Judge stalls Wyo’s repayment of $47 million in oil lease revenue


Judge stalls Wyo’s repayment of $47 million in oil lease revenue

By Angus M. Thuermer Jr., WyoFile.com

A federal judge has stalled his own order that Wyoming pay back $47.5 million it received from two 2018 oil-and-gas lease sales he nullified for legal flaws.

Instead of repaying the funds accrued from federal lease sales in June and September 2018, Wyoming can first appeal Judge Ronald Bush’s decision to vacate the auctions, the judge decided last month. 

Idaho’s chief U.S. magistrate judge, Bush in February sided with conservation groups who contended the U.S. Bureau of Land Management violated federal laws protecting greater sage grouse and public participation when leasing 508 Wyoming parcels.

In his change-of-heart order to stall the repayment he initially requested, Bush also suspended operations and production of the leases until an appeals court rules. Drilling was ongoing on eight of the leases, production of oil and gas was underway on six and two wells were shut in, Wyoming attorneys wrote in a May 4 motion.

In granting the stay of repayment while Wyoming and others appeal, Bush determined that those parties met a standard that required them to have a “better than negligible” chance of winning their case. While the appeal works its way through the court system, the Wyoming BLM is preparing for repayment, should Wyoming fail in its appeal in the Bush case and another similar one. 

“The BLM is confirming the current status of each lease subject to the court decision and has suspended the leases consistent with [the] judge’s order while an appeal proceeds,” BLM Wyoming Public Affairs Specialist Courtney Whiteman wrote in an email. “If the cancellation decision is upheld, bonus bids and rentals would have to be refunded, and the BLM has been in contact with the State of Wyoming about how leasing revenue shared under current laws and regulations would be recouped.” 

Western Watersheds Project and the Center for Biological Diversity filed the case against U.S. Secretary of the Interior Ryan Zinke, Deputy Secretary David Bernhardt and the BLM in April 2018. Wyoming intervened as did the Western Energy Alliance, an energy industry group. 

The conservation groups contended that Zinke-promulgated leasing instructions unlawfully restricted public participation and environmental review of oil and gas leasing that threatens imperiled greater sage grouse. Wyoming holds some 37% of the world’s population of the bird, which was considered for protection as a threatened species before the BLM adopted conservation plans in 2015 under the Obama administration.

Zinke illegally undid key protections through secretarial instructions in 2018, the plaintiffs contend. The BLM held oil and gas lease auctions in June and September 2018 under the Zinke rules and collected $47.5 million from them for Wyoming.

Bush had agreed with the conservation groups and set aside the leases, an action that required the payback of auction money. The payback was necessary to deter actions undertaken in bad faith, the judge wrote.

Without requiring the refund, “agencies would potentially be incentivized to invest heavily in potentially-illegal [sic] projects upfront, only to claim later that the economic consequences in setting aside those projects would be too massive to unwind,” he wrote in February.

Wyoming argued against that order, saying the ruling went beyond a financial ding to the U.S Treasury and private oil and gas businesses. Bush’s order inflicted pain on “blameless beneficiaries,” including state and local governments and agencies, Wyoming Deputy Attorney General James Kaste argued in a motion.

Vacating the leases “represents a denial of funding for public school children, government offices that provide services to the elderly and disabled, and critical infrastructure…” he and Assistant Attorney General Elliott Adler wrote. Schools and local governments, including government programs supporting “large percentages living below the poverty line,” have already received and spent the funds, they wrote. Under the decree, districts, agencies and governments face “a significant loss,” they wrote.

Bush failed to consider Wyoming’s interests, the Wyoming attorneys wrote. As a result, consequences “will be devastating,” their motion reads, and subject Wyoming and its citizens to “irreparable harm.

“[C]lawing back $47.5 million or withholding that amount of future revenues from Wyoming means either that the State’s cities, towns, and highways will lose funds that were already spent and vital to future municipal operations or that those entities’ future budgets will have to be drastically reduced,” they argued.

Wyoming attorneys called Bush’s repayment order “unexpected” and “disproportionate,” and a “deviation from the routine” that would bring somewhat chaotic consequences. Anschutz Energy’s request to join the suit underscored that point by elevating the company from an interested party to an indispensable party, Wyoming wrote. Instead of vacating the leases, the judge should suspend them, Wyoming argued, until an appeal is decided.

That would put off the repayment unless Wyoming and its allies prevail, in which case the state would apparently keep its share of the sale proceeds.

Judge Bush on May 12 decided to put on hold his earlier decision requiring a payback pending an appeal. All told, the lease sales generated almost $100 million.

 “Nearly half of that amount, the Federal Defendants and Wyoming submit, has already been disbursed to the states where the lands are located and has already been spent two years ago as part of their 2018 budgets,” Bush wrote in that reassessment. “As a result, they contend, recoupment in toto is likely unachievable.” 

