New 500 Foot Wyoming Drilling Setback and Notification Rules To Go into Effect on June 28, 2015

On April 14, 2015, the Wyoming Oil and Gas Conservation Commission unanimously approved several changes to its drilling regulations, which will go into effect on June 28, 2015 (i.e. 75 days after approval). The Commission increased the minimum distance between drilling operations and homes or other occupied structures from 350 feet to 500 feet. The rule places the obligation on operators to distance themselves further from such structures if possible, stating that “[i]t is preferable that Production Facilities are located at a greater distance from Occupied Structure(s) where technically feasible.”

The updated regulations also require operators working within 1,000 feet of any such structures to provide at least 30 days notice to surface owners and to submit mitigation plans describing how the operators plan “to mitigate reasonably foreseeable impacts” of noise, light, dust, orientation of the drilling pad and traffic from the production facilities. Additionally, the setback distance will now be measured from the outermost edge of the production facilities instead of the wellhead, as was done previously.

The increase to a 500 foot setback brings Wyoming in line with other oil and gas producing states such as North Dakota and Colorado, which both require a 500 foot setback (subject to various exceptions). The rule is a compromise for both landowner advocates and industry groups. Landowner advocates, such as the Powder River Basin Resource Council, initially requested an increase to 1,320 feet, while industry groups, such as the Petroleum Association of Wyoming, requested that the 500 foot setback be measured from the wellhead, and not from the edge of the production facilities (i.e. the wellpad). While Wyoming Governor Matt Mead has acknowledged that the new setback rule will not satisfy everyone, he has publicly supported the compromise as an improvement, as it increases the setback distance and provides for notification to the surface owners for the first time in Wyoming.

Chapter 3, Section 47 of the Wyoming Oil and Gas Conservation Commission Rules, filed on June 3, 2015, sets forth the new rule and is available at http://soswy.state.wy.us/Rules/RULES/9860.pdf.

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The U.S. Supreme Court Disagreed with 10th Circuit's Analysis in a Refusal-to-Hire Case Focused on the Wearing of a Religious Headscarf

On June 1, 2015, in an 8-1 decision, the U.S. Supreme Court ruled against Abercrombie & Fitch and for a Muslim job applicant, Elauf, who had been rejected for employment because her headscarf would conflict with the store's "Look Policy" which prohibited the wearing of caps on the sales floor. E.E.O.C. v. Abercrombie & Fitch Stores, Inc., No. 14-86, 2015 WL 2464053. The evidence showed that the store's interviewer believed Elauf wore her headscarf because of her faith. The EEOC sued Abercrombie on Elauf's behalf for violation of Title VII. The U.S. District Court granted summary judgment for Elauf and awarded $20,000 in damages. The U.S. Court of Appeals for the 10th Circuit reversed, awarded Abercrombie summary judgment instead, and held that employer liability under Title VII ordinarily requires the job applicant to first prove that the employer had actual knowledge of her need for an "accommodation." 731 F.3d 1106, 1131 (2013).

Writing for the Court, Justice Scalia noted at the outset that the case was a “really easy” one. Scalia wrote Title VII proscribes two employment-practice categories described as "the 'disparate treatment' (or 'intentional discrimination') provision and the 'disparate impact' provision," and that the "word 'religion' is defined to “'includ[e] all aspects of religious observance and practice, as well as belief, unless an employer demonstrates that he is unable to reasonably accommodate to' a 'religious observance or practice without undue hardship on the conduct of the employer's business.'” 42 U.S.C. § 2000e–2(a) and § 2000e(j). 2015 WL 2464053, at *2-3. The Court rejected the argument that a Title VII plaintiff must show that the an employer had “actual knowledge” of the applicant's need for an accommodation and that, instead, the plaintiff "need only show that his need for an accommodation was a motivating factor in the employer's decision….[T]he intentional discrimination provision prohibits certain motives, regardless of the state of the actor's knowledge. Motive and knowledge are separate concepts. An employer who has actual knowledge of the need for an accommodation does not violate Title VII by refusing to hire an applicant if avoiding that accommodation is not his motive. Conversely, an employer who acts with the motive of avoiding accommodation may violate Title VII even if he has no more than an unsubstantiated suspicion that accommodation would be needed. Thus, the rule for disparate-treatment claims based on a failure to accommodate a religious practice is straightforward: An employer may not make an applicant's religious practice, confirmed or otherwise, a factor in employment decisions." 2015 WL 2464053, at *3 (emphasis added). The Court rejected Abercrombie's argument that the store's neutral policy cannot constitute “intentional discrimination” because "Title VII does not demand mere neutrality with regard to religious practices…. Rather, it gives them favored treatment, affirmatively obligating employers not 'to fail or refuse to hire or discharge any individual ... because of such individual's' 'religious observance and practice.' An employer is surely entitled to have, for example, a no-headwear policy as an ordinary matter. But when an applicant requires an accommodation as an 'aspec[t] of religious ... practice,' it is no response that the subsequent 'fail[ure] ... to hire' was due to an otherwise-neutral policy." 2015 WL 2464053, at *4 (emphasis added). Finding that the 10th Circuit had misconstrued Title VII, the case was remanded for further consideration.

Justice Alito concurred in the result but disagreed with the Court's "knowledge" analysis. Justice Thomas (a former EEOC Chairman) concurred in part and dissented: "I would hold that Abercrombie's conduct did not constitute 'intentional discrimination.' Abercrombie refused to create an exception to its neutral Look Policy…. To be sure, the effects of Abercrombie's neutral Look Policy, absent an accommodation, fall more harshly on those who wear headscarves as an aspect of their faith. But that is a classic case of an alleged disparate impact" and not "disparate treatment because Elauf received the same treatment from Abercrombie as any other applicant who appeared unable to comply with the company's Look Policy." 2015 WL 2464053, at *8.

