Update to February 11, 2016 Blog Post/Weed and Water - Can Water Be Used for Marijuana Cultivation in Colorado

Last Year, WSMT blogged about whether water could be lawfully appropriated for Marijuana cultivation.  2/11/16 blog post.  We provided three arguments why that would be allowed.

Almost exactly a year later, the Division  water referee agreed In Re High Valley Farms, LLC, 14CW3095 with two of the reasons we set forth in our blog from last year - namely that appropriation of water is controlled by state law, and that the word "lawfully" in the state law definition of beneficial use of water means that the appropriation, not the use of the water, must be lawful.  A copy of the February 17, 2017 order is available here.

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933 Hits

Wyoming Legislature Rejects Attempts to Penalize Wind Energy Industry

In a state that has been described as having “world class wind,” a boast hard to ignore during a winter that featured days upon days of wind gusts reaching 80 mph at times, wind energy has struggled to find a secure toehold due to the vice-like grip traditional extractive mineral industries have on the energy sector in Wyoming.  That may be changing, however.

This year, bills were proposed in both the Wyoming House and Senate that sought to limit the ability of wind producers to market their product within the State.  Luckily (or not, depending on your point of view), each bill failed in committee before being introduced on the floor of either house.  House Bill 127 sought to increase the tax on wind energy from $1.00/megawatt hour to $5.00/megawatt hour.  This bill was defeated by a 7-2 vote by the House Revenue Committee on January 23, 2017.  In the Senate, Senate File 71 proposed that utility companies that use wind or solar power would incur a penalty of $10.00/kilowatt hour starting in 2019.  After widespread public opposition to this bill reached the desks of the Senate, it died in committee.  So, while Wyoming is the only state in the U.S. to tax wind1, and while wind producers still face a more difficult permitting process before the Industrial Siting Council than their traditional extractive mineral counterparts, the State legislature prevented two significant roadblocks to future development from being erected.

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943 Hits

After Years of Planning, the Forest Service Approves Arapahoe Basin’s Ski Area Expansion (WAHOOOO!)

On March 3rd, the attorneys of Welborn Sullivan Meck & Tooley will embark on our annual ski trip to Arapahoe Basin in the White River National Forest.  We look forward to the trip as a highlight of each winter season and, if we’re being honest with ourselves, a highlight of the year when all the hustle of firm life is exchanged for the exhilaration of a ski day in the Colorado mountains.  It is not too often that we lawyers get outside for an entire day to rip runs and bask in the sun.  

This year we will miss our fearless leader on the slopes and winter’s biggest fan, Chelsey Russell.

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1337 Hits

Nonconsenting Owner in a Colorado Oil and Gas Well Must First Pursue Claim for Payment of Proceeds of Production at COGCC – not District Court

A recent Colorado Court of Appeals decision involves two parts of the statutes regarding the Colorado Oil and Gas Conservation Commission (Commission):  the pooling statute and the statute regarding payment of proceeds of production.  In Grant Brothers Ranch, LLC v. Antero Resources Piceance Corporation, ___ P.3d __ (2016), 2016 COA 178, the court held that the nonconsenting owner was required to exhaust its administrative remedies by bringing its claim at the Commission, and that the nonconsenting owner’s claim brought in district court should have been dismissed without prejudice.

The Commission established two drilling and spacing units to produce oil and gas in Garfield County.  Antero Resources Piceance Corporation (Antero) offered to lease the mineral interest owned by Grant Brothers Ranch, LLC (Grant Brothers) in the units.  Grant Brothers did not lease its interest and also refused Antero’s offers for Grant Brothers to participate in the wells.  After Antero’s requests, the Commission entered orders pooling all nonconsenting interests in the units. 

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1270 Hits

Proposed Public Land Sale Falls to Public Opposition

On February 1, 2017, Representative Jason Chaffetz (UT-R) announced that he would pull a bill proposing to sell more than 3 million acres of public land.  It was easy to lose track of this sea-change proposal amidst the flurry of activity at the advent of the Trump administration, but the bill’s goal - as well as its failure - is noteworthy despite the fact that it is unlikely to become law.

Focusing first on the proposal, Mr. Chaffetz, a Republican Representative from Utah and chair of the House Oversight Committee, memorialized the argument held by some, especially in the West, that the federal government owns too much land, to the detriment of states.  In his home state of Utah, the legislature is seeking the “return” of federal lands to the state.  See http://publiclands.utah.gov/current-projects/transfer-of-public-lands-act.  Debate over federal property ownership has existed since the country’s inception, but recently the debate came to a head with Cliven Bundy and other groups claiming ownership over federally leased land.  States like Utah also challenged the extent and alleged burden of federal lands within their borders, while conservatives like Mr. Chaffetz aimed to turn that public sentiment into law.  House Republicans recently changed their internal rules to generally facilitate selling public land, and Mr. Chaffetz offered H.R. 621, which would sell 3.3 million acres of Bureau of Land Management lands spread across ten western states, and H.R. 622, which would transfer federal agencies’ policing power to local law enforcement. See http://chaffetz.house.gov/news/documentsingle.aspx?DocumentID=788.

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What Happens After the Nomination? How a Nominee becomes a Supreme Court Justice

On January 31, 2017, President Trump nominated Judge Neil M. Gorsuch, a Coloradan and judge on the Tenth Circuit Court of Appeals (“Tenth Circuit”), to fill the open seat on the United States Supreme Court that has been empty since Justice Antonin Scalia died on February 13, 2016.i   Judge Gorsuch was nominated to the Tenth Circuit by President George W. Bush on May 10, 2006, and confirmed by the Senate on July 20, 2006.  Prior to serving on the Tenth Circuit, Judge Gorsuch earned degrees from Columbia University, Harvard Law School and Oxford University, and he also served as a law clerk for the only other Coloradan who has served on the Supreme Court, Associate Justice Byron R. White and the still-serving Associate Justice Anthony M. Kennedy.ii

While Judge Gorsuch’s legal and personal history are going to be widely discussed over the coming weeks and months, what else happens after the nomination?  How does a nominee become a United States Supreme Court Justice?iii

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1411 Hits

Hoping to Fish or Boat on Utah Waters? The Utah Supreme Court May Soon Clarify Your Access Rights.

After nearly a decade of uncertainty, Utahns and visitors alike are looking forward to certainty on two key issues: (1) public access to and (2) navigability of the Beehive State’s premier rivers.  

It all started with Conatser v. Johnson, where the Utah Supreme Court held that the scope of the public’s easement in state waters “provides the public the right to float, hunt, fish, and participate in all lawful activities that utilize the water” and that the public has the right to “touch privately owned beds of state waters in ways incidental to all recreational rights provided for in the easement, so long as they do so reasonably and cause no unnecessary injury to the landowner.”  In response, Utah lawmakers passed H.B. 141: Recreational Use of Public Water on Private Property in 2010, tightening public access to the state’s rivers and streams.  The law prohibits recreational water users (including anglers, kayakers, tubers, hunters and others) from walking on the private bed of a public waterbody.  According to the law, individuals fishing or recreating in public water that flows over closed private property may not walk on the land beneath the water without obtaining landowner permission. 

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Colorado Supreme Court Limits How Transbasin Water May Be Used and Holds That Unjustified Non-Use of Water Rights Will Count Against Water Users When They Change Their Water Rights

The Colorado Supreme Court recently addressed two previously unsettled issues that will impact other water users in Grand Valley Water Users Ass’n v. Busk-Ivanhoe, Inc., 14SA303 (2016).  First, the Court held that imported transbasin water may not be stored in the basin of import prior to first use unless the decree expressly authorizes it.  The Court reasoned that “just as the right to store water is not an automatic incident of a direct flow right, the right to store water in the basin of import prior to use is not an automatic incident of trans mountain water rights.”  Id. ¶ 49 (citations omitted). Second, the Court held that undecreed uses of the decreed amount of water could count as zero use in historical beneficial use analyses rather than be omitted from the study period.  The Court reasoned that the use of water for an undecreed purpose could be treated as “unjustified non-use” and should not be ignored by excluding it from the study period.  Id. at ¶ 71.  

