1281. On August 30, 1996, Florida Wildlife Federation, Inc., Sierra Club, Florida Chapter, and Florida Audubon Society, Inc. (Environmental Petitioners), filed a verified petition for formal administrative hearing pursuant to Section 403.412(5), Florida Statutes, disputing the intended permit. Petitions in opposition to the permit were also filed | ica 59 by the St. George Island Civic Club and by the St. George Island Plantation Owners' Association, Inc. When the petitions were forwarded to the Division of Administrative Hearings (DOAH) for conduct of a formal evidentiary hearing, the cases were assigned numbers 96-4222, 96-5038 and 96-5047, respectively, and were consolidated. Later, the St. George Island Plantation Owners' Association, Inc., voluntarily withdrew its petition and the file in Case No. 96- 5047 was closed. In the meantime, Coastal filed a Petition for Review of Nonfinal Agency Action (Case No. 96-3226) and an alternative Notice of Appeal (Case No. 96-3227) in the First District Court of Appeal asserting that it was entitled to a permit from DEP without further administrative proceedings and without a requirement that Coastal publish notice of the proposed permit. Over the objection of the Environmental Petitioners, the Administrative Law Judge granted Coastal's request for stay of the administrative proceedings pending disposition of the appellate issues (order entered October 3, 1996). In a letter dated March 17, 1997, counsel for Coastal informed ‘the Administrative Law Judge that its Writ of Certiorari and Motion for Clarification had been denied and that Coastal would publish notice of DEP's Intent to Issue on March 20, 1997. No additional parties filed petitions in response to the published notice and in an order entered April 30, 1997, the Administrative Law Judge set the formal hearing to commence on September 29, 1997. A Petition to Intervene by Attorney General Robert A. Butterworth was granted on July 30, 1997, without objection. The hearing was continued until October 20, 1997, ee 60 after DEP and the Governor and Cabinet acting as the Administration Commission applied newly-enacted Chapter 97-49, Laws of Florida (codified as Section 377.2425(1)(c), Florida Statutes) and required as a condition of Permit No. 1281 that Coastal provide surety of $4,249,637,886. In response to the surety action Coastal filed two petitions for formal hearing, one directed to the Administration Commission (referred to DOAH and assigned Case No. 97- 4362) and the other directed to DEP, which had calculated -and recommended the surety amount (referred to DOAH and assigned Case No. 97-4591). These petitions were consolidated with the pending cases and all four proceeded to hearing as described above. The parties filed their prehearing stipulation on October 16, 1997. At the commencement of the hearing the Environmental Petitioners were permitted to amend their petition to clarify some issues, to delete others, and to add a request for attorney's fees. At the hearing Coastal presented the following witnesses: Phillip W. Ware, president of Coastal, a professional geologist and an expert in petroleum exploration; Ed Garrett, the DEP employee and professional geologist who processes applications for drilling permits; Anthony Randazzo, Ph.D., an expert in geology and educational geology; Ed Shell, an expert in design and implementation of drilling, casing and cementing programs; Jim Rushing, an expert in offshore environmental considerations of drilling fluids; Tom Herbert, Ph.D., an expert in environmental planning, operation and response, and a professional geologist; Lawrence David Curry, the DEP oil and gas section administrator who reviews applications for drilling permits and is a professional geologist; William 61 - Sackett, Ph.D., an expert in marine geochemistry, with emphasis in oil in the sea, inputs and fates: Harry Roberts, Ph.D., an expert in oil and gas seeps and vents in the sea; Charles Wilson, Ph.D., an expert in fisheries and oil and gas platforms; Nick Stratus, Ph.D., the DEP economist who calculated the surety amount; John Supan, Ph.D., an expert biologist with emphasis on oysters; Irving Mendelssohn, Ph.D., an expert in coastal plant ecology, with extensive experience in coastal marshes related to oil spills and cleanup of oil spills; Shea Penland, Ph.D., an expert in coastal geomorphology, marine science, and the effects and cleanup methods of oil spills on coastal habitats of the Gulf of Mexico; Kenneth Shaw Thompson, an expert in cleanup of oil spills; Dagmar Etkin, Ph.D., an expert in oil spill information, analysis and Statistics; William H. Colona, a_ professional geologist and representative of Woodward Clyde Consultants, an environmental consulting firm; Philip Sorensen, Ph.D., an expert in oil and gas economics, viability of rates of return and economic consequences of oil spills; Theodore Bourgoyne, Jr., Ph.D., an expert petroleum engineer with extensive experience in well control and historic well control events, Deborah French, Ph.D., an expert in oil spill trajectory modeling and oil spill events; Jacqueline Michel, Ph.D., an expert in cil spill response, specifically determining the resources at risk, developing protection priorities, and _ shoreline cleanup decision-making; Bruce D. Graham, an expert in preparation of photodocumentation surveys, visual analysis and quality control of data collection and photodocumentation; Janet Voorhees, an expert in the area of information on oil and planning; Mike NeSmith, a vice president of Noble Drilling, the contractor who plans to drill the well and an expert in 62 offshore drilling; Clay Durham, Ph.D., an expert in petroleum exploration education and petroleum exploration; Jamil Azad, an expert in petroleum exploration and geophysics; Charles Morrison, an expert in seismic interpretation, geophysics and the Smackover formation; Barry Faulkner, an expert in petroleum exploration geology, generation and evaluation of oil and gas prospects, and in estimating the geologic risks and reserves of a prospect; Al Shannon, an expert in oil and gas field development planning and estimating the costs of such development; George C. Hite, an expert petroleum engineer, with experience in field development planning, cost and viability of prospects; Samuel O. Sugiyama, Ph.D., an expert in risk assessment; and by deposition