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The 10th Circuit Rebuffs Environmental Groups' Challenges to Keystone XL Pipeline Permit and Verification Letters

On May 29, 2015, the U.S. Court of Appeals for the 10th Circuit upheld the entry of judgment for defendant and rejected National Environmental Policy Act (NEPA) and Clean Water Act (CWA) challenges to the validity of Army Corps of Engineers' Nationwide Permit 12 (NWP 12) for the Gulf Coast Pipeline (the southern segment of the Keystone XL Pipeline) and to the verification letters issued by the Corps. Sierra Club, Inc., et al. v. Bostick, No. 14-6099, 2015 WL 3422924. Writing for the Court, Circuit Judge Bacharach (Oklahoma) held that the environmental groups had waived their NEPA claims that the Corps failed to consider the risk of oil spills and the cumulative impacts of pipelines before first issuing NWP 12 because the groups failed to raise those issues below, and (i) the risk of pipeline oil spills is not so "obvious" as to avoid waiver, (ii) the Corps' knowledge of the risk of pipeline oil spills and responsibility deferral to the Pipeline and Hazardous Materials Safety Administration (PHMSA) did not apply to avoid waiver, and (iii) the groups' cumulative-impacts objections did not adequately challenge the rationality of agency action. The Court further rejected arguments that the Corps should have prepared a new NEPA analysis for the entire Gulf Coast Pipeline before issuing Permit verification letters, holding that the issuance of verification letters did not constitute "major federal action" but mere verification that permittees may proceed under a nationwide permit, and "the Corps had no obligation to assess the environmental impacts of the entire Gulf Coast Pipeline." The environmental groups' challenges under § 404(e) of the CWA (dredge-and-fill activities) were also rejected by the Court, stating, the "environmental groups have not shown that the permit authorizes linear projects with more-than-minimal impacts, and the Corps has permissibly interpreted the statute to allow partial deferral of its minimal-impacts analysis."

Notably, NWP 12 was issued after TransCanada decided to divide the Keystone XL Pipeline into two parts after the original comment period had closed for NWP 12. The Court recognized that nationwide permits are inherently broad, encompassing a variety of activities, some of which may or may not be predicted by the permitting agency. Here, the "Corps made an environmental assessment of the predictable uses of Permit 12, but recognized the futility of predicting every conceivable use for every conceivable type of utility line anywhere in the United States. The Corps need not conduct a new NEPA analysis every time someone conceives a new use for a national permit." The Court also concluded that the record showed that the agency engineers had adequately considered cumulative impacts at proposed crossings.

In his concurring opinion, Circuit Judge Baldock (New Mexico) concurred but found "this case to be prudentially moot" due to changed circumstances.

In her concurring opinion, Circuit Judge McHugh (Utah) wrote separately concerning the Corps' problematic, overly broad definition of "pipeline" and its obligations under NEPA, finding that the Corps improperly conflated its obligations under NEPA with its obligations under § 404(e) of the CWA. "The Corps may not limit its NEPA analysis to the consideration of the environmental effects of the discharge of dredged and fill material into jurisdictional waters, as would be appropriate under § 404(e) of the CWA. Rather, for NEPA purposes, the Corps is required to consider the direct, indirect, and cumulative effects reasonably foreseeable as a result of its permitting decision. This includes the environmental effects caused by the operation of the installations authorized by the Corps' permitting decision. And this understanding of the Corps' NEPA responsibilities has been universally adopted." 2015 WL 3422924, at *18 (citations omitted). Judge McHugh nevertheless "would affirm the district court because I conclude that Sierra Club's argument that the Corps improperly deferred portions of its NEPA analysis to the verification stage was not made to the agency during the reissuance process and is therefore waived…. The Corps has been issuing and reissuing NWP 12 for decades, with no party objecting to the deferral practice." 2015 WL 3422924, at *21.

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Obama Administration Proposes Changes to ESA-listing Rule

In an apparent attempt to head-off legislative changes to the Endangered Species Act (“ESA”) that have been threatened by Congressional Republicans, President Obama unveiled a suite of proposed changed to the ESA species listing process.   These changes, contained in a proposed rule that was announced on May 19, are largely focused on making it more difficult to file petitions to list species and designate critical habitat.

Section 4 of the ESA allows “any person” to petition the federal government (either the Fish and Wildlife Service for terrestrial species, or the National Oceanic and Atmospheric Administration for aquatic species) to list the species as threatened or endangered. This provision has resulted in a slew of petitions filed by individuals and environmental groups, often seeking the listing of numerous species through a single petition. The FWS and NOAA, which are required by ESA Section 4 to respond to petitions within 90 days, have been unable to keep up with the petitions. The result has been numerous pieces of multi-district litigation and settlement agreements requiring that FWS and NOAA respond to listing petitions within specified timeframes.

Under the proposed rule, listing petitions would be limited to one species at a time, preventing the massive omnibus petitions that gave rise to the multi-district litigation settlements. The rule would also require that parties submitting petitions to list species provide copies of the petitions to state fish and game agencies at least 30 days before they are submitted to FWS or NOAA. If a state wishes to submit comments on the accuracy or completeness of the petition, the petition is required to submit the state’s comments to the FWS or NOAA along with the petition.  The proposed rule also requires that specific information on the species be provided with the petition, including disclosure of any data that would not support listing of the species.  The petitions would also have to include:

•Literature citations that are specific enough for the agencies to find the information, including by page and chapter.

•Electronic or hard copies of any supporting materials, such as publications, maps, reports and letters cited in the petition, or valid links to public websites where the information can be found.

•Information demonstrating that the petitioned wildlife meets ESA's definition of a "species."

•Information on current population status and trends and estimates of current population sizes and distributions, both in captivity and the wild, if available.

