ST ATE OF FLORIDA DEP ARMENT OF ENVIRONMENT AL PROTECTION RESPONDENT'S EXCEPTIONS TO RECOMMENDED ORDER

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1 RECEIVED!October 25, ST ATE OF FLORIDA DEP ARMENT OF ENVIRONMENT AL PROTECTION Oept. of Environmental Protection Office of General Counsel KANTER REAL ESTA TE, LLC, VS. Petitioner, DEPARTMENT OF ENVIRONMENTAL PROTECTION, DEP (OGC) Case Nos DOAH Case Nos and Respondent, CITY OF MIRAMAR, Intervenor./ RESPONDENT'S EXCEPTIONS TO RECOMMENDED ORDER Respondent, the State of Florida Department of Environmental Protection (the Department), submits the following exceptions to the Recommended Order filed on October I 0, 2017: Paragraph The findings of fact in paragraph 62 should be rejected because, considering the record in its entirety, they are not supported by competent substantial evidence. The paragraph cites the testimony of Mr. Pollister for a finding regarding tbe third factor within section of the Florida Statutes, "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 Department submits that with respect to an exploratory oil well, the plain language of the statute requires proof (1) that there is a probability of discovering

2 a certain quantity of oil, and (2) that recovering the projected quantity of oil will be commercially profitable. Most notably, the question of commercial profitability cannot possibly be determined without evidence of projected costs. See Black's Law Dictionary (10 th ed. 2014) ("PROFIT 1. The excess of revenues over expenditures in a business transaction.") The Recommended Order made no finding on projected costs, and Kanter did not present any evidence on projected costs for the proposed well. 2. To begin, Mr. Pollister was accepted as an expert in the field of oil well design, drilling, and operation. [T. I at 79]. Counsel for Kanter posed the following question: So Mr. Pollister, do you have an opinion of whether there is a proven or indicated likelihood in the presence of oil in such quantities as to warrant the exploration and extraction of such products on a commercially profitable basis at the Kanter proposed oil site? [T. I at 97]. The Department objected, on the grounds that the question presupposed the witness had expertise in geology, financing, and "economic risks," an area beyond the witness' accepted field of expertise. [T. I at 98]. The ALJ overruled the Department's objection. [T. I at 98]. Next, counsel re-phrased the question as follows: "But what is your opinion?" [T. I at 98, line 20.] The witness proceeded to testify that he believed it was a good prospect [T. I at 98, line 21], but with no expressed opinion on profitability, anticipated quantity, or cost projections. 3. The findings in paragraph 62 should be rejected for two reasons. First, given the question presented and the witness' answer, the testimony cannot be construed to express an opinion regarding any likely quantity of oil, or of commercial profitability. The witness only expressed an opinion on the quality of a "prospect" as a whole not any opinion on commercial profitability. 2

3 4. Second, the ALJ erred in overruling the Department's objection because the line of questioning was not within the proffered expertise of the witness, and there was no foundation for the witness to have expressed an opinion on commercial profitability. 5. Furthermore, if the finding in paragraph 62 is not rejected, it should be limited to its stated context. The "Kanter project," the subject of the application, is for a single exploratory well. To the extent that the testimony could relate to "commercial profitability," the finding should be limited to a hypothetical scenario where the projected costs are based on the installation of a single well. 6. For the foregoing reasons, the Department should reject the finding in paragraph 62 or limit the scope of the finding as argued above. 7. It should be noted that the Mr. Pollister's testimony, as cited in paragraph 62, is the only scintilla of evidence that would arguably support a general finding regarding commercial profitability. Other witnesses, and other parts of the recommended order, include projections regarding the quantity of oil that could be recovered from certain fields, as discussed ---- below. No other evidence even arguably addresses profitability. No evidence relates to the quantity of oil that could be extracted from a single well. 8. Evidence on a projected quantity of oil cannot prove profitability without a consideration of costs. As discussed below, there is no evidence connecting Mr. Pollister's testimony the potential of a "prospect" at one site, with one exploratory well with the quantity of oil that could be recovered from a broader area, or field, with multiple wells. In order to generate useful information, Kanter would need either to prove commercial profitability through (a) a comparison of projected costs from one well, versus projected quantities from that 3

