Thanks for posting the actual press release from the website. I only had a fax copy in hand this morning. Just for amusement, I am also reposting an article from 1996 where the State argues that there is no oil there and Coastal doesn't really want to drill.
Sunday, October 13, 1996
Tallahassee, DEMOCRAT
Drilling for Dollars
Coastal Petroleum could strike it rich in the Gulf, but critics say the company would rather get rich in court by forcing the state to buy oil-drilling leases granted decades ago.
By Chris Poynter
DEMOCRAT STAFF WRITER
Imagine a company that says it's in the offshore oil- and gas-drilling business.
But it has no boat, no drill and just two employees. Its headquarters is in Apalachicola, population 2,700, in a two-room office with no sign outside. The company has never made a profit; rather, it has lost $22.8 million since 1953.
To keep money flowing in, it sells stock each year to the public. The appeal? Leases that give the company the right to drill for oil in the waters off Florida's Gulf coast.
This is Coastal Petroleum Company, which for the last 20 years has produced nothing but lawsuits. Its fights with the state of Florida are as tangled as seaweed, as complex as a tidal estuary.
Now, that battle is about to take a new turn: In the coming months, the courts will decide if Coastal can begin drilling off St. George Island, or if the public will have a chance to derail its drilling permit.
If Coastal loses, the company almost certainly faces additional years of litigation over its permit.
But if the state loses, it could be faced with a potentially momentous decision:
Should the state give Coastal a permit, and in effect dare the company to drill for oil -- and maybe spill it? Or:
Should the state acknowledge the environmental dangers of offshore drilling -- and offer to buy out Coastal's leases?
The state says the company has no intention of drilling. Instead, Assistant Attorney General Denis Dean, Coastal wants to take the state for millions, possibly billions, of dollars.
"They just want money," Dean said as he sat in his Tallahassee office looking over hundreds of pages of court documents. "They are holding a lottery ticket out to their shareholders. If their play works, they will have won the lottery."
Coastal owns leases to 800,000 acres of submerged land along the Gulf of Mexico from Apalachicola to south of Naples, an area about the size of Rhode Island. The leases give the company the right to explore and drill for oil.
But the company's last drilling was 28 years ago; it voluntarily abandoned much of its leasehold interests in 1976.
In fact, from 1976 to 1990, the company was dormant except for lawsuits. But when the state moved in 1990 to ban offshore oil drilling altogether, Coastal came alive.
"It only sprang to live because they saw the potential for money," said David Guest, an attorney for the Sierra Club Legal Defense Fund in Tallahassee, which is suing to keep Coastal from drilling. "As soon as the state said no drilling, Coastal jumps and sues for a bajillion dollars."
Buttressing that view is the fact that no oil has ever been found in the Gulf waters off Florida. Every well has come up dry.
But Phil Ware, Coastal's president, says the state has it all wrong: there's oil in the Gulf -- and big money for the company that finds it. And that company, he insists, will be Coastal.
"The potential is enormous," he said recently as he sat in his office, dressed in blue jeans and boat shoes.
Ware says he hopes to be drilling within a year.
State offered reward for first to strike oil
The Coastal story is an example of how one generation's dream is another generation's nightmare.
Fifty-five years ago, when Florida's coastline was miles of uninhabited sand dunes and slash pines, protecting the environment was the farthest thing from legislators' minds. They wanted to exploit it -- for tax dollars and jobs.
So in June, 1941, lawmakers passed the Florida Oil Discovery Award bill, which guaranteed $50,000 to the first company to strike oil. Within two years, the state issued 15 drilling leases.
The largest went to Arnold Ex- plorations, owned by citrus grower J. Ray Arnold. It held the right to drill in submerged lands from Apalachicola to south of Naples -- and in many of Florida's freshwater lakes, such as Okeechobee and Kissimmee. The area comprised 4.5 million acres -- about the size of Massachusetts -- and the leases called for payments of $59,000 a year (or 1.3 cents an acre) through 2016.
The payment gave the company the right to mine minerals and drill for oil. The state, in turn, expected to make money through taxes, lease payments and more jobs.