The Court was split on the first issue of storing transbasin water in the basin of import prior to first use.  The dissent argued that the specific decree at issue implicitly permitted such storage.  Id. ¶ 84. It also argued generally that once water is exported it is fully consumed with respect to the basin of export so no further injury can occur there, and no one in the basin of import has any right to the imported water and can therefore not be injured regardless of its use, so the importer can use the water however it sees fit without injuring anyone in either basin.  Id.  ¶ 85.  Thus, the dissent argued, no explicit decree language is needed for storage of imported water.  Id.  

The majority, however, correctly pointed out that undecreed storage of water prior to first use for the decreed purpose makes it possible to enlarge the water right.  Id. ¶ 49.  A direct flow right can be exercised only when there is both water available for diversion and a need for the water for the decreed beneficial use.  If a water user is able to store the water prior to its actual use, the water user can divert at other times when water is available (for example outside of the irrigation season) and then apply it to its actual use later when the water is needed.  Thus, the right to store may greatly expand a water right when there is a disconnect between the timing of need and availability.  This may lead to greater diversions in the basin of export than originally contemplated by a direct flow right even if the volumetric limits of the decree are not exceeded because the ability to put the water to a beneficial use when available is the ultimate measure of the water right regardless of the maximum limits set in the decree.  Thus, junior users in the basin of export may be injured if the Court had allowed storage prior to first use to count in the historical use analysis because the actual water right that had ripened through historical beneficial use in accordance with the decree might have been much smaller than the decreed limits without such storage.  See id. ¶ 44.

One wrinkle not fully addressed by the Court was that the decree at issue permitted some storage within the basin of export.  The case was ultimately remanded, so this issue and the effect it may have on whether junior users have been injured has not yet been fully determined.

The Court used the second issue to distinguish and clarify the scope of its ruling in Burlington Ditch Reservoir & Land Co. v. Metro Wastewater Reclamation Dist., 256 P.3d 645 (Colo. 2011), as modified on denial of reh'g (June 20, 2011), where it held that it was appropriate to exclude undecreed expanded use from the historical use analysis used to determine the scope of the water right. Grand Valley Water Users Ass’n, ¶ 71.  The Court explained that it would be inappropriate to exclude from consideration use of the decreed amount of water for undecreed purposes, as opposed to use of additional amounts of water for the decreed purposes.  Id.  Periods where none of the water was used for decreed purposes should be counted in the historical use analysis as zero use periods rather than be excluded from the analysis – at least to the extent that the non-use was unjustified.  Id.  

The legislature, however, passed Senate Bill 15-183 while this case was pending before the Supreme Court, and it was signed into law a few months prior to oral argument.  At oral argument, the parties agreed that Senate Bill 15-183 did not apply to this case, but they also agreed that it requires that water courts, in other pending and future cases, exclude all years of undecreed use from the study period, contrary to the eventual holding in this case.  It is therefore unclear what effect this decision will have on cases filed after Senate Bill 15-183 was adopted.  Further adding to these uncertainties is the fact, pointed out by counsel during oral argument, that Senate Bill 15-183 may be subject to constitutional challenge as impermissibly retroactive or even an unconstitutional taking of private property. 
  
The takeaways for other water users from this case are that although transbasin water can be a very flexible source of supply, one still must comply strictly with the terms and authorized uses provided in the decree.  Additionally, the case could have a broader impact in its analysis of undecreed use, and what the Court labeled “unjustified nonuse.”  This part of the holding applies to both transbasin and other, native flow water rights.  While Senate Bill 15-183 may limit this decision’s impact regarding the effect of undecreed uses on historical use analyses, the decision still clearly holds that “unjustified nonuse” can count against a water right holder that seeks to change the water right to a new use.  The court has not provided any guidance as to what constitutes “unjustified nonuse,” however, so it is likely that there will be more litigation in the coming years that wrestles with that question.   
 

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929 Hits

Hardrock Mining Will Require Hard Cash

On January 11, 2017, EPA published a proposed new rule that would require hardrock mining facilities to post security or prove their financial responsibility under Section 108(b) of the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA or Superfund).  Owners and operators of such facilities can already be held strictly liable under CERCLA for cleanup of hazardous substances.  Soon they may also be required to demonstrate their financial strength as a condition of operating.  The total financial obligations imposed by the new rule could exceed $7 billion.

The new rule will apply to over 200 mines and processing facilities that produce gold, silver, copper, lead, iron ore, molybdenum, uranium and other hardrock minerals in over 30 states.  Four types of operations will, however, be exempt:  (1) placer mining; (2) exploration; (3) “[m]ines with less than five disturbed acres that are not located within one mile of another area of mine disturbance that occurred in the prior ten-year period, and that do not employ hazardous substances in their processes”; and (4) “[p]rocessors with less than five disturbed acres of waste pile and surface impoundment.”

The new rule requires calculation every three years of the amount of security to be posted by looking at price deflators and the type of facility.    As an example, EPA proposes the following for a single heap leach operation: 

 

 

 

 

 

Where: 

????????? = the most recent available GDP Implicit Price Deflator for year y; and 

????????2014 = the GDP Implicit Price Deflator for 2014 

i = the ith response category (e.g., water treatment costs); 

n = the total number of relevant response categories

r = EPA region r (e.g., EPA Region 3); and 

s = state s (e.g., Montana).

The formula will require some effort to figure out and must be certified by an independent qualified professional engineer.

The types of financial security that companies can use, depending on the situation and their financial strength, include letters of credit, surety bonds, insurance, financial tests, corporate guarantees, trust funds, and other financial instruments, some of which may be mixed and matched to add up to the required amount.  Owners or operators of multiple facilities will also be allowed to post one bond or other financial instrument to cover all of their facilities.  The total amount of security will not be reduced by doing so, but it may make administering the security easier.

  The full rule will be phased in over four years.  Demonstration of financial responsibility for health assessment costs will be required within two years of publication of the final rule.  Demonstration of financial responsibility for 50 percent of the response and natural resources damages amount will be required within three years, and for 100 percent within four years. 

Although EPA states that the new rule is not meant to preempt, duplicate or disrupt existing state reclamation bonding programs, it seems inevitable that there will be some overlap.  “EPA expects CERCLA § 108(b) to effectively complement” state programs, but mining companies will undoubtedly complain about having to post duplicative financial security for the same reclamation work.

The mining industry has long argued that EPA's proposed financial assurance requirement would duplicate reclamation and closure bonding requirements already mandated by federal and state law. One might expect that the proposed regulation would be a target for the Trump administration’s promised effort to rein in costly EPA regulations, but this new regulation will not go away altogether because it is required by court order in a mandamus petition filed by the Idaho Conservation League and other environmental groups in the D.C. Circuit Court of Appeals.  In Re: Idaho Conservation League, No. 14-1149 (D.C. Cir. January 29, 2016). The court ordered EPA to develop draft CERCLA 108(b) regulations for hardrock mining by December 1, 2016, and final regulations by December 1, 2017. 

A copy of the proposed rule may be found at 82 Fed. Reg. 3388.  Comments should be submitted by March 13, 2017.

