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Biden’s Offer of Oil Leases Not Enough to End Legal Challenges

April 19, 2022, 9:30 AM

The Interior Department’s resumption of oil and gas leasing fails to give energy companies certainty about the future of drilling on federal land and is unlikely to resolve any court challenges, lawyers say.

The agency announced on April 15 that the Bureau of Land Management will hold much-pared-down oil and gas lease sales later this year, effectively ending the White House’s 2021 leasing “pause” established to consider drilling’s impact on climate change. It said Monday that the first auctions will be held in June.

“This in and of itself does not answer the question: Is there going to be a reliable and predictable leasing program for the foreseeable future?” said Sarah Bordelon, of counsel at Holland & Hart LLP in Reno, Nev.

President Joe Biden’s White House has urged oil and gas companies to produce more oil to reduce high gasoline prices at the pump, touting nearly 9,000 existing leases available for companies to drill. But fossil fuel industry supporters complain the administration hasn’t offered them new leases with the same urgency, and the future of leasing is uncertain.

Companies’ long-term investment decisions depend on leasing program certainty, Bordelon said.

Law Violation Alleged

That uncertainty runs afoul of the Mineral Leasing Act, said Kathleen Sgamma, president of the Western Energy Alliance, a group representing drillers operating on federal land.

The alliance in 2021 sued in Western Energy Alliance v. Biden in U.S. District Court for the District of Wyoming over the Interior Department’s failure to hold quarterly lease sales.

“Finally holding a sale after five quarters without a single one doesn’t erase the fact that BLM violated the law by not holding quarterly lease sales,” Sgamma said.

The land parcels the bureau is offering for lease were “fully analyzed” by former President Donald Trump’s administration before undergoing an additional Biden administration environmental review last year and don’t represent a resumption of regular leasing, she said.

A court hearing is scheduled May 13, and the alliance hopes “the judge will rule that indeed, BLM violated the law and needs to move forward with regular leasing,” Sgamma said.

The land bureau and the Interior Department didn’t respond to requests for comment.

Cutting Parcels

The Interior Department announced in 2021 that it was studying offering 646 parcels across 733,000 acres for lease in an upcoming lease sale—land that oil and gas companies had targeted for drilling during the Trump administration.

But on April 15, the agency said it plans to cut the number of parcels it will offer in the next lease sale by about 80% while raising royalty rates from 12.5% to 18.75%.

The leasing announcement plots a “path forward that attempts to navigate” legal concerns about the bureau’s analysis of the climate impacts of leasing, said Sam Kalen, a natural resources law professor at the University of Wyoming.

To House Natural Resources Committee Chairman Raul Grijalva (D-Ariz.), it’s also a put-up-or-shut-up moment for industry.

“While I’m never a fan of handing over more public lands to Big Oil, I’m looking forward to seeing how oil and gas companies finally use this opportunity to lower prices at the pump, given all their claims that they needed more leases to do so,” Grijalva said in a statement.

No Clarity on Pause

But it’s unclear whether the bureau’s announcement of a single round of lease sales will satisfy a Louisiana federal judge that the department has ended the leasing pause.

Judge Terry Doughty of the U.S. District Court for the Western District of Louisiana last summer ordered the administration to end its leasing pause in Louisiana v. Biden, which was brought by Louisiana and several other oil-producing states. The land bureau announced in August it would sell leases in nine states in February and March, but delayed the sales until now.

The Interior Department is doing the “bare minimum” to comply with Doughty’s order, but “it’s clear that these things should be happening quarterly,” Bodelon said.

“We’ll see what the states put forward, whether they feel like it meets their requirements or it’s sufficient,” Bordelon said.

Extending Permit Terms

The alliance and other industry groups are accusing the land bureau of dragging its feet on leasing at time of extreme oil prices.

But the land bureau has been issuing numerous drilling permits on federal lands even as it continues its slow leasing pace.

Agency data show the land bureau approved 997 drilling permits on federal land during fiscal 2022 through February, more than half of which were in New Mexico, where the Permian Basin has become the country’s largest oil play.

The agency is giving companies more time to drill using existing two-year drilling permits as a response to high crude oil prices, Nada Culver, the land bureau’s deputy director for policy and programs, told a Western Colorado energy symposium last week, according to a local news report. The land bureau didn’t respond to a request for comment.

But such drilling permit extensions are commonplace for the land bureau, which has full discretion to extend drilling permit terms for up to four years, said Angela Franklin, a Salt Lake City-based partner at Holland & Hart.

“I don’t know that it changes anything except for the fact that it’s a recognition by the administration that they will continue that practice,” Franklin said.

Even so, the bureau seems to be offering the industry a benefit that could increase oil and gas production, Kalen said.

Companies may have approved drilling permits that may be expiring soon, and there is risk they may not have time to produce oil on their leases without having to seek a new permit, Kalen said.

“This move is designed to avoid that risk and the potential loss of production from those leases on a timely basis,” he said.

To contact the reporter on this story: Bobby Magill at bmagill@bloombergindustry.com

To contact the editors responsible for this story: Chuck McCutcheon at cmccutcheon@bloombergindustry.com; Zachary Sherwood at zsherwood@bloombergindustry.com