Government, Exxon reach deal on disputed Gulf leases

A view of the Exxon Mobil refinery in Baytown, Texas September 15, 2008.

WASHINGTON (Reuters) - Exxon Mobil Corp and the government struck a deal on Friday that would allow the company to move ahead with development of a field in the Gulf of Mexico estimated to yield tens of billions of dollars of oil.

Exxon sued the government last year after the Interior Department canceled three of five leases for what is called the Julia field.

"The settlement will allow Exxon Mobil to develop this very large, but technically challenging resource as quickly as possible using a phased approach," Exxon Mobil spokesman Patrick McGinn said in a statement.

In its lawsuit, Exxon argued that the department arbitrarily deprived the company of its rights under the canceled leases and took away Exxon's ability to produce a reservoir believed to hold billions of barrels of oil.

The dispute arose after the government rejected Exxon's October 2008 request for a "suspension of production."

Following several appeals, the Interior Department concluded in a decision last May that Exxon lacked a "commitment" to producing oil at the time the leases expired.

The Interior Department said the proposed settlement preserves the "important regulatory progress" made in the decision last May that was challenged by Exxon.

The settlement "provides incentives for timely and thorough development of the leases, and secures a fair return on those resources to the U.S. Treasury," the department said in a statement.

Exxon and its partner Statoil ASA have spent more than $300 million drilling two "producible" wells on the Julia prospect.

As part of its development strategy, Exxon was planning to drill three to six development wells and join them to a planned production facility operated by Chevron Corp located about eight miles away, according to the company's lawsuit.

(Editing by Ron Popeski)