As a case works to determine whether an Obama-era fossil fuel valuation rule on federal lands will be cast aside, a federal court shielded coal producers from those valuations on coal mined from federal and Native American lands but left them in place for oil and gas producers.
Several petitioners from the industry found the valuation rule "problematic and burdensome" and claimed that it exceeds the authority of the Office of Natural Resources Revenue, or ONRR, according to an Oct. 8 filing with the U.S. District Court for the District of Wyoming. They want the rule to be set aside under the Administrative Procedure Act.
In the interim, the industry requested a preliminary injunction to prevent producers from having to comply with the valuation rule until the litigation concludes. The court only granted that relief to coal lessees, denying the petition for oil and gas producers on federal land.
Fossil fuel producers sign leases with the federal government or Native American tribes when they remove the resources from the ground and are then usually required to value the fuel produced and pay a royalty. In 2016, the Obama administration published its final valuation rule, which changed how lessees calculate the value of the fuels produced from federal and Native American lands as well as offshore leases.
In early 2017, the Trump administration postponed the effective date of the valuation rule and began a rulemaking process to repeal it and reinstate the prior valuation methods. Later that year, California and New Mexico, as well as conservation groups, challenged the rule's repeal. In March 2019, a federal court in California vacated the repeal rule, found that the administration had violated the Administrative Procedure Act when adopting it, and effectively reinstated the Obama-era valuation rule, according to the filing.
Under the Obama-era rule, all federal oil, gas and coal lessees from Jan. 1, 2017, forward are required to comply with the new methodologies applying to the last 2.5 years and prospectively starting Jan. 1, 2020.
The fossil fuel industry claims that it will face irreparable financial harm by trying to comply with the valuation rule, given the amount of money required to purchase or reprogram new software and to train or rehire workers to calculate the royalties and submit updated reports from prior years.
But while the court determined that coal lessees would be harmed by the rule and granted an injunction, it was unconvinced that petitioners would succeed in their claim that the "new oil and gas valuation provisions are arbitrary or capricious" and denied an injunction for those lessees.
The valuation on coal from federal and Native American lands is based on the sale of the electricity generated from its use when an "earlier arm's-length sale is not available," according to the filing.
"In light of petitioners' likelihood of success on the merits concerning the new coal valuation methodology, there's a much greater risk of irreparable harm to coal lessees if a preliminary injunction is denied than to ONRR if a preliminary injunction is granted," the court said. "The balance of harms weighs in petitioners' favor."
Rich Nolan, president and CEO of the National Mining Association, said in an Oct. 9 news release that the Obama administration's rule was "fundamentally unworkable."
"This ruling confirms that valuing coal based on the cost of coal-generated electricity, as opposed to basing the royalty on the value of the coal at or near a mine, is both unlawful and defies logic," Nolan said. "Returning to the pre-2016 rule valuation restores clarity and business certainty."
The Powder River Basin Resource Council did not provide a comment on the ruling as of this article's publication.