on rebuttal, Doug Smith, Ph.D., an expert in geophysics and the basement structure of Florida. The Environmental Petitioners and Attorney General presented the following: James Thompson, an expert geophysicist with expertise in interpreting seismic lines and identifying petroleum and hydrocarbon bearing structures; Mike Cheeseman, an expert in evaluating oil prospects and an oil exploration geologist; and Murphy Ellen Chandler, .a paralegal with experience in title searching. The DEP presented the following witnesses: William Gambrell, a DEP employee who is an expert in the area of flow rates from oil wells; Erie Barnett, a DEP employee who is an expert in natural resource damage assessments; George Henderson, a DEP employee who is an expert in marine biology, ——————EE__i_a_aaaE 63 Florida marine habitats and resources, and impacts of hydrocarbon releases on same; and Walter Schmidt, Ph.D., the chief of the Florida Geological Survey, the State Geologist, and an expert in geology, Florida geology, Florida stratigraphy and petroleum geology. The St. George Island Civic Club witnesses testified at the public hearing conducted in Apalachicola, Florida. The Administration Commission did not present evidence. The following exhibits were received in evidence: Coastal's Exhibits no. 2, 3, 7-9, 12, 14, 16, 17, 20, 22-25, 30, 32-34, 36, 37, 39, 42-46, 48, 49, 51, 55, 56, 58-76, 84, 87-96, 99, 101, 105, 108, 113, 115-119, 123, 131-134, 140, 141, 143, 145(a) and (b), 147, 149, 151, 153, 155, 157, 159, 161, 163, 164, 167, 169, 171, 174, 176, 180, 182, 185, 186, 189, 193, 195, 197, 199-201, 204, 205, 206, 208, 211, 214, 215, 227, 228, 230-233, 238, 241, 242, 244, 248, 254, 255, 257, 259, 264-267, 271, 273-281, 283, 284, 295, 296, 299-303, 306, 319, 334, 335, 355-359, 361-379, 383, 384, 388, 391, 392, 394, 395, 400-405, 407, 408, 416, 426, 434, 444-459, 462, 465, 470-472, 474(1-g), 475(a-c), 480-483, 494, 495, 503-505, 509, 513, 514, 517-524, 527, 528, 531-537, 539- 583, 585, 594-597, 604, and 606; DEP Exhibits no. 1, 1-14, 16-32, 34, 35, 37, 40, 46, 47, 49, 51, 52, 57-59, and 61: Environmental Petitioners' Exhibits no. 7, 10, 12, 13, 15, 16, 21, 29, 30(a-q), 35, 78-83, 85, 117, 128, 131, 135-138, 140- 142, 146, 152-154, and 156, and Attorney General's Exhibits no. 1, 3, 6, and 26.! By stipulation executed on October 1, 1992, the parties agreed that certain proprietary geophysical data (primarily seismic profiles covered by a license agreement between Coastal and Western Geophysical) would be presented at hearing as demonstrative exhibits and would be COO 64 returned to Coastal. One exhibit, Environmental Petitioners’ no. 142A, is part of the record in this proceeding, but is confidential and sealed pursuant to Section 377.2409(1), Florida Statutes. The 26-volume transcript of hearing was filed on January 29 and 30, 1998; the parties' proposed recommended orders, briefs and written argument were filed on March 2 and 3, 1998. Because there are two agencies with final order authority in this proceeding, DEP (as to permit applications) and the Administration Commission (as to amount of surety), this recommended order is submitted to both agencies. The record (transcript and exhibits) is being forwarded to DEP. FINDINGS OF FACT Parties 1. The applicant Coastal Petroleum Company, (Coastal) is an oil and gas company originally named Amold Oil Exploration Company, formed in 1941 as a Florida corporation. Its majority owner is Coastal Caribbean Oils and Minerals, Ltd., a company publicly traded on the Boston Stock Exchange. Phillip Ware is president of Coastal, having been elected to that position in 1985. 2. The Department of Environmental Protection (DEP) is the agency of the state responsible for implementing laws and regulations governing oil and gas permits. DEP was created pursuant to Section 20.255, Florida Statutes, as the successor agency to the Florida Department of Environmental Regulation and Department of Natural Resources. 3. The Environmental Petitioners are the Florida 65 Wildlife Federation, Inc., Sierra Club, Florida Chapter, and Florida Audubon Society, Inc. Florida Wildlife Federation and Florida Audubon Society are non-profit Florida corporations and citizens of the state. 4. The St. George Island Civic Club is an organization formed by and on behalf of property owners and residents of St. George Island, Franklin County, Florida. 5. The Administration Commission is a collegial body composed of the Governor and Cabinet of the State of Florida, pursuant to Section 14.202, Florida Statutes. 6. The Attorney General of the State of Florida has intervened in this proceeding pursuant to Section 403.412(5), Florida Statutes. 7. The Attorney General, Environmental Petitioners and St. George Island Civic Club oppose the grant of Permit no. 1281 to Coastal and support a surety requirement in at least the amount established by the Administration Commission on the recommendation by DEP. (DOAH Cases Nos. 96-4222 and 96-5038.) Coastal supports the intended grant of its permit except for certain conditions which it claims are without authority; Coastal opposes the surety recommended by DEP and set by the Administration Commission. (DOAH Cases Nos. 97-4362 and 97-459] ) The Project 8. The activity that is the subject of the application at issue (Permit no. 1281) is Coastal's drilling of a single exploratory oil and gas well in the Gulf of Mexico within waters of the State of Florida, approximately nine miles south of St. George Island in Franklin County. 9. The target of the exploration is an anticipated 66 structural oil trap within the Jurassic Smackover and Norphlet geological formations. These are the same formations which provide commercially-viable oil production in the Jay field in northwest Florida. The anticipated well depth is 13,000 to 15,600 feet but the permit would allow drilling to the basement or 18,000 feet, whichever occurs first. 10. Coastal's drilling contractor, Noble Drilling Company, has drilled wells all over the world since 1925. It has been responsible for approximately 10 percent of all the wells drilled in the Gulf of Mexico, or about 190 wells a year, for both major and small independent oil companies. 