The proposed rule can be found at:  http://www.fws.gov/home/feature/2015/proposed-revised-petition-regulations.pdf 

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Western Energy Alliance and IPAA Move to Enjoin New BLM Fracking Rule

BLM’s new fracking rule is scheduled to take effect on June 24, 2015, but the Western Energy Alliance and Independent Petroleum Association of America moved for a preliminary injunction on May 15 to keep that from happening. They allege irreparable harm because the new rule lacks the factual, scientific, or engineering bases to sustain it. “BLM has neither substantiated the existence of problem this rule is meant to address, identified the gap in existing regulations the final rule will fill, or described the objectives the final rule will achieve.” Motion for Preliminary Injunction at 24.

And BLM’s new rule will cost a lot. BLM concedes that the additional cost will be at least $11,400 per well drilled on federal lands, but the Alliance and IPAA assert that the real extra costs per well, depending on particular circumstances, could be:
• $74,400 for using tanks instead of pits for storage of recovered fluids.
• $75,000 to $100,000 for extra mechanical integrity tests.
• More than $100,000 for obtaining more data on total dissolved solids (TDS), or $8,000 to $12,000 per well if sampling is done only on representative wells.
• $111,200 to run a cement evaluation log (this is BLM’s own estimate, but BLM states it will rarely be an additional burden required by the new rule).

Motion at 36, 38, 41, 48. Despite these significant economic burdens, "BLM has no evidence that its costly proposed rule will be any more effective in practice than existing state regulations protecting water and other environmental values.” Motion at 26.

In addition to the additional costs, the new rule would also cause its own negative environmental impacts by requiring greater use of the surface for water tanks. For example, a 150,000-barrel hydraulic fracturing operation may require approximately 2 acres of surface for a single pit, but 325 tanks used to hold the same water would take up almost 5 acres. Motion at 43.

The Alliance and IPAA conclude by arguing that implementation of the new rule should at least be delayed because their members would suffer irreparable harm and there is no urgent reason for the rule to take effect next month. BLM began work on the final rule in November 2010 and “has not identified a single groundwater contamination incident resulting from site preparation, drilling, well construction, completion, hydraulic fracturing stimulation, or production operations that the agency contends its final rules would have prevented.” Motion at 52. What is the rush?

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Utah Law Copied by More Western States Attempting to Take Control of Federal Land

Utah’s Transfer of Public Lands Act (“TPLA”) demands that the federal government “extinguish” its title to more than 30 million acres of federal public lands by December 31, 2014. Utah Code Ann. § 63L-6-101 et seq. (2012). When the law was enacted in 2012, former Department of Interior Secretary Ken Salazar charged that the legislation “defied common sense.”

Since then, Utah’s own legislative lawyers and most outside legal analyses have concluded that if challenged, it is likely that courts would find the law unconstitutional. In addition, the state probably could not afford to manage the lands. A report prepared by the University of Utah’s Bureau of Economic and Business Research, Utah State University’s Department of Applied Economics and Weber State University’s Department of Economics concluded that unless all of the 30 million acres were opened to natural resource extraction, the state would not have sufficient funds to manage the land. Even then, the state would have to demand 100% of the royalties (rather than split them 50/50 with the federal government, as it does currently).

Finally, even if the law survived legal challenge, all of the 30 million acres were opened to natural resource extraction, and Utah received 100% of the royalties, the report also concluded that oil and gas prices would have to remain stable and high in order to generate revenue sufficient to cover the cost of managing the land. As recent events in the industry have taught some and reminded others, oil and gas prices, like those of most commodities, do not historically remain stable or high.

This year, Democratic Utah state senator Jim Dabakis introduced a bill that would have required the state attorney general to sue the federal government for state control over 20 million acres of public land by June 2016. According to senator Dabakis, “[t]he intent of the bill is to once and for all settle the question about who owns public lands in Utah[.] . . . It’s about forcing the hand of those who’ve made careers out of this dispute.” By the end of the 2015 legislative session, Senate Bill 105 did not pass, presumably leaving at least some careers in place for now.

Likewise, the law remains in place, unchallenged and unchanged. Perhaps more surprising, despite studies concluding the numerous ways in which Utah’s law “defies common sense,” this year, seven western states joined Utah in laying the groundwork for land transfers by introducing similar bills to their own state legislatures. Although this land grab may be proceeding at geologic pace, its progress appears to be headed toward making a mountain out of a molehill.    

Read more about this issue in an article published in High Country News: http://www.hcn.org/articles/the-taxpayer-money-behind-local-control-demands?utm_source=wcn1&utm_medium=email

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Wyoming State Geological Survey Developing Next Generation of Oil and Gas Map of Wyoming

Despite the fact that the U.S. Bureau of Land Management lease sale covering lands in Wyoming conducted on May 5, 2015, brought in a paltry $688,000, which is the lowest total since August 2009, the Wyoming State Geological Survey (“WSGS”) has begun the process of developing the next generation of the Oil and Gas Map of Wyoming.

The Oil and Gas Map of Wyoming is one of the most popular products published by the WSGS. No wonder, as Wyoming currently ranks fifth in the production of natural gas and eighth in oil production. The current version of the map, which can be downloaded from the WSGS website or purchased in a large printed format, contains information including: boundaries of producing and abandoned oil fields in Wyoming; producing formations; field designations; refinery and gas plant locations and capacities; pipeline sizes, operators and locations; basin locations; extent of shale-bearing rocks; and railroad locations.

For the next generation of the map, in addition to updating the information described above, the WSGS plans create an online version of the map, which will allow users to display and interact with various layers of the information contained in the map. More information about the Oil and Gas Map and the other projects of the WSGS can be found online at http://www.wsgs.wyo.gov/.

