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US Interior may still limit oil, gas sales after judge blocks leasing ban: analysts


Biden likely to find other legal means to extend ban

Longer pause would impact Gulf of Mexico potential

Interior to release findings of review in 'early summer'

  • Author
  • Meghan Gordon
  • Editor
  • Gary Gentile
  • Commodity
  • Natural Gas Oil
  • Topic
  • US Policy

While the US Department of Interior said it would comply with a court order to restart oil and gas leasing, the Biden administration may be able to keep leasing activity to a bare minimum while it continues reviewing the larger program, analysts said June 16.

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"Not only do we expect Interior to appeal the ruling, but we also think the Biden administration might look to pause leasing via other mechanisms," said Kevin Book, managing director of ClearView Energy Partners.

A US district court judge in Louisiana on June 15 ordered Interior to end its moratorium on oil and gas leasing sales on federal lands and in offshore waters, taking issue with the regulatory process used and concluding that the policy has likely hurt the economies of producing states.

The judge granted a preliminary injunction in the case and ordered Interior to put back on the calendar Lease Sale 257 in western and central Gulf of Mexico and Lease Sale 258 in Alaska's Cook Inlet.

A group of 13 states led by Louisiana brought the suit in March, two months after the Biden administration said it was pausing all new federal lease sales and conducting a review of the program's climate and fiscal impacts.

Production impact

S&P Global Platts Analytics expected the leasing pause to have limited production impact in the near term, because permitting activity on existing leases has continued. However, an extended leasing ban could have big impacts on the Gulf of Mexico's oil and gas production potential.

Parker Fawcett, North American supply analyst for Platts Analytics, said those longer-term impacts were "increasingly becoming concerning with each passing month of the moratorium in place," as Gulf of Mexico producers rely heavily on acquiring new leases to continually advance projects further out.

"We would expect a strong Lease Sale 257 once conducted on the back of this ruling, supported by strong prices, an uptick in exploration and long-cycle projects, as well as continued long-term uncertainty hanging over the future of the federal leasing program," Fawcett said.

"Onshore lease sales should also see relatively strong results once conducted, especially with the Biden administration showing its reluctance to target existing lease or permits to drill," he added.

Interior Secretary Deb Haaland said during a Senate hearing June 16 that the department was reviewing the judge's opinion and consulting with the Department of Justice.

"We will respect the judge's decision in this issue," she said during a Senate Appropriations subcommittee hearing on the Interior's fiscal 2022 budget.

Haaland said Interior was continuing to work on an interim report about the leasing program, with initial findings expected to be released in "early summer."

Legal strategy

Mark Squillace, a professor at the University of Colorado Law School, predicts the Biden administration will authorize a few lease sales in areas where there is already significant development. "In my view, this would have been the smarter move from a legal perspective from the very beginning," he said by email.

Katie Bays, managing director of FiscalNote Markets, called the ruling relatively symbolic.

"The Biden administration is more likely to grant lease applications than they would have otherwise been, but the court cannot require the administration to grant any particular decision," she said by email, adding that a party trying to enforce the decision would likely get caught up in legal proceedings for some time.

Bays said the White House's larger climate review will improve the legal durability of future leases, given that environmental groups have been prevailing in recent court cases when leases fail to consider climate change as a factor.

"So DOI is really helping to reinforce the legal foundations of their future decisions," she said.

Lost royalties

Judge Terry Doughty of the US District Court for the Western District of Louisiana ruled that Interior overstepped its authority under the Mineral Leasing Act and the Outer Continental Shelf Lands Act.

"There is a huge difference between the discretion to stop or pause a lease sale because the land has become ineligible for a reason such as an environmental issue, and, stopping or pausing a lease sale with no such issues and only as a result of Executive Order 14008," Doughty wrote, referring to Biden's Jan. 27 climate order.

ClearView's Book said Interior might rely on different statutory authorities to suspend lease sales, as well as rewrite the onshore resource management plans and offshore five-year plans to limit the available acreage the agency would be compelled to lease.

"Despite a plethora of conservative jurists on the federal bench, the Biden administration seems likely to have learned a lesson from its predecessor's persistence in iteratively modifying executive branch actions until they pass judicial muster," Book said.

Doughty's order said the states alleged "very substantial damages" from the leasing pause, "which would be difficult, if not impossible to recover, due to sovereign immunity."

"Even though existing leases are proceeding, the fact that new oil and gas leases on federal lands and in federal waters are paused will ultimately result in losses to Plaintiff States which they will likely not be able to recover," the order said.

Doughty said the preliminary injunction would remain in effect pending the final resolution of the case or subsequent orders from appellate courts.

The suit was brought by Louisiana, Alabama, Alaska, Arkansas, Georgia, Mississippi, Missouri, Montana, Nebraska, Oklahoma, Texas, Utah and West Virginia.