Arnold Explorations eventually was bought by Coastal Petroleum. And for 25 years, Coastal prospected for oil in the Gulf, from the waters off Pensacola south to Fort Myers. A total of 22 wells were drilled -- nine in partnership with Mobil and Chevron - but they all came up dry.
An offshore drilling ban brought Coastal back to life
Then a tangled round of lawsuits began -- Coastal sued the state, then the federal government -- over Coastal's right to mine minerals from the bottom of Lake Okeechobee.
Eventually, in 1976, the company settled the lawsuit. As part of the settlement, it:
Gave up its rights to drill within four miles of the coastline but retained its rights to royalties if anyone else found oil
Surrendered all rights to land between four and seven miles offshore
Retained all rights to explore an area beginning seven miles off the coast out to the 10-mile federal limit.
For the next 14 years, neither Coastal nor any other company drilled in those waters.
Then in 1990, the state banned offshore drilling. And even though the ban exempted Coastal's leases, it made Coastal furious.
Or, if you accept the state's argument, Coastal smelled money -- state money -- and went after it with a two-pronged strategy.
First, the company sued, saying the state had reneged on its 53-year old lease -- and had rendered worthless coastal's royalty rights to land within four miles of shore.
The company lost that lawsuit in August. It's now appealing the decision.
Second, in 1995, the company applied for a permit to drill for oil in the seven-mile zone exempted from the state ban.
The application named a site off St. George Island, known for its beachfront homes and state park.
The state fought issuing the permit -- even asking Coastal to post a $1.9 billion bond to pay for possible oil spills. That was struck down by the courts, which said the state went beyond its authority.
By late summer, the state had nowhere else to turn. The Department of Environmental Protection said it was ready to issue a permit.
And Ware, Coastal's president, is excited -- notwithstanding all those dry holes in coastal's past.
Companies have been finding oil beneath the waters off Texas, Alabama and Louisiana for years, he notes. Why would oil stop there?
"Everybody says there's no oil in Florida, but oil doesn't recognize a state line," Ware said.
Still, no one has ever discovered any off Florida's coast. The state's only two oil fields, Sunniland in Collier County and Jay in far northwest Florida, are on dry land.
But if you connect the two with a straight line, Ware notes, the line crosses a vast stretch of Gulf water. And his company owns the leases to much of those waters.
Coastal has rich owners but sells stock to survive
Even if coastal got a permit, it does not have the money to drill.
The company has about $6 million in cash, according to U.S. Securities and Exchange Commission records. That money was raised earlier this year when the company released 6.7 million shares of stock for sale at $1 each.
The company estimates that it needs $10 million to $15 million to drill a well. But Ware, Coastal's president, insists money is no obstacle.
He said Coastal would subcontract with another company, such as Mobil or Chevron, to bring their oil rigs, equipment and people to do the drilling.
Ware said several companies are interested. He declined to name them.
Coastal has never been a wealthy company, although it is backed by some rich Americans.
The company was originally funded in part by the William F. Buckley family, which includes the conservative commentator and former U.S. Sen James Buckley.
Now, the largest stockholders are the Lykes family of Tampa and Leon Gross of Philadelphia.
The Lykeses are one of Florida's wealthiest families. They own beef-and citrus-packing companies, tens of thousands of acres of pasture and citrus groves and phosphate mines, as well as a New Orleans-based shipping business. They own Peoples Gas System, the state's largest natural-gas provider. The Lykes presence is hard to avoid in Florida: Their name is even on the official hot dog of Florida State's Doak Campbell Stadium.
The family declined to comment for this story. The Lykes family owns 7.8 million shares, about 23 percent of Coastal Petroleum. Coastal stock closed at $3.25 a share Friday, making the Lykeses' investment worth just over $25 million.
Gross owns 3.2 million shares, or about 10 percent of the company. He and his family owned television station WWSG-TV and a paper business, both in Philadelphia. Both were sold in the 1980s for a total of $62.5 million.
Gross, 90, said he did not want to talk about his investment and referred all questions to Ware.
Since Coastal has made no money from oil -- it has lost $22.8 million since the 1950s, according to its SEC reports -- its financial health depends on the Lykeses, Gross and the 14,000 people who have bought a total of 33 million of its shares.