4 same well, or (b) a comparison of projected costs from installing multiple wells for one field, versus projected quantities from the field. Kanter failed to prove either theory. 9. Finally, no competent substantial evidence supported any projection of future price. Without such evidence, it is impossible to reach any supportable findings on projected commercial profitability. Paragraph The findings in paragraph 86 should be rejected because they are not supported by competent substantial evidence. In the alternative, they should be limited in context for the reasons stated below with respect to the exception to paragraph 87. Paragraph 87 and footnote The findings of fact in paragraph 87 should be rejected because, considering the record in its entirety, the findings are not supported by competent substantial evidence. The first sentence, the second sentence, and the footnote will be discussed separately below. First Sentence 12. For the reasons stated above, subsection (3) requires a finding regarding a certain quantity of oil. The closest evidence related to such a finding appears within the testimony of Mr. Aldrich. [T. 9 at ]. The testimony concerning estimated volumes refers to fields, not "reserves" as stated in the findings of fact. The finding should be rejected or limited to a finding that relates solely quantities that could be extracted from a field. 1 The distinction is critical for the reasons stated in the exception to paragraph The witness used the term "field;" the related term "oil field" means "An area with reserves of recoverable petroleum, esp. one with several oil-producing wells." American Heritage Dictionary (1991). While the ALJ does not make any finding on the definition of "field," the record demonstrates that a single field is likely to include multiple wells. 4

5 Second Sentence 13. The second sentence should be rejected because there is no competent substantial evidence supporting findings on (a) the indicated amount of recoverable oil that could be extracted from the "Kanter project," the proposed exploratory well at issue in these proceedings, and (b) commercial profitability, either from a single well or a combination of wells. Here, the distinction between a "reserve" and a "field," from the first sentence, is crucial. There is no competent substantial evidence supporting the inference that the single well would be sufficient to extract all the recoverable oil from an entire field. The only evidence that arguably supported a finding on profitability was derived from Mr. Pollister's testimony, as alluded to in paragraph 62 of the Recommended Order. For the reasons stated above, the findings in paragraph 62 should be rejected in their entirety. To the extent that such findings could be accepted, the supporting testimony addressed only to the installation and associated costs of a single exploratory well not a "field," as described in Mr. Aldrich's testimony. 14. Aldrich's testimony presupposed a price of oil at $50 a barrel, but there was no testimony regarding the veracity or reasonableness of that price projection, at the time of permit issuance or in the future. The finding in the second sentence should be rejected. Footnote 9 The findings in footnote nine should be construed, in part, as conclusions of law and should be rejected for three reasons. First, no competent substantial evidence supports the finding that "Under those guidelines, oil companies are not allowed to develop any economic models with respect to prospective petroleum reserves that have not been proven." This subject matter of Mr. Aldrich's testimony related to professional standards set by the Petroleum Reserve Management System, for professionals in his field. [T. 9 at 840]. The testimony of Mr. Aldrich reflects that 5

6 professionals within his field (as opposed to "oil companies") were not allowed to state, for public disclosure purposes, certain economic information. [T. 9 at 841]. The testimony does not support the proposition that a person in Mr. Aldrich's position was prohibited from performing an economic model to support Kanter's application in this case; the standard only addressed public disclosures, such as economic projections for potential investors. To the extent that private auditing standards have any relevance, the finding is not supported by competent substantial evidence. Second, the footnote as a whole contains an erroneous conclusion of law, that an economic projection or analysis is "inappropriate." The plain language of the statute requires a demonstration of commercial profitability. That which is required is not inappropriate. Third, the footnote contains an additional erroneous conclusion of law: that economic projections should be made after the project is complete. To the contrary, a demonstration regarding entitlement to a permit should be made at the application stage, not after the project is complete. Cf. Metro. Dade County v. Coscan Florida, Inc., 609 So. 2d 644, 648 (Fla. 3d DCA 1992). For the foregoing reasons, it would be appropriate to include a substituted conclusion of law, to the effect that the statute requires a demonstrate of commercially profitability, with a demonstrate of projected costs, price, timing, and other reasonably appropriate factors. 6

