Stacy Smith Brown, Thompson & Knight, LLP
During his first week in office, President Biden and his administration sent a wake-up call to anyone who was not already listening. Through two Executive Orders (E.O. 13990 and E.O. 14008) and an Order from the Acting Secretary of the Interior (No. 3395), the oil and gas industry is on formal notice that— in an effort to reduce greenhouse gas emissions—changes are coming.
Some of these changes will just be a rollback to the Obama era regulations, but we can also expect a wave of new regulations and new rules and orders from the Department of the Interior (DOI) interpreting and applying existing regulations in new ways.
Most in the industry will take a wait-and-see approach, but one group is moving forward loaded for bear. On January 27, 2021, Western Energy Alliance, a coalition of 200 independent onshore E&P companies in the Western US, filed a Petition for Review of Governmental Action in Wyoming Federal District Court. The Petition alleges that the Secretary of the Interior’s indefinite suspension of the federal oil and gas leasing program is, among other things, “inconsistent with the Secretary’s statutory obligations.” This suit may be premature since it does not yet appear that the Secretary has acted on the President’s order to implement this indefinite suspension. In E.O. 14008, the President called for a “pause” that will be long enough for “completion of a comprehensive review and reconsideration of Federal oil and gas permitting and leasing practices in light of the Secretary of the Interior’s broad stewardship responsibilities over the public lands and in offshore waters, including potential climate and other impacts associated with oil and gas activities on public lands or in offshore waters.” So far, the only pause mandated by the Acting Secretary of the Interior is a 60-day suspension of DOI activity at all but the highest level of authority (Order No. 3395 issued a week before E.O. 14008).
But when and if the (Acting) Secretary issues a suspension of offshore leasing that is long enough to complete the task required by the President, such an action would be “inconsistent with the Secretary’s statutory obligations.”
Since 1982, there has been a continuous series of “Five-Year Leasing Programs” mandated by the Outer Continental Shelf Lands Act (OCSLA). These programs for Outer Continental Shelf (OCS) lease sales are developed by the DOI through a rigorous two to three-year process that seeks to balance the nation’s energy needs with economic, environmental and social factors. The process requires input from governors of adjacent states, other federal agencies, the oil and gas industry and the public. In addition, Congress weighs in on the issues it deems important. The final program is approved by the Secretary of the Interior. Once established, the Secretary may revise the program, but any significant revisions require the same multi-year procedural requirements applicable to the original program.
The current Five-Year Leasing Program covers the timeframe July 1, 2017 to June 30, 2022, and contemplates four more lease sales before the program ends: three sales in the GoM and one sale in the Alaska Region (Cook Outlet).
A pause in this leasing program of the scope and length suggested by the President would appear to prevent the completion of the current Five-Year Leasing Program. Because an effective termination of the program should be deemed a significant revision, the Secretary cannot implement the offshore leasing suspension the President requested.
But the Secretary of the Interior is not the only one who can suspend federal leasing. Congress has the ability to issue a moratorium through legislation. Moreover, the President has express authority to issue offshore leasing moratoriums through the OCSLA. This statute gives the President of the United States the authority to “withdraw from disposition any of the unleased lands of the outer Continental Shelf.” (43 U.S.C. §1341(a)).
The bigger problem appears to be what will happen when the current Five-Year Leasing Program ends. Historically, a successor program is approved months before it is needed and becomes effective immediately upon the termination of the current program. But this time a successor program won’t be ready by July 1, 2022.
The DOI under the Trump administration began working on a 2019-2024 Five-Year replacement Leasing Program that would supersede the final years of the current program and continue for an additional two years. A Draft Proposed Program was released in January 2018, but the DOI made no further progress. This means that when the current Five-Year Leasing Program ends on June 30, 2022, there will be no offshore oil and gas leasing program to replace it.
Because no offshore lease sale may be held unless it is included in a Five-Year Leasing Program, it appears that the Trump administration left an unintended gift for the Biden administration: a default moratorium on all federal offshore oil and gas leasing from July 1, 2022, until the Biden administration can get a Five-Year Leasing Program in place. Even moving very quickly, it appears that there would still be at least a one-year gap in which no OCS lease sale could take place. Of course Congress could remedy this problem, and extending the current Five-Year Leasing Program would be an easy fix, but it is this very program that President Biden wants to pause and reconsider in light of climate effects.
There is middle ground. With any Five-Year Leasing Program, the DOI has some latitude in certain areas, and identifying which blocks to offer and establishing lease terms are two of these areas. Before any lease sale, the Director of the Bureau of Ocean Energy Management (BOEM) can initiate further environmental analysis before making a recommendation of areas proposed for leasing. In addition, the minimum bid levels, rentals and royalty rates, as well as primary terms, are evaluated on a sale-by-sale basis. It doesn’t take too much imagination to see that the current Five-Year Leasing Program may work for the Biden administration after all.
Stacy Smith Brown is a partner in the Houston office of Thompson & Knight, LLP. Her practice focuses on federal offshore oil and gas leasing, with an emphasis on BOEM, BSEE and ONRR regulations and contracts relating to the acquisition, divestiture and operation of upstream assets. Brown received her J.D. from Tulane Law School in 1989, where she was a Senior Fellow and an Administrative Justice of the Moot Court Board. She received a B.S. in accounting from Louisiana State University in 1986. Ms. Brown is a member of The Order of Barristers.