Salazar draws industry heat with oil and gas leasing reform

Nick Snow
OGJ Washington Editor

WASHINGTON, DC, Jan. 7 -- US Interior Secretary Ken Salazar announced onshore federal oil and gas leasing reform which he said would provide producers greater certainty but which oil and gas groups argued would create delays.

“The previous administration’s ‘anywhere, anyhow’ policy on oil and gas development ran afoul of communities, carved up the landscape, and fueled costly conflicts that created uncertainty for investors and industry,” Salazar said during a Jan. 6 teleconference. “We need a fresh look—from inside the federal government and from outside—at how we can better manage Americans’ energy resources.”

The reforms aim to have the US Bureau of Land Management, the Department of the Interior agency responsible for onshore federal land outside national parks and national forests, consider site-specific conditions for individual lease sales during comprehensive interdisciplinary reviews.

BLM also will be required to play a more active role in selecting proposed leases beyond accepting or rejecting industry nominations. The agency also will develop master leasing and development plans for areas where intensive oil and gas production is expected so other important resource value can be considered before development commitments are made.

“Almost nobody is happy with the status quo,” said Salazar. “Court battles over oil and gas leases are costing millions of dollars. The public often feels shut out of the process. BLM professionals were told in the past to sit at their desks and approve applications instead of getting out in the field and examining situations first-hand. These reforms are overdue.”

Categorical exclusions
He also said BLM would issue guidance regarding the use of categorical exclusions (CXs), which were established under Section 390 of the 2005 Energy Policy Act as a time and money-saving alternative to a full review under the National Environmental Policy Act.

CXs let BLM approve some oil and gas activities based on existing environmental or planning analysis. Under the new policy, Salazar said, BLM will not use them in cases involving “extraordinary circumstances” such as impacts to protected species, historic or cultural resources, or human health and safety in accordance with House Council on Environmental Quality guidelines.

“We recognize that there are a number of safeguards in place already to protect public lands as we develop energy resources,” said BLM Director Robert V. Abbey, who also participated in the teleconference. “But we also realize we can do better. This includes managing resources at the leasing phase prior to making irreversible commitments.”

He said BLM would review the leasing and CX guidance after 1 year. “We anticipate that there may be a slowdown in reviewing the number of parcels which have been nominated to allow us to conduct the reviews we’re announcing today,” he conceded.

He cited an interagency team led by Mark Stiles of the US Forest Service which reviewed Utah leases awarded in a December 2008 sale but rejected by BLM last February at Salazar’s direction. He said the team several tracts which should not have been offered. “In spot checks of other offices, we believe we’ve found other instances where leases may have been offered without considering significant cultural resources and wildlife habitat,” Abbey said.

Salazar also issued a secretarial order establishing an energy reform team within the office of Wilma A. Lewis, assistant interior secretary for land and minerals management, to identify and oversee implementation of energy reforms. “We will promote efficiency and effectiveness in development of the nation’s renewable and traditional energy resources,” she said during the teleconference.

Restore certainty
Salazar and Abbey both said the new leasing guidelines would restore certainty to a federal onshore oil and gas leasing program where protests have mushroomed. Salazar said protests of BLM oil and gas leases grew from 1% of the total issued in 1998 to 40% in 2008.

Abbey added, “Oil and gas is not produced from leases which are successfully protested. We believe that by going through a more diligent review, more oil and gas will actually be produced.”

Asked how the new guidelines could change BLM’s leasing approach from the past, which began with producers’ expressions of interest in possible tracts, Salazar replied, “I think the change is that in the past, the public lands were the central candy store where the oil industry walked in and took what it wanted. That’s not how it should be done. We have to make sure that development is taking place in the right way at the right time in the right places. Our people will be doing a higher level of review than in the past.”

Abbey said BLM will continue to accept nominations from producers, adding, “BLM will make the final decision now on where leases will be offered.

The CX guidance which BLM plans to issue will be consistent with EPACT’s intent and not require additional congressional action, he said.

Salazar said his department offer for lease more than 50 million acres offshore and 2 million acres onshore. “That shows we are moving forward to develop this country’s oil and gas resources beneath the public lands,” he said. “We have no intention of changing that. We are moving forward with a balanced approach. We don’t believe we should be drilling everywhere and anywhere.”

‘Double-talk’
Officials from three oil and gas associations immediately protested.