7 Paragraphs 99, 100, 103, 109, The Department has provided a lengthy description of its interpretation of section of the Florida Statutes and related sections within chapter 377. In Florida Wildlife Federation, Inc. v. Department of Environmental Protection, Case No , 1998 WL (Fla. DOAH April 8, 1998, Fla. DEP May 22, 1998), aff'd, 766 So.2d 226 (Fla. 1st DCA 1999) (hereinafter "Coastal Petroleum"), the applicant filed an application to drill and explore for oil offshore of St. George's Island, resulting in a formal hearing before DOAH. The fee simple owner in Coastal Petroleum was the Board of Trustees of the Internal Improvement Trust Fund, and the applicant held a mineral lease on the site. After a formal hearing, the ALJ recommended issuance of the permit, which the Department rejected in its final order. 16. The Department began the final order with the observation that chapter 377 should be construed consistently with state policies in the Florida Air and Water Pollution Control Act and the Florida Constitution. Thus, the statute should be interpreted with the understanding that it is the policy of the state to conserve and protect natural resources and scenic beauty. Coastal Petroleum, Final Order at 4-5, citing Art. II, 7(a), Fla. Const.; , Fla. Stat. (1997). 17. The Department's Final Order addressed the interpretation of "nature, character and location of lands involved," as stated in subsection (1) of the Florida Statutes. The ALJ had found that the impact of the drilling rig on the immediate site would be minimal, and provided a narrow interpretation of factor 1 - notwithstanding separate findings that a discharge would impact a special management area. The Department's Final Order explained as follows: The generality of the term "lands involved" suggests that the Department should look beyond the immediate footprint of the drilling rig (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 , at 592, Laws of Fla. This remedial purpose should be liberally construed. 7

8 Connor v. Division of Elections, 643 So. 2d 75, 77 (Fla. 1st 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."4 Ch , 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. 18. In affirming the Final Order, the Second District expressly acknowledged the import of the Department's interpretation regarding the protection of natural resources. Coastal Petroleum Co. v. Florida Wildlife Fed 'n, Inc., 766 So. 2d 226, 227 (Fla. 1st DCA 1999) ("[Appellant] challenges an order of the Florida Department of Environmental Protection (DEP) denying its application for a drilling permit, ostensibly because oil extraction is potentially too dangerous to the environment."); Id. at 228 ("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.") By describing the Department's interpretation and affirming the final order, the Second District put the legislature on notice of that interpretation. See Malu v. Sec. Nat. Ins. Co., 898 So. 2d 69, 75 (Fla. 2005). 8

9 19. The Department's prior construction of the statute in Coastal Petroleum is entitled to great deference. More compelling, however, is the canon of statutory construction known as the reenactment canon. 20. Following Coastal Petroleum, the legislature amended or "reenacted" section , without changing the text of the three subsections. Ch , 12, at 11, Laws of Fla. Most significantly, the legislature did not reverse a central part of the Coastal Petroleum final order - that the Department should give heightened scrutiny to proposed drilling sites that may harm environmentally sensitive lands or resources. Those subsequent amendments show that the legislature has essentially acquiesced in the Department's interpretation and the written judicial interpretation which endorsed that interpretation. See Remington v. City of Ocala/United Self Insured, 940 So. 2d 1207, 1210 (Fla. 1st DCA 2006); Sam's Club v. Bair, 678 So. 2d 902, (Fla. 1st DCA 1996). The Department's statutory interpretation in the Coastal Petroleum final order should control until the legislature provides a different direction. 21. The final order in Coastal Petroleum reasons that when considering potential effects to environmentally sensitive land, the Department should evaluate potential effects "beyond the immediate footprint of the drilling rig." 22. Paragraph 99 should be rejected in its entirety because the inference suggested by the "whereas" clauses has been rejected by subsequent administrative and judicial interpretation, as discussed above. 23. For the same reason, paragraphs 100 and 103 should be rejected because they are inconsistent with existing administrative and judicial interpretation, as discussed above. Both of those paragraphs overstate the weight that should be given to competing property interests, as 9