 

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1092 Hits

Amended BLM Right Of Way Regulations

The Bureau of Land Management (BLM) published amended rules governing rights of way granted under Title V of the Federal Land Policy and Management Act (“FLPMA”) and under the Mineral Leasing Act (for oil or gas pipeline rights of way) on December 19, 2016, 81 Fed. Reg. 92,122 (https://www.gpo.gov/fdsys/pkg/FR-2016-12-19/pdf/2016-27551.pdf).  The rules take effect January 18, 2017, assuming they are not affected by Congressional efforts to undo “midnight rules” promulgated by the outgoing Administration.  The amended rules are most significant for their changes to the processes for obtaining authorizations to use federal lands for solar and wind energy development.  However, the amendments will also affect, to a lesser extent, oil and gas operators who seek FLPMA rights of way for roads or water pipelines, or Mineral Leasing Act rights of way for oil and gas pipelines.  Please see our earlier blog discussing the proposed rule amending the right of way regulations at http://www.wsmtlaw.com/blog/blm-buries-change-to-mla-rights-of-way-in-wind-and-solar-leasing-change.html.  

Until now, the BLM’s policy on processing right of way applications for renewable energy projects was contained in instruction memoranda.  Those policies, as modified in the final rule, are now contained in the regulations to be codified in 43 C.F.R. Part 2800.  

The rule seeks to focus wind and solar energy development in areas called designated leasing areas or “DLAs” which BLM has determined, through the land use planning process, as areas having high energy generation potential, access to existing or proposed transmission lines, and low potential for conflict with other resources. The preamble to the rule points to solar energy zones identified in the Solar Programmatic EIS and “development focus areas” identified in the Desert Renewable Energy Conservation Plan for southern California as examples of DLAs.  Outside of the southern California desert, no DLAs for wind energy development have yet been identified and, given the long timeline for BLM planning processes, it seems unlikely that any will be developed in the near term.  With some exceptions, lands within DLAs will be offered for competitive leasing, while solar or wind energy development proposals outside DLAs will be processed for right of way grants.  BLM believes that the issuance of a competitive 30-year lease will increase certainty for developers of wind and solar energy projects as compared to 30-year right of way grants, which are not issued until well into the project development process.  

Another goal of the rule is to ensure that the government receives fair market value for solar and wind energy development on public lands.  It does so by imposing both an acreage rent based on agricultural land values and a megawatt (MW) capacity fee.  The calculation of the MW capacity fee will result in a decrease in fees to solar energy producers but an increase in fees to wind energy developers as compared to current BLM policy.  In addition, the acreage rent had not previously been imposed on wind energy developers.  The fees for linear rights of way such as pipelines and transmission lines should not be significantly affected by the rule as compared to current policy.  

The new rule contains extensive provisions on bond requirements which will be codified in 43 C.F.R. §2805.20.  Solar and wind energy producers must post a performance and reclamation bond, which will be based on a reclamation cost estimate (RCE) but shall be no less than $10,000 per disturbed acre for solar projects or $10,000 per authorized wind turbine with less than 1 MW nameplate capacity or $20,000 per turbine with a nameplate capacity of 1 or more MW.  Although bonds are required for wind and solar projects, the BLM retains the discretion whether to require a performance and reclamation bond for other rights of way, including for oil and gas pipelines (§2885.11(b)(7)).  As in the existing regulation covering oil and gas pipeline rights of way, the BLM can require a bond, or an increased bond amount, either as a condition to the right of way grant or at any time during the term of the grant.  Amended §2885.11(b)(7) states that all “other provisions in §2805.12(b) of this chapter regarding bond requirements for grants and leases issued under FLPMA also apply to grants or [temporary use permits] for oil and gas pipelines issued under this part.”  The reference to §2805.12(b) appears to be in error; the preamble to the new rule notes that this sentence references “new section 2805.20” and §2805.20 is the regulation on bonding requirements.  Among those “other provisions” in §2805.20 is one that provides the bond amount will be determined based on the preparation of a RCE, which the BLM may require the applicant or grant holder to submit.  The RCE is defined as the estimate of costs to restore the land to a condition that will support pre-disturbance land uses, including the cost to remove all improvements made under the right of way authorization, return the land to approximate original contour, and establish a sustainable vegetative community.  The RCE must also include the cost to BLM to administer a reclamation contract.  It is likely that these requirements will result in larger bonds being required for linear rights of way, including oil and gas pipelines. 

The new rule provides that not only transfers of rights of way by assignment be submitted to BLM for approval but also “changes in ownership or other related change in control transactions,” including corporate mergers or acquisitions but not transactions within the same corporate family.  §2807.21.  This change also applies to Mineral Leasing Act rights of way for oil and gas pipelines, §2887.11.  BLM’s rationale for this requirement is that a merger or other corporate acquisition can result in material changes to corporate structure which could affect the financial or technical capability of the grant holder.  Because a change of control is not an “assignment,” we suspect that many grant holders may overlook this requirement to obtain BLM approval for “transfers” of right of way grants in cases of mergers or change of control by a stock transaction.

Operators of wind and solar energy projects on public lands will need to review the new rules in detail.  Because this rulemaking process focused on the changes to the right of way regulations that apply to wind and solar energy projects, it is likely that other current or prospective right of way holders such as pipeline, transmission line or communications facilities operators may not realize the effect of the revised rules on their projects. 

 

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1988 Hits

Weighing the Scales: Master Leasing Plan Aims to Balance Oil, Natural Gas and Mining with Conservation of Arches and Canyonlands National Parks

Internationally known for rugged landscapes and stunning views, the treasured Arches and Canyonlands National Parks now have a plan, that is, a Master Leasing Plan.  

The Bureau of Land Management (“BLM”) introduced the concept of Master Leasing Plans (“MLPs”) as part of a suite of federal onshore oil and gas leasing reforms rolled out by Secretary Salazar in early 2010.  The MLP’s intended purpose is to harmonize competing resources, i.e., the balancing of oil and gas development with conservation of natural and cultural resources.  MLPs provide BLM with an additional land use planning tool, allowing it to amend a governing resource management plan (“RMP”) to include new terms and conditions imposed by the MLP.  The goal, but not necessarily the reality, is to reduce risk of litigation and community protests over oil and gas leasing by enlisting early stakeholder input about where energy development is appropriate and how to protect other resources.

According to BLM, the purpose of an MLP is to allow for “more in depth review” of areas that are or may be opened to oil and gas leasing than would typically be found in the governing RMP.  Under the framework, BLM can designate certain areas of public lands located as “sensitive landscapes,” or areas containing a “high level of potential resource concerns” as MLP areas. The MLP area is then analyzed on a landscape level, where competing resource values are evaluated. The result is a comprehensive plan for long term oil and gas development in the area, rather than the straightforward designation of “open,” “closed,” or “open with stipulations” as typically found in RMPs.  Because amendments to RMPs must comply with the National Environmental Policy Act (“NEPA”), the MLP analysis and review first takes the form of an Environmental Impact Statement (“EIS”) or an Environmental Analysis (“EA”), the final version of which then modifies the relevant RMP.

In a Record of Decision (“ROD”) signed December 15, 2016, BLM Utah State Director Ed Roberson finalized the multi-year NEPA effort to complete the Moab Master Leasing Plan, the first MLP to be approved in the state.  The agency expressed confidence that the plan “will guide responsible mineral development . . . while also protecting important natural resources, iconic scenery, and recreational opportunities.”

The Moab MLP identifies where oil, gas and minerals development will be allowed within the 785,000-acre planning area.  Notably, the Moab MLP applies only to new leases and aims to provide certainty by informing the oil and gas and mining industries about where development can occur in a region dotted with Native American cultural sites, popular hiking trails, spires, mesas, natural bridges and arches that draw over 2 million visitors a year.