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U.S. Supreme Court Refuses to Consider Colorado Rancher's Attempt to Bar Oil Drillers from Ranch

On April 27, 2015, the U.S. Supreme Court denied a petition for writ of certiorari to review a Colorado rancher's attempt to prevent oil development and related access on his ranch. Petitioner Stull Ranches had requested that the high court review and reverse a 2014 decision of the 10th U.S. Circuit Court of Appeals decided in favor of the federal mineral lessee, Entek GRB, which allowed Entek reasonable surface access to drill for oil and to use a road to access another unitized Entek well.

The federal mineral rights at issue had been reserved by and for the federal government pursuant to the Stock-Raising Homestead Act of 1916 [Pub.L. No. 64–290, 39 Stat. 862 (codified at 43 U.S.C. §§ 291–301)] and, pursuant thereto, the land-grant surface successor acquired its real property interests subject to the government's reservation of mineral rights and interests, which includes: "(1) the right to enter and use so much of the surface as might be 'reasonably incident' to the exploration and removal of mineral deposits, and (2) the right to enact future laws and regulations regarding the 'disposal' of the mineral estate." Entek GRB, LLC v. Stull Ranches, LLC, 763 F.3d 1252, 1254 (10th Cir. 2014), cert. denied sub nom. Stull Ranches, LCC v. Entek GRB, LCC, No. 14-1007, 2015 WL 730880 (U.S. Apr. 27, 2015). According to the 10th Circuit, this "second right … sweeps broadly when it places the minerals at the government's 'disposal,' signifying not just the government's power to 'bestow[ ]' or 'assign[ ]' the minerals, but also a power to 'manage[ ],' 'make use of,' and 'deal with [them] as [it] pleases.'" Id. (Citation omitted.) The legal framework for disposition is that provided by the 1920 Mineral Leasing Act [Pub.L. No. 66–146, 41 Stat. 437 (codified in scattered sections of 30 U.S.C.)] as amended, which entitles the federal lessee the reasonable right to access and explore the mineral estate, a statutory right to unitize, and a reasonable right to access unitized wells and minerals.

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North Dakota Grants Exception to Flaring Restrictions

In July of last year, the North Dakota Industrial Commission, the administrative body charged with regulating oil and gas production, responded to media and public pressure by promulgating strict new rules to reduce the amount of gas flared in the state. Under these rules, producers may flare for 90 days without restriction. After the 90-day period, they must meet gas capture requirements or face production restrictions. Further, the Commission now requires gas capture plans to be in place prior to issuing drilling permits. These new rules have been heralded as a major step toward reducing flaring without unduly stifling development.

Unfortunately, the realities of infrastructure development have made the difficulty of implementing this new policy apparent. Last week, the Commission granted a six-month exception to the new flaring rules for 105 oil wells owned by XTO Energy. The wells were supposed to be connected to a pipeline extension slated to be built in 2015. However, the pipeline developers reached an impasse in easement negotiations with the Three Affiliated Tribes, forcing the pipeline to be rerouted and pushing the completion date out at least a year.

Initially, XTO requested exceptions through the third quarter or 2016 for 143 wells that would have been connected to the new pipeline. The Commission denied the exception for some wells because they were drilled after XTO knew the pipeline project was not going forward as planned. At the end of the six-month exception, XTO must go back before the Commission to request an extension.

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Case Management and Rejection of “Lone Pine Orders” in Colorado

On April 27, 2015, the U.S. Supreme Court denied a petition for writ of certiorari to review a Colorado rancher's attempt to prevent oil development and related access on his ranch. Petitioner Stull Ranches had requested that the high court review and reverse a 2014 decision of the 10th U.S. Circuit Court of Appeals decided in favor of the federal mineral lessee, Entek GRB, which allowed Entek reasonable surface access to drill for oil and to use a road to access another unitized Entek well.

The federal mineral rights at issue had been reserved by and for the federal government pursuant to the Stock-Raising Homestead Act of 1916 [Pub.L. No. 64–290, 39 Stat. 862 (codified at 43 U.S.C. §§ 291–301)] and, pursuant thereto, the land-grant surface successor acquired its real property interests subject to the government's reservation of mineral rights and interests, which includes: "(1) the right to enter and use so much of the surface as might be 'reasonably incident' to the exploration and removal of mineral deposits, and (2) the right to enact future laws and regulations regarding the 'disposal' of the mineral estate." Entek GRB, LLC v. Stull Ranches, LLC, 763 F.3d 1252, 1254 (10th Cir. 2014), cert. denied sub nom. Stull Ranches, LCC v. Entek GRB, LCC, No. 14-1007, 2015 WL 730880 (U.S. Apr. 27, 2015). According to the 10th Circuit, this "second right … sweeps broadly when it places the minerals at the government's 'disposal,' signifying not just the government's power to 'bestow[ ]' or 'assign[ ]' the minerals, but also a power to 'manage[ ],' 'make use of,' and 'deal with [them] as [it] pleases.'" Id. (Citation omitted.) The legal framework for disposition is that provided by the 1920 Mineral Leasing Act [Pub.L. No. 66–146, 41 Stat. 437 (codified in scattered sections of 30 U.S.C.)] as amended, which entitles the federal lessee the reasonable right to access and explore the mineral estate, a statutory right to unitize, and a reasonable right to access unitized wells and minerals.

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Colorado Enters Discussion on Federal Land “Takeover”

Colorado has now joined eight other western states in the ongoing discussion of state assumption of control of federally-managed public lands. This has been a hot button issue among western conservatives since the 1970’s, but the movement has recently gained new momentum with the States of Utah, Wyoming, Montana, Idaho and Nevada in various stages of developing plans to either study or implement assumption of management of these lands.

