The Big Cypress Deal
Standing in a dark suit during an Oval Office ceremony on May 29 with his brother Jeb at his side, President George Bush announced that the federal government would rescue Big Cypress National Preserve from ruin by buying private mineral rights for $120 million from the majority owner of those assets, Collier Resources Co. The firm had for years proposed adding two dozen oil fields on the 716,000-acre preserve, as well as conducting seismic testing requiring underground detonations.
Later that day, Jeb and U.S. Interior Secretary Gale Norton stood before reporters outside the White House and explained the terms of the federal buyout (still awaiting congressional approval). C.R. Co., owned by the wealthy and storied Collier family from Naples, would receive either cash or oil leases somewhere off the Gulf Coast -- far from Florida's shores. The firm would also receive future income tax breaks in amounts to be settled on later.
"This agreement is a win for all sides," Norton beamed confidently. "For the citizens of Florida, the deal will ensure long-term conservation of the Everglades."
Florida environmentalists, politicians, and editorial writers were ecstatic.
"The River of Grass is now Bush Country," crowed U.S. Rep. Mark Foley, a West Palm Beach Republican.
"The notion that you would drill in the Everglades is insane," bellowed Shannon Estenoz, Everglades coordinator for the World Wildlife Fund. "Closing the door on that insanity is a very good thing."
Mind you, the political rewards were noticed -- but that didn't seem to matter, because this was a win for everyone. The Ledger in Lakeland, Florida, labeled the buyout "a cynical, calculated, brazen political stunt," then skipped a beat: "We'll take it."
Governor Bush told reporters at the time, "It's good public policy, and when there's a convergence of good politics and good public policy, I don't think we should be ashamed about it."
There's much to be embarrassed about, however. Taxpayers are being asked to spend millions but gain nothing of real value. Indeed the Colliers and others have drilled for oil on preserve lands for 60 years. Today nine oil wells operate on two fields: Raccoon Point and Bear Island. Strict regulations limit how much preserve acreage can be devoted to oil drilling at any given time; the two existing fields leave room for about two more the size of Raccoon Point. Moreover, buying out the Colliers does nothing to stop drilling by the hundreds of others who hold mineral rights on the preserve.
Aside from the questionable need for the buyback, the proposed price is about $100 million more than the company's mineral rights are worth. Norton and other senior Department of Interior (DOI) officials have embraced a flawed appraisal that stems from previous failed attempts by the Colliers to swap the mineral rights for federal land. And the administration has chosen to ignore its own staff estimates that value the rights at $5 million to $20 million. Such overpayment will skew the value of other Everglades property. Indeed another major mineral owner in the area is already demanding a similar buyout. In the long run, this deal could more damage than reclaim the Everglades.
"We think if we gave them $25 million, it would be overly generous," says a well-placed DOI source. "[The Colliers] have just been trying to palm off a $5 poker chip as a $50 poker chip. There's so much politics going on."
For the Colliers, the buyout is a long-awaited alignment of the political stars. The family successfully swapped Florida swampland for property in downtown Phoenix in the late 1980s, then spent the next decade trying to exchange mineral rights for military bases. The latter would-be trade sank, in part due to the Colliers' almost $500 million price, a bloated value that "couldn't pass the red-face test," according to the DOI source. The proffered tax break now could add hundreds of millions of dollars more. For the Bushes, however, the price is right.
"A lot of this is not about President Bush but his brother's election this fall," the DOI source asserts. "They want the deal in the public's eye so that the environmental people say, 'Whoa, this administration is doing a really good deal taking oil and gas out of Florida.' And they get the vote. Even if this isn't passed by Congress, they've already won what they wanted, which is re-election of the governor."
Land has long been the hub of the Collier business wheel. Barron Gift Collier found fortune during the first decades of the Twentieth Century by selling advertisements on streetcars in New York City. He moved to southwest Florida in 1921 and purchased 1.25 million acres of swampland for 25 cents an acre. Then he founded the Barron Collier Co. with plans to create a national tourist attraction. Although much of that acreage now bears the name Collier County, his scheme was foiled by the Great Depression. He died in 1939, leaving three sons: Miles, Sam, and Barron, Jr.