The Moab MLP also closes 145,000 acres of BLM lands near the Arches and Canyonlands National Parks to future mineral leasing, caps well densities on projects in sensitive areas, and places “no surface occupancy” restrictions on about 306,000 acres “that are highly valued for scenery and recreation.”

According to Secretary Jewell, “This plan takes a landscape-level approach to balancing the protection of the iconic scenery in and around Moab with access to the rich energy resources found there.”

Expectedly, conservation groups enthusiastically embrace MLPs as adding what they view as a necessary layer of environmental analysis focused on issues related to oil and gas development and trust that the MLP process is an appropriate addition to BLM’s toolbox.  In response to the announced Moab ROD, conservationists appear to appreciate a planned vision of where energy development can be managed and where other values, like wilderness and recreation, need to be protected.  

By contrast, industry believes that by restricting access to the region’s mineral resources through the Moab MLP, the negative consequence will be $2 billion in lost economic opportunity for surrounding local communities.  Industry estimates that the Moab MLP planning area contains 145 billion cubic feet of natural gas and 32.5 million barrels of recoverable oil.  Industry has serious concerns that BLM has departed from its Federal Land Policy and Management Act of 1976’s multiple use mandate--whereby many uses co-exist, from ranching to energy to recreation on public lands--to managing for a single “use,” preservation. 

Although the Moab plan can be legally challenged, it cannot be undone by the stroke of the presidential pen alone.  

BLM approved, or is or in the process of developing, more than a dozen MLPs across millions of acres of public lands in Colorado, Utah and Wyoming.  In fact, on December 20, 2016 BLM announced its formal commitment to develop a southwestern Colorado MLP for about 71,000 acres in La Plata and Montezuma counties, including parcels near Yucca House National Monument and Mesa Verde National Park. 

For additional background on MLPs, see the firm’s 2014 blog post: So what is a Master Leasing Plan anyway?

 

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1019 Hits

Wyoming Supreme Court Justices Disagree: An Unusual Circumstance

Wyoming’s Supreme Court Justices seem to agree most of the time.  In fact, in 2016 more than 95% of the Court’s orders and opinions were unanimous.  The most recent disagreement is in Cheyenne Newspapers, Inc. v. The Board of Trustees of Laramie County School District Number One, 2016 WY 113, 2016 WL 6995555 (Wyo. 2016).

This case features a dispute between Cheyenne Newspapers, Inc., doing business as the Tribune-Eagle (“Tribune-Eagle”), and Laramie County School District No. 1 (“School District”) regarding a public records request.  The Tribune-Eagle submitted a request February 11, 2014, to inspect all emails to, among and from school board members since December 1, 2013, regarding school board topics.  This required the School Board to search not only the School District’s computer system, but also the personal email accounts of the school board members, because school board members use their personal email accounts to conduct school board business.  After completing the search the School District informed the Tribune-Eagle that the requested records could be obtained upon the payment of a $110.  The fee was for the clerical staff time and professional personnel time required to process the request.  The Tribune-Eagle refused to pay the fee and filed a declaratory judgment action seeking a ruling that the Wyoming Public Records Act (the “Act”) does not allow a government entity to charge for access to electronic records when the records request is for inspection only and not copying of the records.  The District Court found the fees to be allowable under the Act and also to be reasonable.  The Wyoming Supreme Court affirmed in a 3-2 split decision.

In interpreting the Act (specifically, Wyo. Stat. Ann. § 16-4-202(d)) the majority held that “[w]hether the request for electronic records is framed as a request to inspect or as a request for a copy, if the only way for the custodian to provide the record is to produce a copy of it, the cost of producing that copy is to be borne by the party making the request.”  Cheyenne Newspapers, Inc., 2016 WY 113 at ¶ 14.  Further, “the limitation on the costs charged is that they be the reasonable costs of producing a copy.”  Id. at ¶ 32.

The Tribune-Eagle and the dissenting members of the Court raised several issues in response.  One such issue is the possible “chilling effect” the majority decision will have on public access to government records.  Justice Davis writing for the dissent stated:

Although imposition of a fee for a member of the public to inspect public records is not the same as denying access, imposing a cost for inspection could limit the access the Act was intended to provide.  While I have no reason to question the district’s good faith, and can accept that it only wants to pass on the cost of responding to a request for electronic records, there can be no doubt that such fees could be used to discourage access.

Id. at ¶ 41.  The Tribune-Eagle also argued that allowing “reasonable costs,” beyond actual duplication costs, could lead to a situation where costs for the same type of records request could vary dramatically from one governmental entity to the next due solely to the efficiency of the entity’s employees.  Also, the first party to request information will bear the entire cost of a record request, while subsequent parties requesting that same information will pay only limited duplication costs.  The majority notes these concerns are policy concerns that only the Wyoming Legislature can correct by amending the Act.

Cheyenne Newspapers, Inc. is interesting not only because it showcases a rare instance of disagreement on the Wyoming Supreme Court, but also because it touches on several issues of recent import including: (i) use of personal email for official government business; (ii) restrictions on access to government records, whether intentional or unintentional; and (iii) how laws may need to adapt to a world where records are increasingly being kept in electronic formats.  The full text of the opinion can be found on the Wyoming Supreme Court’s website at http://www.courts.state.wy.us/Supreme/Opinions.

 

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991 Hits

Employer Alert Update: Nationwide Injunction Delays Implementation of New Overtime Rule for White Collar Employees.

Yesterday, a federal judge in Texas issued a nationwide preliminary injunction barring implementation of the new overtime rule that raises the salary threshold for white collar employees from $23,660 to $47,476. Court Decision This ruling means that the new salary threshold for overtime exemptions of executives, administrators, professionals and highly compensated employees will not go into effect on December 1, 2016, as planned. (Additional information concerning the new rule can be found in this blog post: White Collar Exemption Blog.

The ruling was the result of lawsuits filed in the Texas court against the U.S. Department of Labor (DOL) by 21 states and a coalition of business groups to stop the new overtime rule from ever becoming effective. The Texas court granted the defendants’ request to enjoin implementation of the rule on the ground that the DOL exceeded its authority in raising the minimum salary requirements for the exemptions.

This ruling does not mean that the new law has been struck down for good. Rather, it simply means that the rule cannot be implemented or enforced while further legal proceedings continue on the rule’s validity.

We will post an update when a final ruling on the law issues. For any additional information regarding overtime pay and exemption requirements, please contact Danielle Wiletsky at dwiletsky@wsmtlaw.com.

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1199 Hits

With $646 Billion In Annual Spending, The Outdoor Recreation Industry Has Caught The Eye Of The Hill

Private groups estimate that the outdoor recreation industry generates $646 billion in consumer spending each year and supports 6.1 million jobs—more than pharmaceuticals and motor vehicles and parts combined (see chart below). Yet, policy makers have been left in the dark as to the sector’s influence on the national economy because the federal government has never measured the recreational industry’s economic impact. H.R. 4665 seeks to better inform both policy makers and the industry by requiring tracking of the growing economic impacts of outdoor recreation on the national GDP.

Last week, H.R. 4665, entitled Outdoor Recreation Jobs and Economic Impact Act (the “Outdoor REC Act”), moved closer to law after the U.S. House of Representatives approved the bill sponsored by Representative Donald Breyer (D-VA) and Representative Dave Reichert (R-WA), and authored by Representative Peter Welch (D-VT). A true bipartisan bill, the legislation passed the House by voice vote under fast-track consideration.