Colorado is the first Democratic-leaning state legislature to take action—albeit tepid—to discuss the “takeover.” Earlier this week, the Colorado Senate Agriculture, Natural Resources and Energy Committee approved a proposal to study the benefits of assuming control of Colorado’s nearly 24 million acres of federally-managed land. The Committee voted along party lines to approve legislation that would establish the Colorado Federal Land Management Commission. The Commission would be a 15-member body made up of County Commissioners from around the state, but weighted toward representation from Counties dominated by federal public lands.

Opposition to the bill has been strong among elected Democrats and sportsman, conservation, and environmental groups in the state and, as reported by Greenwire, during public comment at the hearing, opponents to the bill outnumbered supporters 3-to-1. Much of the opposition has been focused on the make-up of the Committee, which opponents fear leaves numerous stakeholders out of the planning process. Other opponents raised concern that it would be legally impossible for states to “assume” control federally-managed public lands.

Supporters of the bill countered that the Commission is merely a first step in analyzing the issue. Under the bill, the Commission would prepare two reports to be issued in April 2016 and April 2017. It is only after the reports are completed that the legislature would re-visit the issue.

The bill now heads to the full Republican-controlled Senate, where it is expected to pass. However, the bill will likely face an uphill battle in the Colorado House, which is controlled by Democrats.

To read Greenwire’s coverage (subscription required), see:   http://www.eenews.net/greenwire/2015/04/24/stories/1060017407

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At Last: A Federal Oil and Gas Lease Sale in the Pawnee National Grasslands

Developing federal lands in the Northern Denver Julesburg Basin (“DJ Basin”), Colorado, has been a challenge for many operators active in the area because of the presence of the Pawnee National Grasslands (“PNG”), an area that has been largely off-limits to oil and gas development. While development of fee minerals in the DJ Basin has been occurring at a rapid pace, leasing in the U.S. Forest Service-managed PNG has been on hold since 2010, when the federal government began preparation of a new oil and gas plan amendment. However, this may be about to change with the finalization of the Forest Service oil and gas plan and the BLM’s decision to include certain parcels in the PNG in the upcoming May 2015 oil and gas lease sale.

The BLM’s delay in leasing was triggered by a lawsuit initiated in 2010 by WildEarth Guardians that argued that the BLM failed to consider the impacts of oil and gas development on air quality in the Front Range non-attainment area, which includes the PNG. The Forest Service responded to the litigation with a decision that the 1997 Forest Plan and NEPA were out of date based largely on the increased oil and gas development in the Northern DJ Basin.

Three years later, in 2013, the Forest Service initiated work on the PNG, Colorado; Oil and Gas Leasing Analysis Environmental Impact Statement (“EIS”), completed the EIS and issued a Record of Decision in 2013. The Record of Decision permits oil and gas leasing to go forward, but places a “no surface occupancy” stipulation on all PNG parcels. As such, all of the parcels located in the PNG will have no surface occupancy lease stipulations in addition to the standard stipulations to protect air, water, wildlife habitat, historic and cultural resources, and reclamation requirements. With the advent of horizontal and directional drilling, access to most of the offered parcels appears possible from adjacent, lands.

On February 13, 2015, the BLM posted an oil and gas lease sale notice offering 42 parcels (containing a total of 25,215 PNG mineral acres) in the PNG to be leased on May 14, 2015. On March 16, 2015, Rocky Mountain Wild and WildEarth Guardians filed protests on the parcels. WildEarth Guardians’ protest focused on the May 2015 lease sale Environment Assessment (“Lease Sale EA”), arguing that the Lease Sale EA violates NEPA and that the BLM has not complied with its obligations under the Clean Air Act and Endangered Species Act. On April 20, 2015 Western Energy Alliance filed a Response to WildEarth Guardians’ protest arguing that the (1) BLM has complied with the requirements of NEPA in preparing the Lease Sale EA, (2) the Lease Sale EA comports with the conformity analysis requirements of the Clean Air Act, and (3) the Lease Sale EA complies with the Section 7 consultation requirements of the Endangered Species Act.

The BLM has not yet ruled on the protest, so it is not yet certain if some, all, or none of the parcels will in fact be offered at the sale. The BLM has until 60 days following the sale to decide the protests.

BLM May 14, 2015 Lease Sale Information: http://www.blm.gov/co/st/en/BLM_Programs/oilandgas/oil_and_gas_lease/2015/may_2015_lease_sale.html

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BLM Begins Regulatory Process to Increase Oil and Gas Royalties, Rentals, Minimum Bids, Bonding and Penalties

As promised by Secretary Jewell in March, see previous post, BLM is initiating a rulemaking process-- Announcement of Proposed Rulemaking (ANPR)-- to “solicit public comments and suggestions that may be used to update the BLM’s regulations related to royalty rates, annual rental payments, minimum acceptable bids, bonding requirements, and civil penalty assessments for Federal onshore oil and gas leases.” The comment period will close on June 5, 2015. At the end of the ANPR, the BLM poses a series of questions and readers will want to review the questions carefully for how best to respond to the ANPR. http://www.gpo.gov/fdsys/pkg/FR-2015-04-21/pdf/2015-09033.pdf

The BLM cites three principle reasons that compel their consideration of increasing the cost of developing federal oil and gas. 1) Three GAO reports, two in 2008 and the most recent in 2011, that have questioned whether BLM is obtaining an appropriate royalty for the development of federal oil and gas; 2) the finding that none of the regulatory rates have been adjusted for inflation or changed since they were put in place several decades ago; and 3) in order to ensure a fair return to the taxpayer. This effort will also further three initiatives that the Administration has been pursuing – higher royalties, the concept of “use it or lose it” for federal leases and an emphasis on enforcement and inspection by increasing bonding and penalties to ensure that companies are incentivized to do the right thing.