10 compared to conflicts between the applicant and the public interest in lands with special characteristics. 24. Paragraphs 109 should be rejected because it is inconsistent with existing administrative and judicial interpretation, and because it would lead to an unreasonable interpretation of the statute, for the following reasons. 25. The ALJ cites, in paragraph 105, the Flowage Easement admitted into evidence as part of Joint Exhibit 1-A. The easement reflects that it was issued for the following purposes: for any and all purposes necessary to the construction, maintenance and operation of any project in the interest of flood control, reclamation, conservation and allied purposes that may hereinafter be conducted by the grantee herein, its successors or assigns, including the right to permanently or intermittently flood all or any part of the area covered hereby as a result of the said construction, maintenance, or operation, in carrying out the purposes and intents of the statutes of the State of Florida, relating to CENTRAL AND SOUTHERN FLORIDA FLOOD CONTROL DISTRICT, presently exiting or that may be enacted in the future pertaining thereto. [Joint Ex. 1-A at 11]. 26. The Coastal Petroleum Final Order shows that the where the applicant proposes to install a well in environmentally sensitive lands, lands threatened by pollution, or lands with special characteristics, subsection (1) of the statute weighs against the issuance of a permit. By executing the easement, the grantor converted the lands into a conservation area for the benefit of the public, and in order to carry out conservation projects that may occur in the future. As a matter of law, the site for the project has the type of special characteristics that require protection under section (1) of the Florida Statutes. 27. As noted by the ALJ, the Flowage Easement includes a reservation of rights for Kanter to access the site for oil exploration. The Department does not suggest otherwise. 10

11 However, the legal rights as between the grantor and grantee, or their successors, are irrelevant. The Flowage Easement converted the character of the property into conservation land. 28. Paragraph 110 should be rejected because it is inconsistent with existing administrative and judicial interpretation, and because it would lead to an unreasonable interpretation of the statute. There is a finite risk of catastrophic events with the installation of any exploratory well. As reasoned in the Coastal Petroleum case, the degree of that risk has no bearing on section (1). "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." Coastal Petroleum Final Order, 1998 WL at * Based upon the foregoing argument, it is appropriate for the Department to state alternative legal conclusions, with the ultimate conclusion that the considerations in subsection (1), Florida Statutes, weigh against the issuance of a permit. Paragraphs 113, 115, Paragraphs 113, 115, and 116 provide conclusions of law regarding section (2), Florida Statutes. 31. Addressing the "nature, type and extent of the ownership," the ALJ failed to consider that in the Flowage Easement, Kanter had conveyed away most of the beneficial uses in the project site. Kanter is a fee simple owner only in the most hypertechnical sense of the word. Through the flowage easement, Kanter has conveyed away virtually all rights to surface development and has committed that its land will remain as conservation land. 11

12 32. The Coastal Petroleum final order stated, with little explanation, that the second factor weighed against the applicant because the applicant had delayed seeking a permit for "many years." The analysis focused on the applicant's delay in exploring for petroleum, rather than the type of interest held by the applicant. 33. Based on the date of the application and the date of land acquisition (see findings of fact, paragraph 15), there is no dispute that Kanter owned the land but has not applied for a permit, over a period of at least 39 years. Based on the interpretation provided in Coastal Petroleum, which has not been changed by the legislature, delay "weighs somewhat" against approval of an application. In Coastal Petroleum, Department made that observation even though there was no traditional conflict between a mineral lease holder and the interest of an upland owner in property development. 34. If anything, delay logically weighs against approval of an application to drill. Over time, communities develop and plan their development based on their knowledge of land uses that exist and are likely to exist in the future. The second factor, from a broader perspective, would promote the reliance interests of nearby landowners and local governments if a delay in exploration is weighed against the approval of drilling applications. 35. Paragraphs 113, 115 and 116 should be rejected because those paragraphs are inconsistent with existing administrative and judicial interpretation, and because those conclusions would lead to an unreasonable interpretation of the statute. The delay in this case is similar, in all significant respects, to the applicant's delay in Coastal Petroleum. In order to promote the reliance interests of local communities, the applicant's delay in this case should likewise weigh against the applicant. In addition, the predecessor's conveyance of the flowage 12