The vote needed no debate. During the hearing before the House vote all representatives spoke highly in favor of the Outdoor REC Act. For example, Representative Michael Burgess (R-TX) recognized that outdoor recreation is enjoyed by consumers of “all ages, all ethnicities, and all income levels” and Representative Jan Schakowsky (D-IL) argued the bill would be helpful to “getting Americans outside to enjoy our nation’s natural wonders and promotes an appreciation for the natural environment.”

The measure calls for the Secretary of Commerce to “conduct an assessment and analysis of the outdoor recreation economy of the United States” and work with the Bureau of Economic Analysis to consider “employment, sales, and contributions to travel and tourism, and such other contributing components of the outdoor recreation economy of the United States as the Secretary considers appropriate.” In conducting the assessment the Secretary of Commerce will consult with various agency heads including the Secretary of Agriculture, the Secretary of the Interior, the Director of the Bureau of the Census, and the Commissioner of the Bureau of Labor Statistics. Representatives of business, including small business concerns, will also participate in consultation.

The March 2016 introduction of the Outdoor REC Act and its companion bill in the Senate (S.2219), sponsored by Senators Cory Gardner (R-CO) and Jeanne Shaheen (D-NH), led to Secretary of the Interior Sally Jewell’s April 2016 announcement that the Federal Recreation Council will work with the Commerce Department’s Bureau of Economic Analysis to assess the economic impact of the outdoor recreation industry.

To communities throughout the country, and particularly the West, the House’s approval of the Outdoor REC Act symbolizes a step forward toward ensuring that outdoor recreation jobs are counted by the federal government and measured as part of the overall GDP. To put it plainly, the outdoor recreation industry wants to make sure that Washington, D.C. lawmakers give this industry appropriate credit for its economic impact

Over 60 organizations and businesses support the Outdoor REC Act, including the powerhouse Outdoor Industry Association and the U.S. Travel Association. The full Senate must now pass the bill and send it to President Obama for his signature. If it becomes law, for the first time in history the federal government will be measuring the impacts of job creation and consumer spending tied to outdoor recreation activities from fishing and rafting to skiing and ice climbing (and more!).

Outdoor recreation had a big week on the Hill and the Outdoor REC Act was not the only success. Another bill, the National Forest System Trails Stewardship Act (H.R. 845), passed the Senate by unanimous consent on November 16th and now awaits President Obama’s signature. H.R. 845 calls for a national strategy on increasing the involvement of volunteers and nongovernmental organizations in trail maintenance. The Forest Service maintains about 25 percent of the 158,000 miles of agency-owned trails that offer hiking, horseback riding and other activities.

Groups like Volunteers for Outdoors Colorado (“VOC”) have already recognized that the great outdoors faces many challenges, including federal and state land manager budget cuts, and increasing recreational demands and impacts. To address these challenges, the VOC works with land management agencies to provide a workforce of thousands of volunteers annually for outdoor stewardship projects. H.R. 845 aims to augment the capabilities of federal employees to carry out trail maintenance by addressing the barriers to volunteerism and partnerships and to increase trail maintenance by volunteers and partners by 100% within 5 years.

Chief sponsors of the identical National Forest System Trails Stewardship legislation in the House and Senate were Reps. Cynthia Lummis (R-Wyo.) and Tim Walz (D-Minn.) and Sens. Mike Enzi (R-Wyo.) and Michael Bennet (D-Colo.).

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  1231 Hits
1231 Hits

The Uncertain Future of the Clean Power Plan under the Trump Administration

Since the Obama Administration announced its implementation in August of 2015, the Clean Power Plan (“CPP”) has managed to survive despite the many challenges brought against it. The Environmental Protection Agency (the “EPA”) rule was the centerpiece of the Obama Administration’s climate change plan and seeks to reduce carbon pollution from power plants by 32% from baseline 2005 levels by 2030 by setting reduction goals for each state. However, the CPP has encountered many legal roadblocks, and, with the election of Donald Trump and a Republican Congress, its future appears to be in doubt.

On February 9, 2016, the United States Supreme Court ordered the Obama Administration to stay any efforts to implement the CPP until the completion of all legal challenges to the same in a 5-4 ruling. While the Court stay of the CPP is not final, it placed the Obama Administration’s environmental agenda in peril. However, the death of Justice Scalia in February appeared to put the CPP in a much more stable position. The sitting panel of the United States Court of Appeals for the District of Columbia Circuit, which will decide the challenge, is composed of a majority of judges appointed by Democratic Presidents that would likely uphold the regulations. A majority of the Supreme Court would then be needed to overturn the Supreme Court’s decision. Prior to the election, that seemed unlikely, as the Court was deadlocked at 4-4. Oral arguments in case against the CPP were heard in the D.C. District Court on September 27, 2016, but no final ruling has been issued.

With the recent election of Mr. Trump to the presidency, however, the CPP will likely be rendered completely ineffective. Mr. Trump has stated that he believes that climate change is a hoax, and, in a May 2016 speech to the North Dakota Petroleum Council, he said that he would “rescind” the CPP in his first 100 days in office. Further, he has appointed Myron Ebell, the Director of Global Warming and International Policy at the Competitive Enterprise Institute, as the head of his EPA transition efforts. Mr. Ebell is a well-known skeptic of climate change and is a vocal opponent of the CPP.

In order to limit or block the CPP, the Trump Administration has several options:

• As a far-reaching option, the Trump Administration, working with the Republican-controlled Congress, could author and pass a bill amending the Clean Air Act that would reduce or eliminate the power of the EPA to regulate carbon emissions. This would effectively kill the CPP. Such a bill would be subject to a Democratic filibuster in the Senate; however, Senate Republicans have the constitutional option of removing or substantially limiting the filibuster. In the alternative, the Republican Congress may attempt to attach a rule reducing the regulation of carbon emissions to a more popular bill as a compromise with the Democrats to avoid a battle over the filibuster.

• If the D.C. District Court does not issue its decision before Mr. Trump’s inauguration, the Trump Administration’s newly-appointed Attorney General could move for a “voluntary remand” as discussed in SKF USA, Inc. v. United States, 254 F.3d 1022 (Fed Cir. 2001), whereby the agency, in this case the EPA, can ask that the court remand the action to the agency to conduct additional proceedings in the underlying case. The Trump Administration then could modify the CPP at the agency level to weaken or remove its more stringent regulatory requirements.

• If the D.C. District Court does uphold the CPP prior to January 20, 2017, the Trump Administration could require the EPA to re-write the CPP. The EPA would then need to follow the full necessary rulemaking procedures, including notice, drafts of the rule, and public comment on the same, which would typically take at least 12 to 15 months.

• The Trump Administration, through the EPA, could also decline to strictly enforce the CPP regulations and instead give states leeway to create very weak implementation plans.

If the Trump Administration is successful in weakening or overturning the CPP, various states, such as Colorado and California, will likely move ahead with their state-specific plans, while other states, such as Texas and West Virginia, may abandon their plans entirely. Moreover, economic factors such as the low price of natural gas and the continuing growth and efficiency of solar and wind energy will likely continue the decline in the use of coal-fed power plants. Regardless, the elimination of the CPP will slow the de-carbonization of the energy sector, and the Trump Administration’s actions on the CPP will likely be indicative of the coming political battles over energy production during the next four years.

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980 Hits

CAUTION: New Federal Oil And Gas Royalty Regulations Take Effect January 1, 2017

The U.S. Department of Interior recently announced new regulations (effective January 1, 2017) governing how federal royalties on oil and gas produced from federal leases are to be calculated. These regulations make some significant changes on how lessees are to value the production of natural gas from federal leases for the purposes of determining federal royalties. Some notable changes, with a focus on natural gas, are briefly addressed below, but the regulations should be viewed in their entirety in light of the specific marketing, transportation and processing circumstances involved.