The current royalty rate is 12.5% and any change in the rate will be for leases issued in the future not existing leases. The proposed royalty changes will not apply to Tribal or Allotted leases issued under the Indian Mineral Leasing Act. BLM admits that adjusting the royalty rate is difficult, it references several studies it has done to get at the question, provides a chart of state royalty rates currently being used in states with federal oil and gas and considers that complex questions of economics are involved. “The BLM acknowledges that current oil and gas prices are low, relative to the average price over the past decade; however, recognizing the historic variability of those process, the BLM would be interested in information on the impacts of any royalty rate change at a range of oil and gas prices.”

In this ANPR, the BLM is also considering whether to raise the minimum acceptable bid for competitive leases; the bid amount has not been changed since enacted in 1987. For non-competitive leases the minimum bid is set by statute and can’t be changed by rule. As to increasing rental rates, “the BLM has not increased the rental rates ($1.50-2.00) since they were initially set in 1987 . . .” Similarly, as to bonding BLM has not “increased the minimum bond since 1960” and wants to consider whether the individual/lease, statewide and nationwide bond amounts are adequate to protect the taxpayer from the costs of reclamation. Finally, BLM, in response to a critical Inspector General report, wants to examine the regulatory caps on the penalties BLM can assess for trespass and other violations of law. Each of these proposed changes has the potential to add considerable cost to the already high cost of doing business on federal lands.

The breadth of the proposal is sure to attract the attention of Congress. Indeed, BLM recognizes that before it can change the minimum bid, the Mineral Leasing Act requires the Secretary to provide 90 days’ notice to the House Natural Resources Committee and the Senate Energy Committee. 30 U.S.C. 226(b)(1)(B). Congress and industry will all need to pay close attention to this process. In particular, it is important for the industry to respond to the questions that BLM has raised as well as the questions they have failed to raise in the ANPR by June 5, 2015.

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The Wyoming Historical Society . . .

The Wyoming Historical Society published an interesting piece by Wyoming reporter Dustin Bleizeffer on the history of coalbed methane development in Wyoming, “Coalbed Methane: Boom, Bust and Hard Lessons.” The article covers the boom of the early years of 2000’s and the current bust that has left companies bankrupt and the State addressing the abandoned infrastructure from the development. It is an interesting piece of recent oil and gas history describing how individuals and companies, litigation and government policies shape development on the ground. The article may raise some questions: What should or could have been done smarter? What lessons were learned by the regulators, the public and the industry? Will any lessons learned change management of the next resource boom?

Here is a link to the article:  http://www.wyohistory.org/essays/coalbed-methane-boom-bust-and-hard-lessons

  2009 Hits
2009 Hits

Senator Tester calls for Cancellation of Long-disputed Montana Oil and Gas Leases

At the end of March 2015, Montana’s U.S. Senator Jon Tester joined the Blackfeet Nation in calling on the federal government to cancel 18 existing federal oil and gas leases located in Northwestern Montana. These leases have been the focus of controversy for several decades, and Senator Tester’s recent letter appears to signal a new chapter in the ongoing debate.

The leases (collectively referred to as the Solenex Leases) were issued by BLM in 1982. Two years later, the BLM issued an APD for one of the leases, thereby approving wellsite development. However, that development was halted and the other 46 leases were indefinitely suspended when the BLM and U.S. Forest Service (as the surface management agency) issued a series of suspensions between 1993 and 1997, finally deciding in 1998 to “indefinitely suspend” the leases. 29 of the leases have since been voluntarily relinquished, but 18 leases still remain.

The Solenex Leases are located along the Rocky Mountain Front in an area referred to by the Blackfeet as the Badger-Two Medicine. This area is bordered by the Blackfeet Reservation to the Northeast and generally lies southeast of Glacier National Park. While the area is outside of the Blackfeet Reservation boundary, it is considered spiritually significant to some tribal members. The area has now been placed off-limits to future oil and gas leasing as a result of a 2006 statue introduced by Senator Max Baucus that recognizes “valid existing rights”. Thus, the debate now centers on the fate of the remaining 18 leases.

Although the Blackfeet Nation was largely silent on the issue during the 1980’s, ‘90’s and early 2000’s, the Tribe has now publicly expressed opposition to the leases and, with the support of several environmental groups, has argued that the leases should be cancelled on the grounds that they were issued with inadequate NEPA analysis and that the Tribe was not consulted prior to lease issuance.

While the Tribe, with the support of Senator Tester, attempts to exert political pressure on the BLM and Forest Service to finally cancel the leases, Solenex, the owner of several of the remaining leases, has filed suit in federal court arguing that the BLM’s “indefinite” suspension violates the Mineral Leasing Act. Obama administration attorneys have responded that the suspension is “reasonable,” given the complexity of the issue and the fact that remedial environmental analyses are ongoing.

Given the renewed attention being paid to this issue in the courthouse, at the agencies and on Capitol Hill, it seems possible that finality may be close at hand. While it is difficult to predict what form resolution may take, it is likely to be achieved through some combination of litigation and political deal-making.