11. If permitted, Noble will install a portable drilling rig, the Paul Wolff, or similar sister rig, with three columns and footing that will sit on the relatively featureless sea bottom at Coastal's offshore site. The rig will be staffed by a trained Noble crew and will be operated in a zero-discharge mode. That means nothing will be allowed to escape from the rig into the water, including drill cuttings, sewage treatment water, garbage or rain water. Surrounding the rig will be a high seas oil fence with locks, a cleanup crew and vessel, and an evacuation vessel. 12. When drilling is completed, the rig will be removed and the well either abandoned or transferred to production mode with a production platform. With the exception of a 90-day test period covered by the initial drilling permit, all production-related activity must be permitted under a separate application which is not the subject of this proceeding. The Application Process 13. On March 16, 1992, Coastal submitted 5 offshore drilling applications to the DEP, Bureau of 67 Geology. Assigned numbers 1277-1281, two proposed sites were offshore of Franklin County, and three were offshore of southwest Florida. Later, applications 1277-1280 were withdrawn and only Permit no. 1281 proceeded through review to a Notice of Intent to Issue. 14.__ As required, Coastal submitted DEP's one- page Form 3 and included a location plat and filing fee. The application form is only for drilling an exploratory well and not for any oil or gas production. 15. The application's number "1281" denotes that 1280 drilling applications have preceded it since the 1940's when DEP's predecessor agency began formal review. Not all of these proceeded through complete review; many were withdrawn, but most were approved. 16. Coastal's was not a routine application. Since the 1940's, leases and activities related to offshore oil and gas exploration in Florida have been the subject of continuous legal disputes. Most applications are for on- shore drilling and DEP's regulations and review process are more relevant to those land- based operations. The review of Coastal's application therefore, by DEP staff, Ed Garrett, and others, was a commonsense extrapolation from their checklist and other sources reasonably, but not directly, related to the application at hand, for example, federal rules governing outer continental shelf (OCS) drilling. o7, On April 8, 1992, Ed Garrett detailed in a letter to Phillip Ware the following information needed to complete the application: a) A professional ecological/biological survey and report and photodocumentation of the proposed drill site to permit staff review of the bottom areas and potential impact on natural resources; b) An assessment of ambient conditions in the 68 vicinity of the well site, including potential impacts on coastal habitats, air quality, endangered and threatened species, marine mammals, birds, commercial fishing, recreational resources and archeological resources; c) A zero discharge policy for offshore drilling consistent with the policy established in 1982 when the DEP issued a drilling permit to Getty Oil for drilling in East Bay; d) An oil spill response plan for recapture of escaped pollutants; e) A description of the offshore drilling rig to be used; f) A hurricane response plan, also an item related to the prior Getty drilling permit; g) A surety in the amount of $15,000,000, to be recommended by staff to the Governor and Cabinet (a sum of $50,000,000 for all 5 wells was also addressed); h) Description of how the rig design will account for potential Karst collapse; i) Description of helicopter activity associated with field operations; j) Description of support locations and facilities to be used with the drill site, including proposed plan for transport of crude cil; k) a casing program; 1) A cementing program; m) List of proposed drilling muds and their chemical components; n) A hydrogen sulfide contingency plan; and 0) A blowout prevention plan. 18. Mr. Ware addressed each of _ these requirements in a response dated November 24, 1992. In lieu of the surety, he enclosed a check to the Petroleum Exploration and Production Bond Trust Fund in the amount of $4,000 pursuant to Section 376.40, Florida Statutes. His response included detailed attachments describing the proposed drilling operation. 69 19. DEP furnished copies of the application and additional materials to interested parties, including the Big Bend Sierra Club and Florida Audubon Society, on November 25, 1992. The Sierra Club had previously sent a letter concerning Coastal's permit application. On December 18, 1992, a meeting was held to consider the materials furnished by Coastal. 20. A letter dated January 11, 1993, from Jeremy A. Craft, Director of the Division of Resource Management, to Phillip Ware addresses deficiencies in the November 1992 submittal specifically related to the site-specific photodocumentations survey, environmental conditions and assessment of impacts, hydrogen sulfide contingency plan, zero discharge requirement, and oil spill contingency plan. The letter also states that the agency completed its own natural resource damage assessment using the schedule prescribed in Section 376.121, Florida Statutes, and data submitted by Coastal, and staff determined that, in addition to joining the Petroleum Exploration and Production Trust Bond Fund, security of $500,000,000 would be required to cover potential liability for damages and $15,000,000 would be needed to cover cleanup costs. 21. Phillip Ware responded by the January 15, 1993, deadline, providing additional information and agreeing that the following would be performed as a condition of the permit: magnetometric and side sonar surveys of the drill site, hydrogen sulfide dispersion model, and oil spill trajectory analysis. Protesting the requirement for additional surety, Coastal offered the value of its leases as evidence of its ability to pay for any damages and cleanup costs. 22. Walter Schmidt, Chief of the Florida Geological Survey, with other agency staff, reviewed the latest submittals and recommended denial of Coastal's 70 permit, primarily based on failure to provide liquid financial surety of sufficient value "to cover any and all potential damages to the environment." 23. On February 22, 1993, the Florida Department of Natural Resources issued its final order memorializing the January 26, 1993, decision of its head, the Governor and Cabinet, denying Coastal's permit application. Consistent with the notice of rights included in the order, Coastal timely filed a petition for a formal hearing, and later requested an informal administrative hearing on the issue of the agency's authority to require additional surety. 