Valuation of Unprocessed Gas

For non-arm’s length sales of unprocessed gas, the Office of Natural Resources Revenue (ONRR) is eliminating the valuation “benchmarks.” Instead, where a lessee’s sale of natural gas is to an affiliate, the new regulations require the lessee to (1) pay royalties based on the gross proceeds received in the first arm’s-length sale by the lessee’s affiliate or, (2) at the option of the lessee, pay royalties based on an index pricing methodology. For arm’s length sales, the lessee must value unprocessed gas based on its gross proceeds and may not use the index pricing method.

The optional index pricing method for non-arm’s length sales looks to where a lessee’s gas could physically flow. If the gas stream could flow to several index pricing points, the index price method requires the lessee to use “the highest reported monthly bidweek price for the index pricing points to which your gas could be transported for the production month, whether or not there are constraints for that production month.” 30 C.F.R. 1206.41(c)(1)(ii). If a lessee can only transport gas to one index pricing point published in an ONRR-approved publication, value is to be determined by the highest reported monthly bidweek price for that index. 30 C.F.R. 1206.14(cc)(1)(i). For onshore production, the index price value is reduced by 10 percent (but not less than 10 cents per MMBtu or more than 30 cents per MMBtu), to account for transportation and no separate transportation allowance is allowed. Once a lessee selects an ONRR approved publication the lessee may not select a different publication more often than once every two years.

Valuation of Processed Gas

Under the new regulations, where a lessee sells gas under an arm’s length “keepwhole” or “percentage of proceeds” contract, the lessee must calculate royalties for the gas as “processed gas.” 30 C.F.R. 1206.142(a). For example, where a lessee enters into an arm’s length sales contract for the sale of gas prior to processing, but the contract provides for payment to be determined on the basis of the value of any products resulting from processing, including residue gas or natural gas liquids, the gas must be valued as processed gas – namely, based on 100% of the value of residue gas, 100% of the value of gas plant products, plus the value of any condensate recovered downstream of the point of royalty settlement prior to processing, less applicable transportation and processing allowances. The lessee may not deduct, directly or indirectly, costs for boosting residue gas at a processing plant or for fuel associated therewith. The new regulations place increased burdens on lessees who sell gas in an arm’s length contract under a keepwhole or percentage of proceeds agreement to “unbundle” costs and value natural gas liquids and residue gas recovered from processing in order to properly calculate federal royalties.

For non-arm’s length sales of processed gas, the regulations also eliminated the “benchmarks” and require the lessee to value residue gas and gas plant products by using the gross proceeds received under the first arm’s-length sales price or an optional index price method. Again, the index method for processed gas is only available where the lessee did not sell production under an arm’s length contract. The optional Index price methodology includes approved index pricing for natural gas liquids (NGLs) with a stated deduction from the index pricing points to account for processing costs (based on a minimum rather than average processing rate as determined by the ONRR) and a reduction for transportation and fractionation (T&F), also at a stated amount. No separate transportation or processing allowance may be claimed if this option is used.

Firm Cap on Transportation and Processing Allowances and Elimination of Transportation Factors

The new regulations make the 50% value cap on transportation and the 66 and 2/3rd value cap on processing allowances firm. The ONRR no longer has the discretion to permit larger allowances for extraordinary circumstances. ONRR has also eliminated transportation factors (netting of transportation costs as part of sale’s price) and now requires transportation factors to be stated in an equivalent monetary amount and claimed as a transportation allowance.

Marketable Condition

 The new regulations continue to employ the ever expanding “marketable product” rule by providing, among other things, that transportation allowances may not include costs attributable to transporting non-royalty bearing substances commingled in the wellhead gas stream, by requiring royalty to be paid on gas used as fuel, lost or unaccounted for (FL&U) (except FL&U in an arm’s length contract based on a FERC or State approved tariff), and by disallowing deductions for the costs of boosting residue gas during processing, including any fuel used for boosting. In its comments for requiring wet gas sold at the well under percentage of proceeds (POP) contracts to be valued as “processed gas,” for example, Department of Interior asserted:

[P]ast regulations did place the responsibility on lessees who sell their gas at the wellhead under POP-type contracts to place the residue gas and gas plant products into marketable condition at no cost to the Federal Government. Simply selling the gas at the wellhead does not mean the gas is in marketable condition –one must look to the requirements of the main sales pipeline. . . . “Whether gas is marketable depends on the requirements of the dominant end-user, and not those of intermediate processors.” 81 Fed. Reg. 43348 (unreported case citation omitted).

Default Provisions

The new regulations also contain “default” provisions that allow the ONRR to reject a lessee’s valuation or allowances and determine valuation and allowances by looking to other market indicia of value and allowances, and these default provisions will apply if: (1) there is no written sales contract, transportation agreement or processing agreement signed by all parties to the contract, or (2) the ONRR determines the lessee has failed to comply with applicable regulations because of, among other things, (a) misconduct by or between the contracting parties, (b) the lessee breached its duty to market the gas, (c) ONRR determines the value of gas, residue gas or gas plant product is unreasonably low (ONRR may consider a sales price unreasonably low if it is 10 percent less than the lowest reasonable measures of market price, including index prices and prices reported to ONRR for like-quality gas, residue gas or gas plant products) or (d) the lessee fails to provide adequate supporting documentation.

The new federal royalty regulations for natural gas produced from federal leases may require lessees to make significant changes in how they report and pay federal royalties, particularly where a lessee sells gas under percentage of proceeds or keepwhole sales contracts. Application of these new regulations should be carefully reviewed in light of the lessee’s sale, transportation and processing arrangements to avoid potential interest and penalties.

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2002 Hits

Wyoming Tangles With BLM Over Wild Horses

What is the “law of the land” and how should it be enforced? These questions drive the interplay between state and federal governments, particularly in the Rocky Mountain West. This is especially true when you consider that the federal government owns vast areas of the surface of Colorado (35.9%), Wyoming (48.1%) and the other 10 public land states as well as 700 million acres of federal minerals throughout the U.S. See “Federal Land Ownership: Overview and Data,” by the Congressional Research Service dated December 29, 2014.i This state/federal tension regularly leads to conflicts over oil and gas, mining, environmental regulation … and wild horses?

The Wild Free-Roaming Horses and Burros Act was enacted by Congress in 1971 to protect wild horses and burros from “capture, branding, harassment, or death” and, significantly, declares wild horses and burros to be an “integral part of the natural system of the public lands.” The law was enacted in response to a campaign led by “Wild Horse Annie” and has proved to be one of the most difficult management challenges for the Bureau of Land Management (“BLM”). Caught between wild horse lovers, state governments and ranchers, the BLM is spending close to $75 million a year, primarily to feed and care for the bulk of the “wild” horse population off the range in leased pasture. BLM recently testified that there are 67,000 WHB in 10 states and 47,000 are in leased pasture because the population is 2.5 times more than the range can sustain.ii 

On August 21, 2014, the State of Wyoming wrote to the Secretary of the Interior and the Acting Director of the Bureau of Land Management (“BLM”) demanding the BLM take action to remove excess wild horses from seven BLM herd management areas (“HMAs”) in southwestern Wyoming. After what it considered to be an inadequate response by the BLM, Wyoming filed suit on December 8, 2014, in Federal District Court to force the BLM to take immediate action to bring the numbers down to the HMA carrying capacity. On April 21, 2015, the District Court dismissed the State’s claims, and now the Tenth Circuit Court of Appeals has affirmed that decision. See Opinion in State of Wyoming v. United States Department of the Interior, et al. Case No. 15-8041 filed October 11, 2016 (10th Cir.). The question the Tenth Circuit addressed was “whether … Section 3 [of the Wild Free-Roaming Horses and Burros Act (the “Act”)] obligated the BLM to gather or otherwise remove excess wild horses from each of the seven HMAs once it learned that the wild horse population in each of those HMAs exceeded the upper limit of their respective AMLs [“appropriate management level”].” Id. at page 9.