For more information on the Solenex v. BLM litigation, see the Mountain States Legal Foundation website: https://www.mountainstateslegal.org/cases/all-cases/solenex-llc-v.-jewell#.VS1s0IznaUl

Senator Tester’s letter to Secretaries Jewell and Vilsack can be found at: http://www.tester.senate.gov/?p=news&id=3864

  1915 Hits
1915 Hits

EPA Proposes Rule to Prohibit What Is Not Being Done

On April 7, 2015, EPA proposed a new rule to prohibit the discharge of wastewater pollutants associated with unconventional oil and gas (“UOG”) extraction to publicly owned treatment works (“POTWs”). Given that EPA is not aware that any UOG wastewater is currently being sent to any POTW, the rule is not expected to have much impact.
The deadline for comments on the proposed rule is June 8, 2015.
Link to EPA Fact Sheet:  http://water.epa.gov/scitech/wastetech/guide/oilandgas/upload/oilandgas-proposed-factsheet.pdf

The text of the rule in the Federal Register may be found at: http://www.gpo.gov/fdsys/pkg/FR-2015-04-07/pdf/2015-07819.pdf

  1869 Hits
1869 Hits

United States Senate Passes Amendment “Supporting” Transfer of Public Lands to States

Last week, the United States Senate passed a largely symbolic budget amendment sponsored by Alaska Senator Lisa Murkowski (chair of the Senate Energy and Natural Resources Committee) that “supports” the idea of selling, transferring or trading federally-managed public lands to the states. The idea of western states “taking back” public lands has been around since the Sagebrush Rebellion of the 1970’s, but in recent years has been gaining new momentum.   In the last 5 years, 8 states, including Utah, Wyoming, Montana, Idaho and Nevada have “studied” the feasibility of “taking back” or somehow acquiring title to the millions of acres of federally-managed public lands that were reserved to the Union at the time of statehood.

The amendment, S. A. 838 to Senate Resolution 11, is described as “establish[ing] a spending-neutral reserve fund relating to the disposal of certain Federal land,” and conveys no actual authority to transfer lands and does not cover any specific parcels or identify any states by name. Instead, the purpose of the amendment is to demonstrate that “considering such bills is a priority of the Congress” says Robert Dillon, communications director for the Senate Energy and Natural Resource Committee, as reported by High Country News.   Under the Senate authorization, the chamber’s “support” applies generally to “initiatives to sell or transfer to, or exchange with, a State or local government any Federal land that is not within the boundaries of a National Park, National Preserve, or National Monument.” Voting on the measure was largely split down party lines, with Senator Cory Gardner of Colorado as the lone Western Republican to vote no, joining all of the Western Democrats.

While the idea of states taking title to federally-managed public lands (whether through voluntary transfer or litigation) has been widely viewed as, at best, an unlikely and costly proposition, the idea has gained considerable traction in Western states with large percentages of federally-managed public lands. Utah has taken the idea the farthest, passing a law in 2012 demanding the transfer of approximately 20 million acres of federal land. In each fiscal year since 2012, the Utah legislature has allocated taxpayer money to study the issue and devise legal strategies. Most recently, in the 2015 Utah legislative session, the state passed a law allocating considerable funds to pay outside legal counsel to help devise a legal strategy and, potentially, bring litigation against the federal government. The state has recently issued an RFP soliciting bids for this work.

The issue has raised considerable debate in Utah and across the West, with most casual observers wondering about the legality and feasibility of the proposal. While the State of Utah staunchly defends the basic legality of its law authorizing the “take-back” of federal lands, most scholars disagree. According to John Ruple of the University of Utah College of Law, “The [United States] Constitution gives the federal government the authority to retain and manage that land.” Proponents of “taking back” federal lands argue that state enabling acts require federal transfer of public lands to the states. However, as stated by Mr. Ruple, states’ enabling acts do not create an obligation to “return” lands to state management; instead, in the enabling acts, “the state is disclaiming any future claims to federal lands.”

The Senate’s recent action in approving Amendment 838 does not affect the fundamental Constitutional question of state assumption of federal land. It does, however, signal a willingness on the part of the legislative branch to dive into what has, until recently, been a debate largely confined to Western state houses.

High Country News has an excellent series of articles covering the full range of the public land transfer debate:

https://www.hcn.org/articles/utah-bill-would-push-land-transfer-debate-to-federal-court

https://www.hcn.org/articles/western-states-trying-to-take-back-federal-lands-get-a-boost-from-the-u-s-senate

For the State of Utah’s position on its federal land transfer law, see:

http://publiclands.utah.gov/current-projects/transfer-of-public-lands-act/

The University of Utah College of Law’s analysis, authored by John Ruple, can be found at:

http://content.lib.utah.edu:81/cdm4/item_viewer.php?CISOROOT=/utlawrev&CISOPTR=9160

  2178 Hits
2178 Hits

Mediation in a Nutshell

Mediation typically occurs at some stage of the adversarial process. That process involves parties who are focused on the strengths of their respective positions/cases, and who are committed to convincing a decision maker that the other side should be defeated. The challenge for mediation is that these same parties are suddenly asked to shift gears, slow down, take a breath and come at resolution of the dispute in a very different way.
What mediation isn’t
The mediation session is not a trial or an arbitration, and the mediation process is not about deciding who’s right and who’s wrong. In a way, the mediation process is the inverse of a trial in that the parties themselves are the decision makers.
Perhaps most important, mediation is not about outdoing the other side. It’s not about winning or losing in the classic courtroom sense. The mediation process is a negotiation that may, or may not, result in agreement and dispute resolution. The negotiated result, if there is one, must seem (feel) fair on all sides to be acceptable and sustainable.
What mediation is
Thus, if the mediation process is to have a hope of being successful, each party must accept the challenge to identify and then focus on and evaluate its own weaknesses. Further, each party must be willing to listen to, accept, and evaluate the other party’s strengths.
The common perspective among the parties must be the following:
• Mistakes were made and things could have been done better.
• There is no pride of authorship.
• Each party had some participation in those mistakes.
• The dispute would not have arisen otherwise.

Those mistakes come at a collective cost that must be shared (compromised) if there is to be a mediated resolution. The benefit of a mediated resolution is that it avoids the cost and risk of litigation. This benefit must entice each party to stop looking back (except to define lessons learned), swallow hard, get on the right scale and commit to resolving the issues and moving on.
So, the victory in the mediation process, if any, is in resolution of the dispute. To get to that victory, each party and their counsel must accept the fact that a well-advised resolution may be seem painful, may feel like an abdication of principle, but it manages and avoids otherwise unmanageable and unavoidable risk. A mediated resolution also minimizes opportunity cost so that resources can be put back to constructive use in the life of each party. In short, a mediated resolution, though it may not make everyone happy, puts each party back in control, and therefore, adds value.