Without a stay, oil and gas companies would forego “sunk costs” spent on exploration, evaluation, bid development, business and drilling plans, and be hit by delayed revenue streams and contractor payments, Bush also wrote. “The calculus is significant, but the federal laws that set the guideposts for such activities on the public lands do not excuse violations based upon how expensive the consequences might be…

“Still, there is the prospect of irreparable harm to the appealing parties … as well with upstream oil and gas industry-related jobs connected to such activity,” he wrote. 

In stalling the repayment pending the outcome of an appeal, Bush wrote that his decision would not affect greater sage grouse. “Suspending” the lease sales would have the same effect on grouse as “vacating” them, he ruled.

“A stay which leaves things in place, not to move forward nor to move backward, achieves a sensible and fair balance of the competing interests at this stage of the case,” Bush wrote. “[L]ease sales are not to be undone at this time, but … there shall be no further work developing such leases or obtaining production from such leases in any way pending appeal.”

The heart of the conservationists’ case is that Zinke kicked off a new lease-approval process in which the BLM curtailed public comment, contrary to laws. A 2018 “instructional memorandum” used to guide leasing processes, the judge ruled, couldn’t replace procedures formed from underlying 2015 sage grouse conservation plans adopted under the Obama administration.

Instead, the ruling appears to indicate the BLM must rewrite its conservation plans —  last updated in 2019 — if it wants to change the rules. But by the time Bush enjoined the BLM from using its less-rigorous process, the BLM in 2018 had auctioned the June and September leases.

BLM also is sizing up another court order, this one from Montana, which also overturned the June 2018 Wyoming lease auction. Montana Wildlife Federation, The Wilderness Society, National Audubon Society and National Wildlife Federation brought that action against officials in the Department of the Interior claiming violations of federal environmental and land-management laws.

At issue is whether the BLM followed provisions in the 2015 greater sage grouse conservation plans that call for the agency to prioritize leasing outside the most valuable sage grouse habitat. Reliance on that federal prioritization is a key component in Wyoming’s greater sage grouse conservation strategy that’s embodied in Gov. Mark Gordon’s executive order protecting the wild bird.

The 2015 federal conservation plans exhaustively detailed how that leasing and development priority would take place, according to a May 22 ruling by Chief U.S. District Judge Brian Morris of Montana. But the BLM, again operating under instructions promulgated by the Trump administration, said it would prioritize leasing outside core greater sage grouse habitat only when it had a work backlog.

Under those instructions, now overturned, the BLM in June 2018 auctioned and sold 159 leases in Wyoming covering 194,000 acres. Wyoming, which joined the suit, contended that lease restrictions protect the grouse.

Those restrictions include stipulations that limit when drilling can take place and how close well pads can be to lek breeding sites, among other things. The stipulations make leasing outside core grouse habitat more appealing and effectively prioritize the development process away from grouse, according to the state.

“This court decision is nothing but a slap in the face to all the efforts that have been undertaken in good faith to protect the species,” Gov. Gordon said of Judge Morris’s ruling in a statement. “Because of Wyoming’s policies, leasing for oil and gas on public lands in Wyoming does not threaten sage-grouse habitat.

“The sad thing here,” Gordon’s statement reads, “is this decision does nothing for the bird and it may undermine the voluntary and cooperative work Wyoming citizens have been willing to do to protect this species.”

Judge Morris wrote “BLM’s errors undercut the very reason that the 2015 Plans created a priority requirement in the first place.” The lease sales violated the Federal Land Policy Management Act, he ruled in granting the conservation group’s motion for summary judgment. 

“The BLM is currently determining next steps to respond to this order,” BLM’s Whiteman wrote WyoFile.

The BLM is again re-writing the underlying 2015 sage grouse conservation plans — resource management plans that it updated once in 2019 — to correct flaws. It closed comment on the revisions last month as scientists criticized the effort.

The BLM is making no attempt to revise foundational deficiencies, Western Watershed’s Executive Director Eric Molvar told WyoFile. “They’re trying to paper over the problems that were exposed,” he said, “not making fundamental changes.

“The Trump administration is just kicking the can down the road, going back and making the same mistakes over and over,” he said. “It is now getting sued from every possible direction, for every possible reason.” 

Molvar hopes  the conservation community can unravel the Trump-administration effort to lease as much sage grouse habitat as possible while he’s in office, he said.

The BLM believes the sage-grouse plans adopted in 2019 are “in the best interest of American people and communities across the western U.S., as well as the habitats that sage-grouse and other wildlife depend on,” Whiteman wrote.

The latest revisions “are intended to provide greater clarity about the [National Environmental Policy Act] analysis of alternatives in the 2015 and 2019 plans for protecting Greater sage-grouse habitat on BLM-managed lands, not to propose changes to measures already in place,” she wrote. Analysis during two presidential administrations “show that the BLM has taken the required ‘hard look’ at the potential effects,” her statement reads.

“The BLM remains committed to managing public lands for the benefit of sage-grouse, western communities and the entire nation,” she wrote.

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