24. Individuals with royalty interest in the potential oil and gas production petitioned and were granted leave to intervene in the administrative proceeding. No other parties intervened. 25. On December 17, 1993, the assistant secretary of DEP, acting as hearing officer in the informal proceeding, entered his Final Order denying Coastal's petition and adopting the order previously entered on February 22, 1993, as the agency final order. Coastal appealed. 26. On February 9, 1995, the First District Court of Appeal reversed denial of Coastal's application, holding that the Department had no authority to require surety in excess of that authorized by statute. See Coastal Petroleum Company v. Department of Environmental Protection, 649 So. 2d 930 (Fla. Ist DCA 1995), cert. denied, 660 So. 2d 772 (Fla. 1995). 27. During the remand to the Department, the Board of Trustees of the Internal Improvement Trust Fund voted to require a $1,900,000,000 bond as a condition of the lease and DEP again denied Coastal's application for failure io provide this additional surety. On April 26, 1996, the 71 First District Court of Appeal again reversed the denial of Coastal's application, again holding that the Department had no authority to require surety in excess of that authorized by statute. See Coastal Petroleum Company v. Department of Environmental Protection, 672 So. 2d 574 (Fla. lst DCA 1996) and Coastal Petroleum Co. v. Chiles, 672 So. 2d 571 (Fla. lst DCA 1996). 28. On August 16, 1996, DEP Officially notified Coastal that it had prepared and was ready to issue Permit no. 1281, but required Coastal to publish a Notice of Intent to Issue Permit. Permit no. 1281, according to the Intent to Issue, included the following special conditions: a) Coastal shall conduct a magnetometer and side Scan sonar survey; b) Coastal shall complete comprehensive spill trajectory analyses; ¢) Coastal shall complete an inventory of oil spill equipment to be stored on the drilling rig, service boats and at the Apalachicola staging location; and d) Coastal shall prepare a hydrogen sulfide dispersion model with site specific runs. 29. On May 7, 1997, during the pendancy of this proceeding on DEP's Intent to Issue, Chapter 97-49, Laws of Florida, became law and provided authority to require additional surety for certain drilling operations in coastal waters. The new law provided that the Administration Commission would determine the amount of such surety at the recommendation of DEP. On August 11, 1997, DEP applied the new law to Permit no. 1281 and recommended the amount of the surety should be set at $4,249, 637,886. On September 9, 1997, the Administration Commission voted and gave Notice and Order of Intent to Set Surety in the amount of $4,249 63 7,886 for Permit no. 1281. 30. In determining that Coastal was entitled to its re — ee 72 permit, DEP staff considered the three criteria found at Section 377.241, Florida Statutes. Those criteria are addressed separately from the surety requirement in the findings of fact, below. Permit Criteria and Conditions a) The nature, character and location of lands involved. (Section 377.241(1), Florida Statutes) 31. The proposed drill site is south of St. George Island, Franklin County, within the outer limits of the jurisdictional waters of the state in the Gulf of Mexico. At this site the ocean floor is below approximately 40 feet of water. 32. A photodocumentation survey provided by Coastal reveals the condition of the immediate site as mostly barren sand with very sparse animal and plant life, mostly echinoderms such as sand dollars and sea stars, and algae. Impact by a drilling rig set here on the ocean floor would be minimal due to low diversity and low density of biota, the majority of which is mobile and able to avoid direct impact. 33. The magnetometer and side scan sonar programs required by DEP and provided by Coastal reveal no geological hazards, deep-seated faults, archeological sites or anything out of the ordinary at the proposed drilling site. 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. 35. Section 377.241, Florida Statutes, which 73 describes the three criteria guiding the issuance of drilling permits was created in 1961. The preamble of the law found at Chapter 61-299. Laws of Florida, suggests that the legislative concern for the nature of the lands involved was that owners of lands subject to oil, gas and mineral rights should not be unduly burdened or restricted from developing homes, farms, commercial uses or other appropriate land uses. This intent plainly affects land-based drilling projects more than offshore projects such as this. 36. The closest shore to the site is St. George Island, to the north. Lands to the east, west and south are many miles away. St. George Isiand residents and business Owners are sincerely worried about the specter of oil rigs on the horizon, though there is no evidence that the single rig that is the subject of this proceeding could be seen from any land. 37. The obvious threat to St. George and other Sensitive barrier islands, to Apalachicola Bay (a special management area), to the world-renown beaches, and to the commercially and environmentally treasured lands along the Florida panhandle coast, would be from an oil spill. 38. The potential costs of a spill are addressed below in the assessment of an appropriate surety, but for the purposes of considering this first permit criteria, it is found that the chance of a damaging spill from drilling the Proposed exploratory well is extremely remote. 39. Drilling operations consist of setting up a drilling rig, which is floated to the location and submerged, allowing the rig to rest on the sand bottom; driving a large diameter conductor pipe into the ground, thereby allowing all Operations to be conducted within the conductor pipe; drilling the first shallow hole and Setting the "surface Casing" pipe; sending cement through the pipe and up the outside to 74 seal the pipe, to close the rock layers, and to serve as a base to control the well in the event of a blowout; and continuing to drill the hole until the total depth of the well is reached, when it will again be cased in the same manner with production casing. The rock cuttings are brought to the surface by circulating drilling fluids, also known as "mud", which are water-based solutions of natural materials; then the rock bits are screened and removed so the mud may continue to circulate within the closed system. 