In construing the provisions of the Act, the Tenth Circuit held:

As noted, the Act does not define the phrase “appropriate management level” and thus does not equate it with any requirement to remove excess animals from a particular HMA. Nor does the BLM itself define the phrase as equivalent to a determination that removal is necessary. Further, and most importantly, the language of Section 3, as discussed above, clearly requires both a determination by the BLM that “an overpopulation exists on a given area of the public lands and that action is necessary to remove excess animals ….” 16 U.S.C. § 1333(b)(2) (emphasis added). Because only the first of these determinations has been made, the BLM is under no statutory duty to remove animals from the seven HMAs at issue. Moreover, there is nothing in the statute that obligates the BLM to make an immediate determination regarding the second requirement.

Id. at pages 14-15. Thus, until the BLM determines there is both an excess of horses and action is necessary to remove those excess animals, the State of Wyoming cannot force the BLM to act.

In a statement issued after the Tenth Circuit released its opinion, Wyoming Governor Matt Mead said, “The BLM is not managing wild horse populations as required … Wyoming wildlife and wild horses are treasured assets. Mismanagement adversely affects all species and rangelands necessary for their health and survival.” See “In major decision, 10th Circuit rules Wyoming can’t force BLM to remove wild horses,” by Arno Rosenfeld, Casper Star-Tribune dated October 11, 2016.iii While the State of Wyoming considers its options, several other cases are pending in Wyoming, at the Tenth Circuit and in other western states, including Nevada which has the largest population of wild horse, regarding the proper management of wild horse populations on public lands.

The tangle between state and federal governments continues amid an effort to determine the “law of the land.” The Tenth Circuit’s Opinion in the above case can be accessed on its website at https://www.ca10.uscourts.gov/opinion/search by entering the case number “15-8041” in the search field. Links to additional discussion of the Tenth Circuit’s Opinion and issues surrounding wild horse management can also be found at the links below.iv The Tenth Circuit also recently issued an opinion seeking review of the BLM’s decision to remove wild horses from public lands in Wyoming. That case can be accessed on the Tenth Circuit Court’s website listed above by entering the case number “15-8033”.


i www.fas.org/sgp/crs/misc/R42346.pdf
ii http://www.blm.gov/wo/st/en/prog/whbprogram/history_and_facts/quick_facts.html
iii http://trib.com/lifestyles/recreation/in-major-decision-th-circuit-rules-wyoming-can-t-force/article_0a3c5700-e59e-520e-aa91-c053b3c0f7d5.html
iv “Wild Horses Couldn’t Drag the Government to Act,” by Noah Feldman, Bloomberg View dated October 14, 2016 accessed at https://www.bloomberg.com/view/articles/2016-10-14/wild-horses-couldn-t-drag-the-government-to-act and “Success Spoils a U.S. Program to Round Up Wild Horses,” by Dave Philipps, New York Times dated October 14, 2016 accessed at http://www.nytimes.com/2016/10/15/us/wild-horses-us-west.html

 

  1040 Hits
1040 Hits

Don’t Risk Litigation Over the Arbitration Clause in Your Oil and Gas Lease

The arbitration clause in an oil and gas lease is likely not the most hotly negotiated term or even one that the parties think twice about. However, recent litigation in Pennsylvania should serve as a reminder to lessors and lessees to be aware that a poorly drafted arbitration clause may lead to unwanted litigation.

Recently, the United States Supreme Court denied a petition to review Chesapeake Appalachia, LLC v. Scout Petroleum, LLC, 809 F.3d 746 (3d. Cir. 2016) cert. denied (Oct. 3, 2016), a case addressing whether an arbitration clause used in numerous oil and gas leases covering lands in the Marcellus Shale region of Pennsylvania permitted class arbitration and whether the issue of class arbitrability is one for the courts or for the arbitrators to decide. The leases contained identical gas royalty clauses (except for some differing royalty percentages). The clauses provided that Chesapeake shall pay the lessor-royalty owners a certain percentage of the proceeds Chesapeake received from the sale of gas less four specific charges: transportation, treatment, processing and volume deduction to the point of measurement. All of the leases also included the following identical arbitration provision, which was silent as to both the availability of classwide arbitration and whether the question of classwide arbitrability should be submitted to the arbitrators or the court:

ARBITRATION. In the event of a disagreement between Lessor and Lessee concerning this Lease, performance thereunder, or damages caused by Lessee’s operations, the resolution of all such disputes shall be determined by arbitration in accordance with the rules of American Arbitration Association. All fees and costs associated with the arbitration shall be borne equally by Lessor and Lessee.

Without clear language on classwide arbitration the clause resulted in opposing interpretations. Scout sought to commence class arbitration on behalf of itself and a putative class of thousands of similarly situated lessor-landowners, claiming that Chesapeake breached the leases by deducting charges for compression, gathering, and other charges not authorized by the leases, resulting in the underpayment of royalties to itself and the other class members. Chesapeake disagreed that class arbitrability was available under the leases and initiated the litigation in the Middle District of Pennsylvania, arguing that the issue was one for the courts. The District Court agreed with Chesapeake and held that the issue of arbitrability was one for the courts, and not the arbitrators, to decide. Scout appealed the District Court decision.

On appeal, the Third Circuit reiterated that there is a presumption that courts (not arbitrators) must decide questions of arbitrability, including whether a contract contemplates class arbitrability. The court stated that the burden of overcoming the presumption that the issue of arbitrability is for judicial determination is “onerous [and] requires express contractual language unambiguously delegating the question of arbitrability to the arbitrator.” Ultimately, although the court was highly critical of Chesapeake, stating that “[a]s a sophisticated business, it could have, and, at least in retrospect, should have, drafted a clearer arbitration agreement,” it held in favor of Chesapeake that the leases “do not clearly and unmistakably assign to an arbitrator the question whether the agreement permits classwide arbitration.” Scout appealed to the United States Supreme Court, which denied the petition to hear the case.

  1099 Hits
1099 Hits

The Dakota Access Pipeline and What It Means

On September 9, 2016, 30 minutes after winning and stopping the Standing Rock Sioux Tribe’s (“Sioux” or “Tribe”) request to enjoin the Dakota Access Pipeline (“DAPL”), the Obama administration upended the rule of law. The Departments of Justice, Army and the Interior issued a joint statement that the U.S. Army Corps of Engineers (“Corps”) “will not authorize constructing the Dakota Access pipeline on Corps land bordering or under Lake Oahe until it can determine whether it will need to reconsider any of its pervious decisions regarding Lake Oahe site under the National Environmental Policy Act (“NEPA”) or other federal laws.” The Administration then asked the company to “voluntarily pause all construction activity within 20 miles east or west of Lake Oahe.”

The DAPL is the latest energy touchpoint. Tribes from all over the U.S. are joining the Sioux as they construct a winter encampment on the Corps-managed land. Neil Young has penned a new anthem, “Indian Givers,” arguing “There’s a battle raging on sacred land/our brothers and sisters have to take a stand.” Green Party presidential candidate Jill Stein and movie actress Shailene Woodley (“The Secret Life of the American Teenager”) have been jailed in support of this energy infrastructure protest.