Coastal is the sole subsidiary of Coastal Caribbean Oils and Minerals, based in Bermuda. The company regularly releases stock, which anyone can buy on the Boston Stock Exchange.
But its yearly reports to stockholders make clear that Coastal's closed connection with oil is its name:
From 1976: "No revenues have yet been realized from discoveries of oil, gas or minerals on the Company's leases and the Company has been financing its operations principally from proceeds of the sale of capital stock."
From 1980: "The Company has operated at a loss since its inception in 1953. The Company has been financing its operations primarily form the sale of its capital stock and will continue to do so in the future."
From 1990: "We are pleased to report that approximately 4.3 million shares of the Company's common stock were (recently) sold... thereby increasing the Company's working capital to more than $1.2 million. These funds will be used to pursue the litigation..."
Still to people like Robert Brown of Cedar Rapids, Iowa, investing in Coastal seems a reasonable gamble.
Brown, a retired Rockwell International aerospace engineer, and a dozen of his friends are members of an investment club that put $250,000 into Coastal after reading about the company 12 years ago.
Brown said he doesn't worry that coastal has no boat or money to drill: another company can do the work.
"I guess we were looking at the longer term of it and not really interested in immediate dividend incomes," he said.
And after the state announced its intentions to issue the permit for near St. George Island, the stock jumped to 3¼, its highest price since 1988.
Coastal's president draws no attention to the company
Until two years ago, Coastal Petroleum operated out of Ware's Tallahassee home. Ware moved it to Apalachicola because he wanted to be near the water. He spends at least an hour each day on his boat, "Sea Witch."
Unless people know exactly where to look in Apalachicola, they might never find Coastal's corporate offices. They are located on the second floor of a downtown brick building. There is no sign on the wall or on the doors. Inside, the office has a desk, a few chairs, some filing cabinets and a lot of documents form lawsuits.
Ware said he didn't want to advertise his new location because, "I don't want everyone to know I'm here.
"I don't want to upset the natives by hanging a big sing saying Coastal Petroleum has come to town," Ware said. "I can hang a sign out, but why? There would be a procession of people coming in wanting jobs. That's OK, but this is for personal privacy. Not everyone is real in favor of Coastal drilling."
Ware is right about that. There haven't been any recent public-opinion polls on the issue. But Robert Joffee, director of the Mason Dixon Florida Poll, said Floridians are clearly overwhelmingly against offshore drilling.
"Just go to a buy shopping center and ask about offshore drilling," Joffee said. "If you get anyone in favor of it, call me ... Most people who reside in the state attach a great deal of importance to recreational use of the shoreline."
Ware say his company is misunderstood
Ware graduated from the University of Florida in 1976, where he studied geology. He was hired by Coastal right out of college.
He spent his first year working on a lawsuit filed over Coastal's right to minerals below the Peace River. One point of contention was whether the river was navigable.
To prove it was, Ware cut down seven dead cypress trees, tied them together to form a raft and floated 110 miles down the river over 10 days.
That type of dedication landed him the president's position in 1985.
Since then, he's spent most of his time dealing with lawsuits.
Ware dismisses the state's allegations that coastal is drilling for dollars. He said the company is ready to explore and to become the oil producer it has always intended to be.
"There are a lot of misconceptions about Coastal," Ware said, leaning back in his chair and putting his feet on the corner of his wooden desk. "There is a deliberate attempt to paint us as the bad guy."
Dean, the assistant attorney general for the state, admits that Florida basically "gave away the farm" to Coastal in the 1940s. The thousands of documents, maps and legal papers generated by Coastal lawsuits remind him of that daily.
But he insists that Coastal isn't in the oil business any more.
"They have a lot of maps and things like that," Dean says. "But it's not an oil- or gas-exploration company ...They are waiting for a bit bundle of money to drop."
Ware has a big stake in any settlement. According to company records, he would get 1.25 percent of any settlement, or $12,500 per $1 million. Others members of the company's board would get similar percentages.
Ware said his company would take money for the leases-- but it really wants to drill.