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 biowouts stop themselves by bridging within a few days. 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 or 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." (transcript, p. 777) 42. The U.S. Department of Interior, Minerals 75 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 of 24,237 well starts, 999 barrels of crude oil and condensate were spilled from offshore wells under federal jurisdiction. 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. 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. b) The nature, type and extent of Ownership of the applicant, including such matters as the length of time the applicant has owned the 76 rights claimed without having performed any of the exploratory operations so granted or authorized. (Section 377.241(2), Florida Statutes) 45. In 1941, the Florida Legislature enacted Chapter 20680, Laws of Florida, authorizing the Board of Trustees of the Internal Improvement Fund (Trustees) to negotiate, sell, and convey oil and gas leases on lands and water bottoms owned by the State of Florida. Pursuant to that law, Coastal's predecessor, Arnold Explorations, Inc., acquired three leases, numbers 224-A, 224-B and 248, encompassing the territorial waters of the state along the west coast, from Apalachicola to south of Naples, as well as Lake Okeechobee and other fresh water bodies. 46. The 50+ years’ history of those leases is chronicled in volumes of legal documents and court opinions commencing, it appears, with a Florida Supreme Court opinion in Watson v. Holland, 20 So. 2d 388 (Fla. 1945), which upheld the leases against a challenge by then Attorney General J. Tom Watson. 47. Proposed Permit no. 1281 is within lease 224- A, which includes the northern portion of Coastal's off-shore lease area. 48. Coastal, alone and through arrangements with other oil companies, including Mobil Oil Corporation, conducted geologic and seismic studies to locate oil and other minerals covered by the leases. Coastal, also through joint venture arrangements with other companies, drilled some exploratory wells off the west coast of Florida; these did not produce oil and were, therefore, "dry" wells. Through the years Coastal has satisfied its obligations to pay annual rentals and perform certain minimum activity under its leases. 77 49. In 1976, Coastal settled federal litigation between Coastal, the Trustees and the Army of Corps of Engineers, by relinquishing its exploration rights to all but the most off-shore portion of its lease area (7.36-10.36 miles offshore). Coastal retained a "residual royalty" interest in the near shore area (coast to 4.36 miles off-shore) and surrendered altogether its interests in the middle portion. (See Coastal Petroleum v. Chiles, et al, 701 So. 2d 619 (Fla. Ist DCA 1997), which upheld denial of Coastal's inverse condemnation action based on the state's enactment of a statute prohibiting offshore oil and gas exploration in Coastal's royalty interest areas. This Opinion provides an outline of the vicissitudes of Coastal's defense of its leases. ) 50. Activity by Coastal over the past 50 years, through its partners and joint venturers, belies the Environmental Petitioners’ claims that Coastal has "abandoned" oil exploration in favor of a more lucrative settlement or buy-out by the state (the "Greenmail" theory). For many of the 50 years, litigation has eclipsed oil, gas and mineral exploration in the vast leases. Not all of the litigation was initiated by Coastal and by all published reports none has been found to be frivolous. C) 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. (Section 377.241(3), Florida Statutes) 51. Oil and gas exploration is a risky business. Depending on the area of the world, you may have a one in 10 chance, or one in 50 chance of hitting the right spot. If you finally hit, you must expect to pay for all of the prior misses. In the experience of Phillip Ware, the standard 78 industry expectation is a one in 10 chance in a frontier area such as this. Permit no. 1281 would be a "wildcat" well, that is, a well drilled outside of a producing field. 52. This third criterion has rarely, perhaps only once, been used by DEP to deny an application, as DEP interprets its requirement very liberally. If the statutory criteria intended the likelihood of the presence of oil to be better than 50 percent, every application would have to be denied. 53. From the statistics maintained by the agency, Ed Garrett determined a drilling success rate in wildcat wells throughout Florida has been about 2-3 percent. Some wells drilled in a producing field come up dry, even as close as one-half mile from a producing well. 54. | When DEP, through Ed Garrett and its other staff reviewers, applied the third criterion to Coastal's application the agency considered wells to the north drilled into Smackover and Norphlet, productive formations found in the northern Gulf of Mexico and inland up into Arkansas, and it determined that the siting of proposed Permit no. 1281 was reasonable. 55. The "commercially profitable" prong of the criterion is also tricky, since fluctuating oil prices engendered by wholly unpredictable world events can result in a well that is valuable when it is first drilled becoming useless by the time production and transportation facilities are established. Coastal presented sufficient evidence of the anticipated commercial profitability of the well. 56. Reasonable, competent, credible geologists can disagree, as evidenced by the range of opinions presented by the experts in this proceeding, but all agree on one immutable principle: the only way we can determine 79 whether oil is present is to dig a hole. 57. Phillip Ware is a reasonable geologist, registered to practice geology in the State of Florida His experience in the past 20 years has been as an employee and then president of Coastal. In the early years he operated as an oil scout and as an assistant to the vice-president, Joe Banks. In that Capacity, and continuing to the present, he has monitored all relevant oil and gas activities in the area, reviewed oil and gas drilling logs, kept track of current drilling, including industry developments and rumors, and stayed current with publications and public data on oil, gas and mineral exploration. 