Humble Oil and Refining Co., a Texas firm that later became part of Exxon, discovered petroleum near the town of Sunniland in Collier County in 1943 on land owned by the Colliers. Humble tapped into what came to be known as the Sunniland Trend, a geological formation some 12,000 feet below the surface. It is about 80 miles long and 25 miles wide and extends into Lee, Hendry, and Monroe counties.
Sam and Miles Collier died in the early 1950s, after which Barron Collier, Jr., became CEO and president of the family business. The Miles and Barron Collier families eventually split their holdings. Collier Resources Co., which manages the mineral holdings, is a partnership of the Barron Collier Co. and Collier Enterprises.
In 1974 the two families agreed to sell 560,000 acres to the federal government, which considered the water flow through that land as vital to Everglades National Park to the south. The Collier property and another 14,500 acres became Big Cypress National Preserve, so named because of the profusion of cypress trees in the area. The Colliers, however, retained the subsurface mineral rights.
During the mid-1980s the Colliers began negotiating a deal with DOI to swap about 108,000 surface acres of swampland for 68 acres of prime real estate in Phoenix. The family would retain the mineral rights. The Arizona acreage was part of a federally owned 104-acre tract beneath the Phoenix Indian School, which President Ronald Reagan had slated for closure and wanted sold. The acreage was one of the most valuable tracts in the southwestern United States, according to the General Accounting Office (GAO), the investigative arm of Congress. Under a deal worked out by DOI and the Arizona congressional delegation, the Colliers would pay $80 million for the 68 acres -- $34.9 million cash and $45.1 million in land. (The cash was to go into a trust fund for Indian education.) It was the largest interstate federal land swap ever proposed and required congressional approval. The deal took many years to iron out, but it proved the Colliers were tenacious dealmakers who could wring the most out of disputed appraisals.
Rep. Morris Udall, an Arizona Democrat and chairman of the House Interior and Insular Affairs Committee, sponsored the swap bill, but it encountered strong opposition from fellow Democrat Rep. George Miller of California. "The federal government is in fact buying nothing," Miller declared at the time, arguing that the Florida land was already protected from development other than oil and gas -- and the Colliers would retain rights to mine that. "The fundamental defect is that this is a sweetheart deal between the Colliers and the federal government."
Another Democrat, Sidney Yates of Illinois, pronounced the swap a "windfall" for the Colliers and a "cushy, cozy contractor's contract with the Secretary of the Interior."
Critics cited a 1988 review by the GAO of the values of the Phoenix and Florida properties. The report found that the appraisal for one of the Florida tracts "could be overvalued by as much as three million dollars to four million dollars." More important, the investigators asserted that the two appraisals used by DOI for the Phoenix property did "not provide a basis to proceed with the exchange as it is proposed" because city officials had not yet decided what could be built on the site.
The plan, however, had strong support from the Arizona congressional delegation and then-governor Bruce Babbitt. The swap was approved by Congress and signed by Reagan in November 1988.
After receiving that consent, the Colliers haggled with Phoenix officials over zoning requirements for three years. Lobbyist Alfredo Gutierrez, a former Democratic Arizona state senator and Babbitt ally, helped keep negotiations open. In late 1991 the parties agreed on a deal: The Colliers would exchange 53 acres of the Phoenix Indian School land for seven prime acres of city-owned property downtown that came with no development limits.
So was it an even swap? "We cannot conclude that the Florida properties, along with the Indian trust funds of $34.9 million, equal the value of Collier's portion of the Indian School property," states a 1992 GAO study. "The Florida land, which was possibly overvalued in 1988, has not been revalued since then, and its value could have decreased, like other real estate in the United States." As for the Phoenix land, the report reiterated that it was impossible to value.
The Phoenix swap added more than 83,000 protected acres along the north and west borders of Big Cypress. The U.S. Fish and Wildlife Service obtained 3120 acres in 1996 for the existing Florida Panther National Wildlife Refuge, which is northwest of the preserve. Another 21,000 acres to the west became the Ten Thousand Islands National Wildlife Refuge in 1996.