13 easement, which diminished the interests of Kanter in the property as a whole, should likewise weigh against issuance of the permit. 36. Based upon the foregoing argument, it is appropriate for the Department to state substituted conclusions of law, reflecting that Kanter's undisputed delay weighs against the issuance of a permit. Paragraph Paragraph 119 should be rejected in its entirety, for the following reasons: a) For the reasons stated above, there is no competent substantial evidence to support any affirmative finding regarding subsection (3) of the Florida Statutes. Kanter presented no competent substantial evidence regarding any recoverable quantity that could be derived from a single well, as opposed to quantities that could be recovered from an entire oil field. Kanter presented no evidence on projected costs. To the extent Kanter presented a scintilla of evidence on commercial profitability, that testimony assumed the installation of one well (the "Kanter project"), and an unsupported assumption regarding the future price of oil. b) While Mr. Aldrich and Mr. Lakin testified on risk assessment, their testimony was limited to whether Kanter would discover the presence of oil, as opposed to the presence of oil in a quantity that could be recovered on a commercially profitable basis. c) No competent substantial evidence supports the findings in the last sentence of the paragraph, regarding a comparison of the present case with previous Department agency action. Furthermore, again, the sentence presupposes information regarding the presence of oil, as opposed to the presence of oil in a quantity that could be recovered on a commercially profitable basis. 13

14 38. Based on the foregoing argument, the Department should state a substituted conclusion of law, reflecting that Kanter has not made the demonstration required by subsection (3) of the Florida Statutes. The Department should clarify that the statute requires proof that the project would be commercially profitable, based on a proven indication of a discrete volume of oil. As with any evidence of commercial profitability, the demonstration should include a projection of costs (including a projection regarding the number of wells to extract the indicated quantity) and a supportable projection for the future price of oil. Furthermore, in appropriate cases, the Department should weigh and balance both the probability of successful profitability versus the factors described in subsections (1) and (2), Florida Statutes. Objections to Conclusion and Recommendation 39. For the reasons stated above, the ALJ's conclusions of law, particularly his findings in relation to the factors in section of the Florida Statutes, are erroneous. The Department should conclude that each of those factors weigh against the applicant in this case. In the alternative, if the Department makes any contrary conclusions concerning those statutory factors, the Department should re-weigh the factors and make an independent conclusion. For the reasons stated above, the Department should conclude that a weighing of the factors does not support approval of the permit application, and the Department should deny the application for Oil and Gas Permit No. OG Additionally, the application for permit no should be denied as moot. 40. The Department does not advocate the conclusion that the statutory criteria would flatly prohibit, for all time, development at the proposed site. However, the record does not support a basis to conclude, with the information presented, that the applicant has made an adequate demonstration under section of the Florida Statutes. 14

15 For the foregoing reasons, the Department requests entry of a final order consistent with its exception, concluding that the permits should be denied. STATE OF FLORIDA DEPARTMENT OF ENVIRONMENTAL PROTECTION /s/ Jeffrey Brown JEFFREY BROWN Fla. Bar No Telephone: (850) Facsimile: (850) jeffrey.brown@dep.state.fl.us SEAN T. DESMOND Senior Assistant General Counsel 3900 Commonwealth Boulevard Mail Station 35 Tallahassee, FL Telephone: (850) Facsimile: (850) sean.desmond@dep.state.fl.us Secondary: Lateshee.m.daniels@dep.state.fl.us 15

16 CERTIFICATE OF SERVICE I HEREBY CERTIFY that the true and correct copy of the foregoing has been furnished via electronic delivery on this 25th day of October 2017, to the following: Douglas Manson (FBN: ) dmanson@mansonbolves.com Brian Bolves (FBN: ) bbolves@mansonbolves.com Christine Senne (FBN: 29541) csenne@mansonbolves.com Paria Shirzadi (FBN: 99158) pshirzadi@mansonbolves.com Chris Tanner (FBN: 85492) ctanner@mansonbolves.com dcantwell@mansonbolves.com drodriguez@mansonbolves.com Manson Bolves Donaldson Varn, P.A West Swann Avenue Tampa, Florida Telephone: (813) Facsimile: (813) Attorneys for Petitioner Kanter Real Estate, LLC Daniel L. Abbott, Esq. Jamie A. Cole, Esq. Adam A. Schwartzbaum, Esq. WEISS SEROTA HELFMAN COLE & BIERMAN, P.L. 200 E. Broward Boulevard, Suite #1900 Fort Lauderdale, Florida (954) (Telephone) (954) (Facsimile) dabbott@wsh-law.com (Primary) pgrotto@wsh-law.com (Secondary) jcole@wsh-law.com (Primary) msarraff@wsh-law.com (Secondary) aschwartzbaum@wsh-law.com (Primary) imunoz@wsh-law.com (Secondary) Michael Christopher Owens Broward County Room South Andrews Avenue Fort Lauderdale, Florida mowens@broward.org /s/ Jeffrey Brown 16

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