58. In selecting the site for Coastal's application, Phillip Ware reviewed documents from the Florida Geologic Survey and elsewhere describing oil exploration wells drilled in state waters, including wells drilled by Coastal through its joint venturers, California Oil Company and Mobil. He reviewed many scholarly and scientific and industry publications; he reviewed available seismic studies as well as a map made by Joe Banks, who died in 1979. The contour lines drawn on Banks' map, as interpreted by Phillip Ware, show a promising geologic structure at the site of Permit no. 1281. 59. A geologic formation is a specific layer of rock large enough to be mapped over a large geographic area. Jurassic period Smackover and Norphlet formations have been the prolific source of oil in the Jay fields northwest of Permit no. 1281. 60. An embayment is a shallow restricted area of prehistoric sea where formations are deposited, in this case, the Smackover and Norphlet formations. The Apalachicola embayment, centered along the present Apalachicola River, has been studied extensively in the last 20 years and its 80 existence at the site of proposed Permit no. 1281 is the subject of substantial dispute between Coastal and the Environmental Petitioners in this proceeding. 61. After DEP issued its intent to issue the permit and the Environmental Petitioners filed their challenge raising the issue of the likelihood of finding oil, Coastal hired a series of experts who reviewed the same data considered by Phillip Ware, and other data, and derived their own opinions regarding the viability of the oil prospect. ; 62. Petroleum geologists describe three or four essentials for an oil field. The source rock, which is organically rich and subjected to heat over a long period, forms oil and gas. The reservoir rock may also be the source rock if there was no migration of the petroleum, but if the petroleum has migrated, the reservoir rock is its final resting place. The reservoir must have porosity and permeability to allow the petroleum to enter and move about. The structure, which may be part of the reservoir, is an upper level or trap which contains the oil. Cap rock or seal is what holds the petroleum within the structure, keeping it from escaping to the surface. 63. A structure or trap for the oil may be a geological fault or an anticline, when the cap has formed a dome shape which captures and holds the oil. 64. The process of determining whether these elements exist beneath the earth's surface, or in this case, below the ocean floor, requires the acquisition of data from prior wells. Even dry wells provide a wealth of information. Magnetic, seismic and gravity testing (called geophysical testing) also yields valuable data. 65. From the available data, geologists are able to extrapolate and map the subsurface of a given area. The 81 more data that is available, the more accurate is the map. Geophysical testing, however, is highly expensive, and prospects have been drilled without such Site-specific tests, the interpretations of which can be subjective. 66. DEP staff geologists considered Phillip Ware's selected site as reasonable, based on their own conclusions that Smackover and Norphlet trends likely extended southeast through the Florida panhandle and into the area offshore of Franklin County. These conclusions are Supported by the extensive evidence and testimony of Coastal's experts. 67. Charles Morrison gathered and reviewed all geophysical information available, chose the best of that information, had the information reprocessed using current computer methods, analyzed and correlated the information, did regional mapping, and then mapped the structures in the area. His work included identifying geologic faults, the interface of large blocks of the earth which have moved up, down or sideways, and which may also thereby create a trap for oil. He also mapped a large faulted structure or trap called an anticline, or dome, independently confirming the selection made by Mr. Ware, and he concluded that the structure was a good quality, drillable prospect. 68. Barry Faulkner, hired by Coastal to review its leases including Lease 224-A, is a professional geologist in Florida and was chief geologist for Getty Oil Company. In that position he reviewed large projects and was successful in his analysis; he evaluated hundreds of Prospects including prospects in Florida; he has laid out well-tie and speculative seismic programs near and in Florida; he has prepared basin analyses for Florida in the past; he has reviewed all the relevant geologic literature; he has reviewed all relevant logs and records of the Bureau of Geology which keeps such records; he has reviewed all of Coastal's relevant records; he 82 has reviewed and considered Mr. Morrison's work in light of his own experience; and he performed many analyses on the above data and information. He independently concluded, based upon his analyses, that the Smackover was of sufficient thickness and that source, reservoir, seal and a trap exist in the Smackover and Norphlet geologic formations at the location of Permit no. 1281. 69. Barry Faulkner estimated the chances of source rock, reservoir rock, cap rock and trap as 80 percent, 60 percent, 80 percent and 70 percent, respectively, at the proposed well site, for a risk factor of 1 chance in 4 that the well would be productive. The Environmental Petitioners’ less-thorough analysis yielded a much less optimistic estimate of 20 percent, 17 percent, 30 percent and 20 percent. Employing Barry Morrison's risk computation methodology to the deflated estimate would yield a risk factor below the 2-3 percent actual success rate supported by DEP's statistics, an example of the vast range of speculation but hardly sufficient to defeat this permit. 70. Before the 1943 Sunniland oil field was discovered (the first major field in Florida, in southwest Florida), hundreds of dry hole wells were drilled. Hundreds of dry holes were found before Florida's second major oil field, the 1969 Jay field, was established. 