Getting There Check List – Mediator
The mediator must
 Bring understanding and creativity to the table
 Be a spokesperson for each side while maintaining credibility and trust
 Be a motivator, not an advocate
 Be the reality checker and manager of expectations
 Be an edge softener, and do so without ego – leave that at the door

Getting There Check List – Parties and Counsel
Each party and their counsel must
 Control their own myopia and their own emotional (and probably economically ill-advised) investment in the rightness of their position.
 Understand their own position weaknesses
 Check (counterproductive) “principles” at the door
 Have the courage, knowledge and authority to accept compromise.
 Know, going in, the perimeters (absolute boundaries) and parameters (variables) of acceptable compromise.
 Be able walk in the other party’s shoes with empathy, without pride of authorship and without personal investment in a litigated win.
 Get on the right scale and stay there - listen to Pogo: "We Have Met The Enemy And He Is Us"

  1964 Hits
Tags:
1964 Hits

Energy Book Review: “The Big Rich: The Rise and Fall of the Greatest Texas Oil Fortunes,” Bryan Burrough (Penguin 2009)

Now that it looks like at least four of the Republican Presidential candidates claim a Texas connection - Jeb Bush, Ted Cruz, Rand Paul and Rick Perry - a look back at where the Texas connection to the White House began (hint: it wasn’t LBJ) is well-timed. http://www.chron.com/news/politics/article/A-look-back-at-presidential-candidates-from-Texas-6106289.php “The Big Rich,” by Texan and author of the seminal “Barbarians at the Gate: The Fall of RJR Nabisco,” Bryan Burrough, tells the fascinating story of the 20th century creation of the Texas oilman and how that led to the Texas place in presidential politics. This tale of oil and politics, (and movie stars, bigamy, island mansions, art, drugs and bankruptcies) is told through the lives of Roy Cullen of Houston, Sid Richardson and the Bass brothers of Fort Worth, Clint Murchison and H.L. Hunt of Dallas. Burrough explains, “If Texas oil had a Mount Rushmore, their faces would adorn it. A good ol’ boy. A scold. A genius. A bigamist. Known in their heyday as the Big Four, they became the founders of the greatest Texas family fortunes, headstrong adventurers who rose from nowhere to take turns being acclaimed America’s wealthiest men.” But this book is more than a biographical quartet; Burrough brings a reporter’s political analysis and lively writing style to put these lives and the birth of the modern oil and gas industry into the larger context of U.S. politics and popular culture. Texas oil and the money it created shaped our modern world including the politics of today. These Texans also shaped popular culture from the image of Spindletop, to Edna Ferber’s “Giant,” to “Dallas” and J.R. Ewing and the Dallas Cowboys. And, Burrough’s descriptions of how these four oilmen responded to the fluctuations of supply and demand and used and abused leveraged debt provide some food for thought for our 21st century era of low oil prices. A great read for anyone interested in U.S. history and the oil and gas industry. http://www.bryanburrough.com/books/the-big-rich/

  2048 Hits
2048 Hits

New BLM Fracking Rule

On March 20, 2015, after considering more than 1.5 million comments, the BLM released its much anticipated fracking rule for oil and gas wells on Federal and Indian lands.

More than 90 percent of all wells, including those on Federal and Indian property, are hydraulically fractured by injecting water, sand and chemicals under high pressure to stimulate the flow of oil and gas. Due to increased public concern over fracking, the rule imposes new requirements for assurance of wellbore integrity, management of flowback fluids, and disclosure of chemicals. The rule requires:

• Before fracking, operators have to perform a successful mechanical integrity test showing that the well can withstand at least the maximum anticipated pressure for 30 minutes with no more than a 10 percent loss of pressure.
• All flowback fluids from fracking must be stored in above-ground tanks. A lined pit may be used instead only if a tank would be infeasible and numerous conditions are met, including being at least 300’ from any stream and 50’ from any usable groundwater.
• Chemicals used in fracking have to be disclosed publicly within 30 days of the last stage of fracking for each well. This information must be certified and submitted “through FracFocus or another BLM-designated database, or in a Subsequent Report Sundry Notice.”

The rule allows operators to request a variance from particular requirements if “the proposed alternative meets or exceeds the objectives of the regulation for which the variance is being requested,” but the “decision whether to grant or deny the variance request is entirely within the BLM’s discretion” and may be rescinded or modified at any time. Various states, including Colorado, Wyoming and North Dakota, are considering whether they might be able to opt out of at least parts of the new rule because their own standards are so strict. BLM Director Neil Kornze told a House Natural Resources subcommittee on March 24 that he is looking at whether variances are warranted for Wyoming and other states and would like to reach those determinations before the 90-day effective date of the rule.
The same day that the BLM initially released the new rule, March 20, 2015, the Western Energy Alliance and Independent Petroleum Association of America filed suit in Federal court in Wyoming to challenge the rule for being unnecessary, overly burdensome and duplicative of environmental regulations and paperwork already required by state regulatory agencies.

The final rule was published in the Federal Register on March 26, 2015. 80 Fed. Reg. 16128. Unless legal challenges are successful, the new fracking rule will take effect on June 24, 2015.

Link to BLM announcement of fracking rule:  http://www.blm.gov/wo/st/en/info/newsroom/2015/march/nr_03_20_2015.html

The text of the rule in the Federal Register may be found at: http://www.gpo.gov/fdsys/pkg/FR-2015-03-26/pdf/2015-06658.pdf

  1997 Hits
1997 Hits