The Colliers held onto the mineral rights below the acreage swapped for the Phoenix property. And they had gained a bonus: entrée into the Department of Interior. After his 1992 election, Bill Clinton appointed Babbitt as Interior secretary. The family was now connected to Babbitt not just through Gutierrez but also through Ronnie Lopez, who served as chief of staff for Babbitt while governor. Lopez had subsequently become a consultant and lobbyist in Phoenix and was enlisted by the Colliers to gain access to Babbitt.
In 1995 the Colliers broached the possibility of trading mineral rights for surplus military bases in California and Florida. According to DOI documents, officials took the pitch seriously and requested that the Interior's Minerals Management Service (MMS) in New Orleans, which specializes in offshore oil and gas evaluations, determine the rights' value. That appraisal came out at $230 million to $430 million. The DOI source claims the department didn't contract out the work -- its usual practice -- because no "reputable appraiser" would have come up with a value high enough to match the worth of surplus military bases. The MMS estimate remained secret and has never been released.
That same year, the National Park Service, which administers Big Cypress, made clear to top DOI officials that it was not interested in such a deal for a number of reasons, a park service memo reveals. First, with state and park service regulations in place, oil and gas development presented little threat. Indeed Exxon had pulled out of Big Cypress in 1993 because its wells weren't producing, and two holes drilled by the Colliers about fifteen miles northwest of the preserve proved dry.
The Colliers' designs on the bases became public the following year. Lawyer Roy Cawley, who represented the Colliers, told the Los Angeles Times in April 1996 that the company wanted to acquire almost 3200 acres from the Orlando Naval Training Center, the San Diego Naval Training Center, and the Treasure Island Naval Station in San Francisco Bay, plus another 1600 acres from the Tustin Marine Corps Helicopter Air Station in Tustin, California.
That deal, however, never got off the ground. The DOI source claims that Interior Department officials couldn't justify the high price for Collier mineral rights that would have been needed to bargain for military bases. "They could not do this deal because it couldn't pass the red-face test, it was so embarrassing," he says. "There were people behind the scenes to make sure that Babbitt knew that if this got out, it could be another Teapot Dome scandal. Eventually someone's going to point out how the numbers just aren't there." News stories and editorials in the Orlando Sentinel and St. Petersburg Times were skeptical. Babbitt quietly buried the proposal.
Shortly after the naval bases dropped off the radar screen, the Federal Task Force for South Florida Ecosystem Restoration requested that Big Cypress management evaluate the preserve's priorities. So Wallace Hibbard, BC superintendent, submitted a May 1996 assessment that ranked acquisition of mineral rights on the preserve as "low." Before any acquisition, the value of any privately held mineral rights had to be determined using U.S. Department of Justice Appraisal Standards for Federal Land Acquisition.
"Foreseeable oil and gas exploration and development activities are not seen as a significant threat to [the] Preserve," Hibbard wrote. This was primarily due to strict state and federal environmental safeguards. And, he wrote, the search for oil had slowed over the years. "Exploration drilling ... has had limited success (two discoveries in nearly 30 attempts)," Hibbard stated.
Regardless, the Colliers notified Big Cypress officials that they planned a series of almost 30 seismic tests. Each one would amount to drilling thousands of holes about 27 feet deep, lowering one-pound explosives, igniting, and recording data. Analysts would later pinpoint geologic formations most likely to hold oil.
In June 1998 Cawley and fellow attorney Alan Mintz, who also represented the Colliers, briefed top park-service officials about the testing plans. A DOI memo notes that Cawley "informed the group that he'd made this presentation to various environmental groups headquartered in Washington, D.C., in order to be up-front with them, so that they may share their concerns with the appropriate officials."
The Colliers turned up the heat in January 1999 at the annual meeting of the Everglades Coalition in Miami. "They had asked for a spot on the agenda, which we provided them," recalls David E. Guggenheim, who at the time was co-chairman of the coalition, which represents about 40 environmental and conservation groups. "They basically gave to the coalition the same presentation that they had given privately to various folks in the administration and myself and other representatives."
The reaction was not one of alarm, he recollects. "It was more like: yet another issue on a huge pile of issues.... I can't say there was a lengthy or overly animated discussion after that. There were a number of people who felt [the Colliers] were simply trying to tell a good story and make a good deal."