71. The fact that no leases were recently bid in federal off-shore waters and few oil and gas leases were entered in the last 10 years in the Apalachicola Basin is not competent evidence of any poor viability of Coastal's site. The regulatory climate, including federal and state moratoria on off-shore exploration activities, must also be considered an explanation for the inactivity. 83 Permit Conditions tx Permit no. 1281, as described in DEP's intent to issue, includes 7 general permit conditions relating to compliance with other applicable laws and regulations, obtaining other required licenses or permits, notifying DEP's Oil and Gas Section in advance of drilling, and submitting required drilling logs and forms. These are standard conditions applied to any similar permit. 73. The proposed permit also includes these special permit conditions: a) Prior to the commencement of drilling operations, Coastal shall conduct and submit to the Department for review and approval a maguetometer and side scan sonar survey. b) Prior to the commencement of drilling operations, Coastal shall complete and submit for department review and approval comprehensive spill trajectory analyses. c) Prior to the commencement of drilling cperations, Coastal shall complete and submit to the Department for review and approval an inventory of oil spill equipment to be stored on the drilling rig, service boats, and at the Apalachicola staging location. d) Coastal shall maintain zero discharge conditions at the drili rig site and shall utilize zero discharge equipment as described in the application package. e) Prior to the commencement of drilling operations, Coastal shall submit to the Department for review and approval a hydrogen sulfide dispersion model with site- specific runs. In addition, Coastal shall incorporate the site- specific information and procedures stated in the January 15, 1593, letter into the Hydrogen Sulfide Contingency Plan submitted to the Department. f) Prior to the commencement of drilling operations, Coastal shall publish in the Apalachicola Times and post in appropniate public facilities in the region an explanation of 84 the hydrogen sulfide warning signals and evacuation notices and procedures. g) Coastal shall carry out bottom sampling according to the schedule described in the January 15, 1993, letter to the Department. This sampling is to detect accidental discharges of drilling muds. (CPC Exhibit No. 119) 74. Only special conditions a), b), c), and e) are still in controversy and Coastal claims that DEP does not have the authority to require these items. Under protest, each has been completed and submitted to DEP and are included in the record of this proceeding. (Inventory of equipment is CPC Exhibit no. 97; the side scan sonar survey is CPC Exhibit no. 185; the magnetometer survey is CPC Exhibit no. 186; and the hydrogen sulfide dispersion model with specific reins is CPC Exhibit no. 233.) 75. The agency fiad a sound rational basis to require each item. While in the beginning of the review process DEP imposed the items as part of the application submittal, it eventually adopted these requirements as permit conditions, as suggested by Phillip Ware in his January 15, 1993, response. (CPC Exhibit no. 87) The issue is moot, as DEP concludes in its proposed recommended order; Coastal has fulfilled the special conditions and Coastal needs only to formally submit the documents, with updates where necessary. 76. The Environmental Petitioners amended their petition to delete their claim that more seismic, specifically 3D seismic testing, should be conducted as a condition of the permit. No evidence suggests that such a condition is necessary. The site selected by Coastal for its permit application is at the intersection of two good quality seismic lines, interpreted by competent expert witnesses as contributing to their credible opinions that the site is a commercially-viable prospect. 85 77. There was some evidence that, as a condition for the Getty Oil drilling permit off-shore of Pensacola, drilling was prohibited during hurricane season. No party herve has suggested or put on evidence of the need for this condition or any special condition other than those conditions addressed above. The Surety 78. The most significant condition of the permit is the surety required by Sectior. 377.2425(1), Florida Statutes, to assure that the operations under the permit will be '". . . conducted in a safe and environmentally compatible manner." 79. Prior to the 1997 adoption of Chapter 97-49, Laws of Florida, any applicant had the option of either supplying cash, a bond or letter of credit; or paying an annual fee to the Minerals Trust Fund. The 1997 legislature withdrew that second option for applicants for oil and gas exploration, drilling and production in coastal waters. 80. Specifically, Chapter 97-49 (Section 377.2425(1)(c), Florida Statutes) requires: (c) An applicant for a drilling or operating permit for operations planned in coastal waters that by their nature warrant greater surety shall provide surety only in accordance with paragraph (a), or similar proof of financial responsibility other than as provided in paragraph (0). For all such applications, including applications pending at the effective date of this _act and notwithstanding the provisions of paragraph (b), the Governor and Cabinet in their capacity as the Administration Commission, at the recommendation of the Department of Environmental Protection, shall set a reasonable amount of surety 86 required under this subsection. The surety amount shall be based on the projected cleanup costs and natural resources damages resulting from a maximum oil spill and adverse hydrographic and atmospheric conditions that would tend to transport the oil into environmentally sensitive areas, as determined by the Department of Environmental Protection. (emphasis added) 81. Section 377.2425(1), Florida Statutes, as amended, denies permittees of offshore wells the option of using the Minerals Trust Fund under paragraph (1)(b). Instead, surety for wells drilled and operated in coastal waters must be covered by a surety provided as described in paragraph (1)(a) of the statute. 82. As discussed in the conclusions of law, below, Permit no. 1281 is 2 pending application to drill for oil and gas in coastal waters, and is subject to the surety requirement outlined in Chapter 97-49, Laws of Florida. DEP prepared and submitted its recommendation for a $4,249,637,886 surety amount to the Administration Commission. On September 9, 1997, the Administration Commission adopted the recommendation through its Notice of Intent To Set Surety. 