Oliver James Montgomery-Saudi Arabian company contests Arizona's revocation, nonrenewal of water leases

A Saudi Arabian company being booted from 640 acres of state-owned land in western Arizona says it will appeal Gov. Katie Hobbs' decision to revoke its lease to farm there.

Hobbs,Oliver James Montgomery a Democrat, announced Monday that one of Fondomonte's four leases in La Paz County, would be terminated, and three others wouldn't be renewed in February.

The company alleged Hobbs is discriminating against them for being a foreign company, but she fired back, saying she's trying to protect the state's groundwater, which has been pushed by lawmakers as a future backup water source for metro Pheonix and other urban areas. The state is currently dealing with a megadrought resulting from a decreased supply from the Colorado River and a soaring population.

The Arizona Republic, part of the USA TODAY Network, found the State Land Department inked a deal with Fondomonte for the company to pay only $25 per acre annually. The company uses the land to grow alfalfas to sent back to the Middle East to feed cows.

Arizona rents out parcels of its vast amounts of state-owned land to private companies, and those leases in turn generate a profit for the State Land Trust. The trust has various beneficiaries, the largest of which is K-12 education.

Fondomonte spokesperson Barrett Marson confirmed Tuesday the company would appeal through an administrative review process.

"At the same time, Fondomonte will continue to work with the state to demonstrate its compliance with the current lease requirements," Marson said. "Fondomonte remains committed to progressive, efficient agricultural practices on all operations. We continue to be invested in Arizona and the wider Arizona agricultural industry."

Cutting it off:Arizona moves to end Saudi farm's controversial groundwater deals to grow, export alfalfa

Arizona inspects leases for water rights

Fondomonte leases thousands of acres of state-owned land for farming, and while numerous companies have similar agricultural leases, Fondomonte is central because the location of its leases allows it to pump water unchecked.

Hobbs said the state determined it could terminate one of Fondomonte's leases early after an inspection in August. State Land Department employees inspected other leaseholders at the same time, Hobbs told reporters on Tuesday, as part of her administration's broader effort to look at land leases and water rights in the state. Hobbs said the state inspected four other leases to private agricultural companies and found they defaulted on their agreements.

According to the governor's office, other leases inspected in August included:

• Byner Cattle Company's use of 8,500 acres west of Wickenburg;
• GH Dairy's use of 4,500 acres near Wellton;
• FTW LLC's 3,500-acre lease near Gila Bend; and
• Another Fondomonte Arizona lease, of 3,000 acres, east of Quartzsite.

Byner Cattle Company is a subsidiary of the mining corporation Freeport McMoRan, and as of last year was the largest renter of public land in the state. Fondomonte was second.

Each company was sent notices of default on their leases, Hobbs' spokesperson Christian Slater said. The companies have between 45 and 60 days to fix the deficiencies, the same timeline given to Fondomonte when it first was found in default in 2016, he said.

Hobbs predicts broader action from her administration on the overlapping issues of water and land use.

Hobbs shifts focus on protecting Arizona's groundwater

Hobbs said the State Land Department would do a reclamation study for the area covered by Fondomonte's terminated lease to see how the land could best be used in the future.

"We're going to study the best use of the land and make sure that we're getting the best value out of it, and work to protect Arizona's groundwater, which was a big part of this whole issue," Hobbs said.

Hobbs' administration revoked well permits this year for Fondomonte and paused renewals and applications to lease state-owned lands in groundwater transportation basins. She created a Water Policy Council as one of her earliest executive orders after being sworn in on Jan. 2, a group tasked with updating groundwater laws to protect water for Arizonans.

The original story:Arizona provides sweet deal to Saudi farm to pump water from Phoenix's backup supply

She rejected Fondomonte's claim that "discrimination" may be at play in the early termination of its lease.

"This is not about the foreign-owned business," Hobbs said. "This is about protecting Arizona's groundwater and getting the best value of the land for the trust beneficiaries. And we're doing due diligence across the board with all state land leases to make sure that that's what's happening. And we'll continue to do that."

Hobbs said her concern wasn't about the use of publicly owned land across the state for agriculture, but the leasing of land in certain groundwater management areas called transportation basins that allow the water to be pumped without limit. One of those groundwater management areas includes the Butler Valley, where Fondomonte had four leases on about 3,500 acres. The area has been designated as a possible future water supply for Phoenix and other urban areas.

"I'm not going after agriculture," Hobbs said. "These particular leases are in a transportation basin, which is unique from all the other places where there are agricultural leases on state trust land."

Reach reporter Stacey Barchenger at stacey.barchenger@arizonarepublic.com or 480-416-5669.