Ron Clark, chief of resource management at Big Cypress, was also present. "They made a big show and had a map showing all their plans," he says. "Essentially they suggested that the environmental groups contact the administration if they had concerns. Most thought the Colliers were bluffing."
Robert Duncan, general manager of Collier Resources Co., says the family was "absolutely" serious. "If we didn't feel serious about exploration," he explains, "we never would have spent the money and time putting permit applications together and going through the long and arduous exercise of trying to obtain permitted operations. We've been at this a long, long time in a way that is genuine, professional, and sincere."
The DOI source is skeptical: "They know that to go out and drill a well for two million dollars is a high-risk venture. If there's nothing down there, you've lost two million. Not only do you have to make a profit on the next one, you've got to pay the two million you just lost. A third dry one means six million. And the thing is, there are no wells in South Florida that are barnburners. All the oil and gas production is mediocre. And the oil itself is not high-grade."
Several months later it became clear why the Colliers had blitzed everyone with the drilling plan: The family wanted to swap mineral rights for property at the former Homestead Air Force Base in Miami-Dade County. "There's a limited window of opportunity to do the exchanges," Cawley told the Associated Press. "The window closes at the point where we get the first oil-exploration permit."
The Homestead scheme was an ideal opportunity for the Colliers. Hurricane Andrew had demolished hangars and housing on the base when it swept through South Florida in August 1992. Officials of the U.S. Air Force, which owned the 3400 acres, decided to sell most of the property. The base, however, lies in an environmentally sensitive area, about 2500 feet from Biscayne National Park and a few miles from Everglades National Park. Conservation groups opposed a plan for a civilian airport.
Thus, when the Colliers proposed in April 1999 to remove the runway at the base, develop housing and commercial space, and add a series of wetlands and lakes, they quickly garnered support from many environmentalists. In exchange for the property, the Colliers offered mineral rights at Big Cypress, Ten Thousand Islands Refuge, and the Florida Panther Refuge. In January 2000, the Air Force released a study assessing other possible uses for Homestead, including transferring ownership of the property to DOI so it could make an exchange with the Colliers. That option posed fewer environmental risks than an airport, the study noted. A week later, Interior Secretary Babbitt declared his opposition to the airport but didn't support a specific alternative. Carol Browner, head of the U.S. Environmental Protection Agency, quickly agreed.
With the Clinton administration in full retreat from the Homestead airport proposal, it seemed the Interior Department could move ahead in negotiating a trade with the Colliers. Internally, however, DOI once again faced the thorny issue of valuation. Subsequent to the demise of the naval training center swap, the U.S. Geological Survey published a report titled Undiscovered Oil and Gas in the Big Cypress National Preserve -- a Total Petroleum System Assessment of the South Florida Basin. Using that report, the park service concluded in an August 2000 memo that the Colliers' share of the mineral rights amounted to 2.44 million barrels of oil and 12.11 billion cubic feet of natural gas, with an estimated value of $5 million to $20 million.
The memo also emphasized that buying the Colliers' mineral rights would not preclude other owners from drilling. The Colliers have 100 percent of the mineral rights in 158,000 acres of the preserve's 716,000 acres. The family holds rights of less than 100 percent on another 292,000 acres. In other words, 266,000 acres of mineral rights are held by others, possibly thousands of individuals.
Says former Everglades Coalition co-chairman Guggenheim: "I was pushing for the Colliers to also put land on the table in that deal. I was looking at Homestead as a swap, with or without the mineral rights as a component. The Colliers were very uninterested in those types of proposals and were really focused more on getting cash. They're some of the best negotiators I've ever worked with.
"I'd much rather have oil rigs out [in Big Cypress] than strip malls in southwest Florida. If we go for a walk in 200 years in Big Cypress after all the drilling's done, if they've done their reclamation correctly, we won't even know they were there. But those strip malls, once they go in, they tend to hang around."
Mary Munson, Florida director of the National Parks Conservation Association, recalls the Colliers claimed their mineral rights were worth more than the Homestead base: "I mean, the numbers they were throwing around were just exorbitant," she says.