83. The surety amount set under Chapter 97-49, Laws of Florida, must be based on the projected cleanup costs and natural resource damages of a "maximum oil spill." However, Chapter 97-49, Laws of Florida, contains no definition of that term. 84. Oil spills can occur in a number of different ways, depending upon the source (i.e., vessels, pipelines, storage tanks, and drilling or production facilities.) 87 85. While exceedingly rare, the most disastrous oil spills from drilling or production platforms are the result of a "blowout" from a variety of causes. A "blowout" is generally defined as an uncontrolled flow of formation fluids (oil, gas and water) up through the well bore hole, and exiting directly from the well into the atmosphere or ocean waters. Anatomy of a Blowout 86. Oil and gas are contained within underground reservoirs at varying pressures which can amount to thousands of pounds per square inch (psi). Once = hole is drilled from the surface down into these reservoirs, the pressurized formation fluids will tend to "migrate" or escape under extremely high pressure. To counteract this pressure, weighted drilling mud is pumped into the well. The weight of the mud resting on top of the formation fluids forms a "hydrostatic head pressure" by pressing downward to contain the pressurized fluids. 87. However, if te drilling mud is not sufficiently weighted, or there is not enough drilling mud resting on top of the pressurized fluids, the drilling mud pressing downward becomes insufficient to counteract the pressure of the formation fluids. The result is termed a "kick." A "kick" is a threatened blowout, where insufficient hydrostatic head pressure allows the influx of formation fluids into the well. The kick, and subsequent blowout, can be a subtle intrusion; or in a serious event, drilling mud and formation fluids can be expelled from the well very violently and under considerable pressure. 88. The impending high pressure of a kick is usually detected, and can be safely siphoned off under controlled conditions by way of a complex system of plumbing and gauges termed a "christmas tree." If not 88 contained, blowouts can cause considerable damage to the drilling rig. In extreme cases, the drilling rig may collapse onto the well head, aggravating the spill and making it more difficult to halt the flow of oil from the well. 89. Blowouts are usually contained through the practice of well control. Initially, the well is monitored, and the drilling mud/formation fluid balance is carefully maintained to avoid a kick o7 to quickly control a kick. Asa fallback, the well can be capped at the surface by use of blowout preventers or "BOPs." 90. _ BOPs and other devices used for well control have been standard equipment used by the petroleum industry worldwide for several decades. Located at the well head, BOPs come in a number of configurations (sheer rams, pipe rams, annular preventers, for example) and several different types are normally used in conjunction with one another as a redundant system. 91. Florida requires that BOPs be in place for all drilling and production facilities in the state as well as for those in federal waters. Permit no. 1281 requires Coastal Petroleum to use BOPs on its drilling platform. 92. The evidence and testimony adduced at trial demonstrate that widespread use of BOPs and other well control devices on a state, national and international scale has not completely eliminated the occurrence of blowouts. Blowouts, like most major accidents, are rare, but they do happen. Despite continually upgraded safety features, blowouts continue to occur worldwide, in the United States, and in the Gulf of Mexico as the result of human error or a chain of several errors or miscalculations, possibly combined with mechanical failures. 93. Such an event occurred in 1979 in the Gulf of 89 Mexico in Mexico's Campeche Bay, an area called the "Golden Lane" because of its extraordinary oil production. The well, Ixtoc I, was a single exploratory well, in Mexican waters and governed by Mexican regulations. Its blowout resulted in the most disastrous accidental oil spill in history. 94. The Ixtoc I well was drilled by the Mexican National Oil Company (Petroleos Mexicanos or "PEMEX"). The semisubmersible drilling rig was provided by SEDCO, Inc., of Datias, Texas. Under a separate agreement, SEDCO also provided maintenance personnel, a rig superintendent and an assistant to advise PEMEX in the operation of the drilling rig. 95. The SEDCO 135 drilling rig was equipped with the standard BOP devices, including (1) pipe rams -- hydraulic shutters that snap shut around the drill pipe and prevent oil from flowing up in the space between the drill pipe and the casing (known as the annulus); (2) sheer rams -- hydraulic shutters that sheer through the drill pipe and block oil flowing up through the drill pipe; and (3) annular BOP -- which hydraulically inflates to further close off the annulus and seal off the space around the drill pipe. 96. On June 3, 1979, the Ixtoc I well experienced a kick while removing the drill pipe from the hole. The sudden pressure increase, in conjunction with a chain of human errors and miscalculations, quickly led to a blowout — condition. The BOPs were activated, but were unable to contain the upward surge for formation fluids and the well blew out. 97. Oil and gas "gushed" from the drill pipe under extreme pressure (approximately 30 meters/100 feet into the air), and the associated petroleum fumes quickly led to a fire. All personnel were forced to abandon the drilling rig. Most of the equipment and machinery on the rig was destroyed, 90 and the drilling tower collapsed into the sea. When the drilling rig collapsed and sank to the sea floor it buckled the marine riser and damaged the BOP stack at the well head location on the bottom. 98. Initially, the Ixtoc I well discharged oil into the sea at an estimated rate of 30,000 barrels per day, although as much as half was consumed by the fire. This flow rate was gradually reduced during the cours [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386020_1546%3A1. Public record. Not legal advice.