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US crude output likely to see little change from rollercoaster court rulings on leasing pause

Highlights

New injunction narrowed in scope to 13 states

Platts Analytics sees no immediate oil supply impacts

Little to no new leasing activity expected in Western US

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  • Jasmin Melvin
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A new permanent injunction preventing the Biden administration from pausing oil and natural gas lease sales in 13 states was applauded by the oil and gas industry Aug. 19 but is not expected to have a significant impact on domestic production.

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Judge Terry Doughty of the US District Court for the Western District of Louisiana issued the injunction late Aug. 18, a day after the 5th US Circuit Court of Appeals tossed the preliminary nationwide injunction he granted in June 2021.

"The see-saw of rulings just feed into the regulatory uncertainty operators have criticized time and again," Platts Analytics' Sami Yahya said.

"That said, we don't expect to see an impact on the supply side at least to the short- to medium-term as the majority of production growth is anchored by already sanctioned developments, and operators -- onshore and offshore -- already have a sufficient amount of leased blocks or drilling permits to sustain their operations," Yahya added.

Mark Squillace, a professor at the University of Colorado Law School, said that, in light of the Inflation Reduction Act, the injunction "is largely a moot issue since that law will require the government to engage in both offshore and onshore leasing before it moves forward with renewable energy projects on public lands and in public waters."

Analysts at ClearView Energy Partners said in a research note the Biden administration would "proceed with de minimis leasing necessary" under the IRA. "At risk of cynicism, we do not expect Biden administration agencies to set speed records in meeting these obligations" to hold lease sales, they said, adding that the Department of the Interior has "predicated past latencies on procedural necessity."

Ongoing uncertainty

Further, ClearView said the matter was likely to return to the 5th Circuit or beyond on appeal. "Accordingly, we do not expect a swift and widespread resumption of lease sales -- or sales in excess of those necessary for IRA compliance -- as the process unfurls."

Interior declined to comment on whether it would seek an appeal.

Nevertheless, Doughty, a Trump nominee, contended in his ruling: "In a time of high gas and oil prices, draining of the Strategic Petroleum Reserve, and looking to other nations to supply the United States' oil and gas needs, the public interest would be served by a permanent injunction."

The American Petroleum Institute welcomed the district court's decision, noting that a strong federal leasing program was a policy objective for decades of bipartisan administrations.

"This decision is a significant step toward ending the ongoing uncertainty over the future of energy development on federal lands and waters, and we urge the Biden administration to take immediate action to hold onshore lease sales and issue a final five-year program for federal offshore leasing that includes all of the proposed lease sales," said Frank Macchiarola, API's senior vice president of policy, economics and regulatory affairs.

Though onshore lease sales are supposed to be held quarterly, the Biden administration has only held one, selling 173 oil and gas lease parcels in June. Critics said that sale met the bare minimum requirements of the law.

The country's offshore leasing program expired June 30, a day before Interior put forth a proposal for the 2023-2028 National Outer Continental Shelf Oil and Gas Leasing Program that envisions holding up to 10 auctions for US Gulf of Mexico acreage and one for Alaska's Cook Inlet, with the possibility of zero lease sales over that five-year period on the table.

Western US

While the vacated injunction was nationwide, the new one was limited to the 13 states that brought the lawsuit: Louisiana, Alabama, Alaska, Arkansas, Georgia, Mississippi, Missouri, Montana, Nebraska, Oklahoma, Texas, Utah and West Virginia.

"The narrower scope of this injunction is more defensible in the event of an appeal, particularly given commentary from certain justices from the US Supreme Court that they disfavor nationwide injunctions from district courts for claims such as these presented in this case," Bret Sumner, an attorney at Beatty & Wozniak, said.

But it means that the injunction does not apply to much of the public lands in the western US, notably leaving out New Mexico and Wyoming -- two states with considerable federal oil and gas resources.

"The lack of federal lease sales in Wyoming has been particularly detrimental to the state economy and to industry," prompting a companion lawsuit brought by the state and the Western Energy Alliance that is pending before a Wyoming federal court and makes essentially the same challenges as the Louisiana case, Sumner said.

He said the Bureau of Land Management, to date, has not made any substantive efforts to prepare for future onshore oil and gas lease sales in the West.

"Even with the permanent injunction, we anticipate that the Biden administration will continue to drag its feet on future oil and gas lease sales, and if any future sales are held, the number of parcels likely to be offered will be minimal," he said. "Moreover, absent a similar injunction and ruling on the merits in the Wyoming case, it is not likely that the Biden administration will be moving forward with oil and gas lease sales in Wyoming or New Mexico."

Court ruling

The 5th Circuit, in an opinion penned by Circuit Judge Patrick Higginbotham, found that the Louisiana district court violated federal rules of civil procedure when it failed to specifically and in reasonable detail describe the conduct restrained in the prior injunction, in this case, the "pause" (Louisiana v. Biden, 21-30505).

Doughty, in ruling on motions for summary judgment filed by the Louisiana-led group of 13 states, also addressed the deficiencies cited by the 5th Circuit (Louisiana v. Biden, 2:21-CV-00778).

Citing President Joe Biden's promise while on the campaign trail to stop oil and gas leasing on federal lands, and the lack of lease sales since he took office and issued the executive order for a pause in oil and gas activities, "the court finds that there was an unwritten policy to 'stop' the onshore and offshore leasing process by calling the stopping a 'pause,'" Doughty said. "As it relates to this case, the court refers to the stop as the cessation of the leasing process of eligible federal lands."

With that settled, he went on to rule in the states' favor that the "government defendants violated the [Administrative Procedures Act] because their actions were contrary to law, arbitrary and capricious, and failed to provide notice and comment."

Doughty also found that the section of the executive order enacting the leasing pause was beyond Biden's authority and in violation of the Outer Continental Shelf Lands Act and the Mineral Leasing Act.

"Even the president cannot make significant changes to the OCSLA and/or the MLA that Congress did not delegate," he said.