Ultimately the Air Force opted to transfer Homestead to Miami-Dade County with the caveat that there could be no airport.
Then, after George W. Bush's election in November 2000, something peculiar happened. Guggenheim, who left the Conservancy of Southwest Florida in June 2000 and took a position at the Ocean Conservancy in D.C., received a call from the DOI asking which Collier lands he considered priority acquisitions. "Suddenly, there was buzz about it in the administration," he says. "That's the first time I became aware that the issue ... had come back to life."
New Times' DOI source says that some park-service staff were pressing hard in the fall of 2001 to use the Justice Department's strict appraisal standards. At one point, he says, an Interior attorney stated that "the Colliers will probably not accept a value that is derived from the standards" and that therefore they won't be used. The Interior source contends that Jeb Bush's re-election was a driving force behind the push to acquire the Colliers' mineral rights. "Because that was so, there was pressure coming down from the president and ... the Interior Secretary to make sure everybody played ball," he says.
On January 14, the park service released an environmental assessment for the Colliers' proposed seismic testing on a 40-square-mile area in Big Cypress. The report recommended proceeding with the operation, but only with strict conditions. One of those, to which the Colliers objected, was the ten-percent influence limit. The rule states that no more than one-tenth of the preserve can be affected by exploration or drilling at any given time. Thus only about two fields the size of Raccoon Point could be added. Moreover, a single seismic testing operation would affect almost eight percent -- and the Colliers proposed almost 25 of these. The Colliers would have to spend a quarter-century just looking for oil if they were forced to adhere to preserve rules.
Two days after the assessment was made public, Interior Secretary Norton announced that DOI intended to acquire the mineral rights at Big Cypress and another roughly 49,000 acres that compose Ten Thousand Island Refuge and the Florida Panther Refuge. Twenty weeks later, on May 29, both Bush administrations claimed it as a stunning victory for the Everglades. According to a DOI document, the purchase will be made either in cash or "with $120 million in congressionally approved credits that the Collier family can use towards bids or royalty payments on offshore leases in the Outer Continental Shelf." The credits would be transferable to third parties. (DOI denied a New Times request in August for a copy of the appraisal report used in setting the price, saying it contained "proprietary information.")
The arrangement also gives the Colliers IRS tax breaks if they can prove the value exceeds $120 million. In essence, the Colliers will donate the excess value to the government, then write it off as a charitable contribution. Collier Resources' Duncan explains: "We're looking at third parties who are experienced in these matters who can do an appraisal for us. We'll be dealing with the IRS at some point; if there is going to be a review, our job would be to convince [the IRS] of the value."
Keith Ashdown, a spokesman for Taxpayers for Common Sense in Washington, D.C., is a skeptic of this nebulous tax proviso. "It stinks to high heaven," he says. "The real way they're going to make money on this is the tax writeoff every year. They opened a loophole there that they could drive a semitrailer truck through. And tax returns aren't publicly available. There's really no way the public will know what they get in the end."
Even those who support a buyout have reservations. "The Colliers didn't want to drill, but they were going through the motions and aggressively shopping their proposal around to all the environmental groups and the administration," Guggenheim says. "We could have done better."
"I don't think it's nearly worth what the Colliers are saying it's worth," says Brian Scherf, acting executive director of the Florida Biodiversity Project. "I think they got a pretty good deal out of the Bush administration. A lot of it was generated politically, because it makes Jeb look green."
Perhaps the most expensive legacy of the Collier deal, however, will be the price precedent it sets. "We're trying to buy all these other properties down there," the DOI source explains. "So the numbers have got to be something that's realistic, because if you pay one person way too much, then everybody else goes to court to get the same thing. We're trying to negotiate a 108,000-acre purchase of mineral rights [in the Everglades]. We already own the surface rights, but we have to buy all those mineral rights. Meanwhile the Interior Department has turned around and said, 'Oh, the Colliers? We're going to give them all this money.' If they make it worth that much money, then it means in the Everglades, we have to pay all these different owners big money."
A major oil company that owns mineral rights to about 30,000 acres near Big Cypress is already planning to ask DOI for a Collier-like buyout, according to the Interior source. "People are sitting back and watching this," he warns.
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