The DAPL is a 4-state, 1,172 mile pipeline built to transport North Dakota Bakken oil to an Illinois refinery by Energy Transfer, a Texas company. None of the pipeline right-of-way is located on Sioux land, but is within ½ mile of the reservation boundary; over 90% of the right-of-way is on private land. Only 3% of the pipeline requires federal approval and only 1% affects federal waters of the U.S. and, thus, the jurisdiction of the Corps.

The $3.8 billion pipeline is 60% complete at a cost of $1.6 billion dollars. The Corps right-of-way at issue is under Lake Oahe, a flood control project managed by the Corps on land that once was part of the Sioux reservation.

The DAPL needed a number of Clean Water Act (“CWA”) permits from the Corps. On July 25, 2016, the Corps issued its Final Environmental Assessment for 200 crossings (37 miles) of jurisdictional water of the U.S. under Nationwide Permit #12 (“NWP 12”). The CWA NWP 12 authorizes pipeline construction where the construction will affect no more than a half-acre of regulated waters at any single crossing. In addition, the Corps had to analyze several Rivers and Harbors Act of 1899 (33 U.S.C. § 408) section 408 permits including the one at issue to cross a federal flood control project, Lake Oahe.

Any “federal action” under NEPA and “federal undertaking” under the National Historic Preservation Act (“NHPA”), like the CWA permits here, triggers compliance with the procedural requirements of NEPA and NHPA. NHPA § 106, among other things, requires federal agencies to “consult” with Native Americans on impacts of “undertakings” to historical and cultural resources. The consultation is required whether or not the action is on reservation land – an historic or spiritual connection to the land suffices. Compliance is the act of consultation; consensus or approval by the Tribe is not required. The Corps approach is to consider each separate pipeline crossing as a single “undertaking” for NHPA purposes, but does not treat the entire pipeline as one undertaking. Therefore, each separate crossing has a narrow geographic focus (“area of potential effect”) for NHPA consultation.

In the Tribe’s injunction request to the D.C. District Court, the Sioux argued that the Corps did not adequately consult and that construction of the pipeline in this area threatens graves and sacred sites. The court in an exhaustive analysis of the Corps consultation action found that “this is not a case about empty gestures . . . the Corps and the Tribe engaged in meaningful exchanges that in some cases resulted in concrete changes to the pipeline’s route.”

For the Sioux, the inadequacy of the consultation was its crossing-by-crossing focus. The Tribe argued that consultation should focus on the entire length of the pipeline. Because the Corps refused this focus for the consultation, the Tribe would not formally consult. The Advisory Council on Historic Preservation, a federally chartered entity with a NHPA-directed role to play in consultations, became involved and disputed the Corps’ assertion that the entire pipeline was not subject to the Corps’ jurisdiction.

The current status of the DAPL is that the several emergency injunctions of construction for portions of the pipeline on either side of Lake Oahe have been lifted. The company continues its pipeline construction on fee land despite the Administration’s renewed request that they voluntarily stand down. The D.C. District Court is poised to consider the case on the merits, while the D.C. Circuit prepares to consider the appeal of the D.C. District Court’s September denial of the injunction. Meanwhile, the Administration has begun a nationwide consultation process with Native Americans to improve the NHPA consultation process. The Corps has told the court that it will make a decision on the Section 408 permit for the Lake Oahe crossing in “weeks not months,” but cautions that its decision could require additional process. This could include supplemental NEPA, an environmental impact statement (“EIS”) or additional NHPA consultation. It is anticipated that such action will occur after the first Tuesday in November.

But this case is bigger than the DAPL. It represents the latest stage in the 350.org “Keep It in the Ground” movement to stop not only oil and gas development but the necessary infrastructure to transport it to market. Over the last few years, oil and natural gas pipelines have faced environmental and climate change opposition across the U.S. In October, climate activists targeted 5 cross-border pipelines transporting Canadian oil sands petroleum to U.S. markets by shutting down valves. The “Keep It in the Ground” movement is an effort with serious safety and economic implications for the oil and gas industry.

  1204 Hits
1204 Hits

Revisiting Proposed Initiatives 75 and 78 and Amendment 71

On August 29, 2016, Colorado Secretary of State Wayne Williams found that the proponents of Proposed Initiative 75 (Local Government Control of Oil and Gas Development) and Proposed Initiative 78 (Mandatory Setback from Oil and Gas Development) did not collect the requisite number of sufficient signatures to make the November ballot. Mr. Williams also provided a signature petition to Attorney General Cynthia Coffman after identifying a section that included potentially forged signature lines for investigation. While the defeat of Proposed Initiatives 75 and 78 was seen by many as the end of the fight between environmental groups and the oil and gas industry for the time being, the battle has continued in new arenas.

Undaunted, the representatives for environmental groups behind the proposed initiatives, Yes for Health and Safety Over Fracking, stated their intent to challenge the ruling. The proponents of the measure have thirty days from August 29, 2016 to appeal the decision to the Denver District Court by filing a protest under C.R.S. § 1-40-118(1) and (2). Any protest is limited to either contesting the verification process, including defects in the Secretary of State’s methodology, or fraud, abuse, or mistake in the petition process. If the protest is successful, and a defect in the Secretary of State’s methodology is discovered, all of the signatures will need to be counted and verified by hand. Should a line-by-line review become necessary, the Secretary of State’s Office will be under added scrutiny following controversy earlier this year surrounding the petition verification process for the Republican Senate primary ballot. As of today, there have been no reported protests filed, but some expect a challenge to be forthcoming prior to Thursday’s deadline.

In the meantime, the oil and gas industry and environmental groups have shifted their focus to Amendment 71, which would make amending the Colorado Constitution more difficult. Specifically, it would require at least 2% of the total certified ballot petition signatures come from each of the state’s 35 senate districts, and would require a 55% majority instead of the current 50% required. (For more information on Amendment 71, formerly known as Initiative 96, see the 8/31/2016 blog post).

Under Colorado law as it stands today, petitioning for a ballot initiative can be and often is limited to populous cities located on the front range, such as Denver and Boulder. Last week, the industry group Protect Colorado released an report analyzing the source of the signatures submitted for Proposed Initiative 78 (Mandatory Setback from Oil and Gas Development), where it was revealed that of the 77,109 signatures validated by the Secretary of State, approximately 70% were obtained from Denver, Larimer, and Boulder Counties. Boulder County alone accounted for nearly 25% of the signatures submitted. To the contrary, Weld County, which produces much of the state’s oil, and Garfield County, which produces much of the state’s natural gas, were greatly underrepresented in the petitions.

Colorado oil and gas industry groups support Amendment 71 primarily to limit the recurring battles, such as those in 2014 and 2016, over ballot initiatives concerning oil and gas development in Colorado, and also to providing a voice for Colorado voters in more rural areas who may not support more oil and gas initiatives. “Amending the state constitution should not be left solely in the hands of a few counties," Karen Crummy, communications director for Protect Colorado said. “The entire state should have a say on what does or does not make the ballot. Under Amendment 71, all Colorado voters would have a voice.” Interestingly enough, the restrictions set forth in Amendment 71 have made for some strange bedfellows, as it has been endorsed by a wide variety of organizations, from pork producers to marijuana advocacy groups.

Unsurprisingly, grassroots environmental organizers are opposed to Amendment 71, as they believe it would effectively prevent them from qualifying newer oil and gas initiatives for the ballot. They argue the cost of gathering signatures in all 35 districts will prevent progressive measures from reaching the ballot, and will extend the control of politicians and special interest groups, such as the oil and gas industry. Through Amendment 71 and the potential for protest of the petitions underlying Proposed Initiatives 75 and 78, the battle over oil and gas development in Colorado continues.

  1264 Hits
1264 Hits