“In what has become increasingly familiar double-talk from this administration, Interior Sec. Salazar today again spoke of the importance of domestic oil and natural gas while making it more difficult to produce,” American Petroleum Institute Pres. Jack N. Gerard said. “Under the guise of offering certainty for investors, [he] has taken steps to further delay and limit American energy resources for all Americans.”

He noted that since Salazar became interior secretary, revenues from onshore federal oil and gas leasing in Colorado, Montana, New Mexico, Utah, and Wyoming have plunged more than 80%, and the total acreage leased has shrunk to its lowest level ever.

“In Wyoming alone, nearly 70% fewer lease acres were issued by the federal government in 2009 than in 2008,” Gerard said.

Independent Petroleum Association of America Pres. Barry Russell said, “We do not see the need to further expand the consultation process that is already in place as it will only lead to more delay and confusion for small producers.”

Russell said IPAA also strongly supports using CXs as outlined in EPACT and believes that efforts to revise or only allow their use under “extraordinary circumstances” will limit independent producers’ ability to use “these important and common-sense tools.” IPAA believes oil and gas development decisions are best made in BLM field offices instead of taking what the group considers a top-down approach advocated in the new guidelines, he added.

“This initiative will add great bureaucracy, delay and confusion to the oil and gas leasing process on federal lands. The current leasing process on federal lands works, and if small changes need to be made to the system, BLM has the ability to make those corrections. The concept of developing a master leasing plan will only create the potential for litigation and protest on every oil and gas lease issued by the agency,” Russell warned.

Current system works
Kathleen Sgamma, government affairs director at the Independent Petroleum Association of Mountain States in Denver, said Interior is “moving to a bureaucratic command-and-control system in which government bureaucrats, rather than scientists with expertise in oil and gas development, dictate where energy development should occur.”

“The market-based system has worked well for decades, allowing government land managers to specify what lands are appropriate for leasing and leaving it to the geologists and engineers to do the exploration and nominate projects based on geologic and market conditions,” she maintained.

Sgamma said IPAMS hopes BLM career employees with oil and gas experience will be prominent on the team charged with reviewing permitting and other aspects of federal onshore oil and gas leasing.

“We also hope that IPAMS will have a seat at the table,” she said. “Our members have a longer history of developing natural gas and oil on federal lands in an environmentally responsible manner.”

Salazar rejected industry protests. Citing numbers of lease sales held last year, he said, “I think those in the industry who are crying out are crying out because we’re being careful and supporting development in the right way in the right places.”

Congressional response
Congressional energy leaders’ responses generally followed party lines.

“Through greater coordination between agencies, and by providing the oil and gas industry needed certainty and clarity up front, we will ensure that America’s domestic energy resources are developed in a fiscally sound and environmentally sensitive manner,” said US House Natural Resources Committee Chairman Nick J. Rahall (D-W.Va.).

Senate Energy and Natural Resources Committee Chairman Jeff Bingaman (D-NM) said Salazar’s announcement “sets out useful and important steps to ensure appropriate management of publicly owned energy resources.” He said he was particularly pleased that the secretary was addressing CXs, which were intended under EPACT to streamline environmental reviews for certain kinds of energy projects on public lands but which a Government Accountability Office review this past September found DOI frequently violating under a confusing and inconsistent policy.

Congressional Republicans from the Rocky Mountains were critical.

“This announcement is yet another indication that the administration has no intention to honor its promise to produce a balanced energy plan that includes domestic energy production,” said Sen. Robert B. Bennett (Utah). “[DOI] continues to look for ways to make domestic energy more expensive to producing by stalling the process for several years.”

Sen. John Barrasso (Wyo.) called the announcement “a step in the wrong direction” and said, “Increasing the bureaucratic hurdles for energy development will only hinder our economic recovery and discourage job creation.”

Rep. Rob Bishop (Utah), ranking member of the Natural Resources Committee’s National Parks, Forests, and Public Lands Subcommittee and chairman of the Congressional Western Caucus, said he was particularly frustrated with new restrictions on CXs, which he considers one of EPACT’s biggest successes. Salazar should understand that CXs under Section 390 are statutory, not administrative, he said.

“There is nothing in the statutory language that even mentions extraordinary circumstances; rather, the language is straightforward in mandating the use of categorical exclusions when the conditions in the statute are met,” he said.

Contact Nick Snow at nicks@pennwell.com.

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