If the state is so sure that coastal wants money, why not grant a drilling permit and call the company's bluff?
Dean said state leaders are so opposed to drilling they would never take such a risk, even if they were absolutely certain coastal would never drill.
Why, then would the DEP say it's ready to issue a permit?
Dean admits that sounds like a double standard. But, he said, the agency's bureaucratic hands are tied--unless environmental groups can successfully sue to prevent issuance of the permit.
One way or another, the drilling dispute will come to an end by 2016. That's when Coastal's leases run out and the land comes back under state control.
Ware says he thinks the state will stall until that time comes.
Dean said, though, that the state may not be able to wait that long. Unless a third party intervenes, he said, the state will have to decide whether to buy back the leases-- and if so, for how much-- or issue a drilling permit and see what happens.
One thing seems definite: Coastal is not giving up.
"We're going to keep going," Ware said. "Its just too big and too valuable a property to walk away from just because it's unpopular."
Let's go exploring, or not
June 1941: The state passes the Florida Oil Discovery Award bill, which guarantees $50,000 to the first company to find oil in Florida. The state was looking for a boost in the economy and tourism was not yet a major industry.
October 1941: Florida gives Arnold Explorations, Inc., the right to explore for oil and gas by leasing 4.5 million acres of underwater land, including the state waters of the Gulf of Mexico from Apalachicola to Naples (the state waters consist of the coast to 10 miles into the sea). The leases also include freshwater rivers, bays and lakes such as Okeechobee, Kissimmee and Lochloosa.
Coastal agrees to pay the state $59,000 annually for the right to mine minerals and drill for oil. The state still owns the land.
Arnold was owned in part by the Lykes family of Tampa and the late William F. Buckley. Arnold eventually sold out to Coastal Petroleum.
1947-1968: Coastal explores the waters of the Gulf. Thirteen wells were drilled. Oil was found only once. Coastal then joined with Mobil Oil Co. and The California Co., now known as Chevron, for further exploration. Together, they drilled nine more wells, but all were dry. In all, more than $16 million was spent.
Late 1960s: A dispute arose over coastal's right to mine limestone beneath Lake Okeechobee. Lawsuits and appeals dragged on for years until a settlement was reached in 1976. Coastal surrendered a substantial portion of its leases. It agreed to:
Retain the rights to explore for oil and gas only in waters from 7 to 10 miles into the Gulf.
Give up all rights to waters form 4 to 7 miles into the Gulf.
Surrender the near shore area -- the coast to 4 miles into the Gulf -- but retained rights to any oil or gas that might be discovered there by another company. Coastal would receive 6¼ percent royalties from oil production in that area. It also surrendered the right to leases in the freshwater areas but retained 6¼ percent royalties.
1976-1990: No company drills or explores for oil in the state waters of the Gulf.
1990: A new state law prohibits drilling, exploration and the production of oil and gas in state waters. Coastal is grand fathered in because it still holds leases to the 7-10 miles area.
1990: Coastal files a lawsuit saying the new law made Coastal's near shore royalties worthless since drilling is prohibited. Coastal wanted the state to pay the company millions.
1992: While the lawsuit churns through the courts, Coastal applies for a drilling permit off St. George Island, in a portion of the leases that were grand fathered under the 1990 law.
The state says Coastal must first post a $1.9 billion bond before the permit is granted. This money would pay for environmental cleanup if there is an oil spill.
April 1996: 1st District court of Appeal says Coastal doesn't have to post the $1.9 billion bond, effectively forcing the state to issue a drilling and exploration permit.
August 1996: Judge Phil Padovano rules for the state in Coastal's royalty-taking lawsuit and says the state owes Coastal nothing. He upholds the drilling ban. Coastal appeals to the 1st District Court of Appeal. The case is pending.
In the meantime, the Department of Environmental Protection says it is ready to give coastal a permit to conduct exploratory drilling near St. George Island. But, DEP says, the company must first publish a notice so the public, individuals and environmental groups can file protests.
Coastal says it is not required to notify the public and asks the court to order the DEP to issue the permit. The case is pending--a decision is expected in a month.
January 2016: Coastal leases expire. |
