David B. Hatch
Beatty & Wozniak
Salt Lake City
| This article was developed in substantial part from another work by the author, “BLM, Stop Dithering Over Federal Oil and Gas Leases: Why the Leases Must Be Issued Within Sixty Days,” Utah Environmental Law Review, forthcoming, Spring 2011. |
In recent times, the US Bureau of Land Management has initiated a practice of holding federal oil and gas leases long after they have been purchased at a federal lease sale. This practice usually causes great frustration in the oil and gas industry whose money and time are often tied for extended periods.
As this article is published, the BLM is holding thousands of purchased leases that are yet to be issued. In some cases, the BLM has taken as long as 6 years to issue the leases.
The most often cited reason for the delay is for the BLM to weigh the merits of pending environmental challenges. It is common today for wildlife and environmental groups to protest every parcel of land submitted to a federal lease sale.
The BLM and its staff are required to spend an exorbitant amount of time and resources to carefully review each of these claims in order to determine which, if any, have any merit. In recent years, the BLM has chosen to eliminate the contested parcels of land, to add stipulations to the parcels, or to proceed with the lease sale while flagging the parcels for further review. The third option is causing all of the controversy.
Failure to issue leases
The problem is that the BLM appears to be acting in direct conflict with a federal statute.
The Mineral Leasing Act, as amended (the MLA), provides that, “The Secretary [of the Interior] shall accept the highest bid from a responsible qualified bidder, without evaluation of the lands proposed for lease. Leases shall be issued within 60 days following payment by the successful bidder of the remainder of the bonus bid, if any, and the annual rental for the first lease year.”
A careful review of the statute in its entirety does not provide any exception by which the BLM is entitle to withhold the issuance of a purchased lease. The MLA imposes a nondiscretionary duty on the BLM to issue oil and gas leases within 60 days, regardless of any pending environmental protest.
The important part of the issue is in timing. Federal law provides several opportunities for the BLM or the Secretary of the Interior (the Secretary) to withdraw a parcel of land. However, each of these opportunities exists before the federal lease sale.
Resource management plans
Under the Federal Land Policy Management Act (FLPMA), the BLM is directed to develop and maintain land use plans, commonly referred to as resource management plans (RMPs), that govern oil and gas and their potential development on federal lands.
This planning phase is a crucial step in leasing federal lands for oil and gas development for several reasons: first, the BLM has the opportunity to prudently review potential impacts on the land or wildlife; second, the public has the opportunity to participate in the management of the lands through public comment; and third, the oil and gas industry can rely on a steady set of procedures that allows federal lands to be potentially leased for oil and gas development.
Once an RMP is approved, the BLM separates federal lands into one of four leasing categories: open with standard stipulations, open with special terms or conditions, open but no surface occupancy allowed, or closed to leasing. Because this is only a categorization, the BLM may still revise or amend its RMP in order to close federal lands from leasing at any time. The Secretary has a final opportunity to withdraw lands previously designated as open for leasing, although he or she must meet specific requirements. Clearly, the planning and categorization phases are the ideal time to withdraw lands from oil and gas leasing because of environmental concerns.
The BLM has a final opportunity to withdraw lands immediately before a federal lease sale. After reviewing nominations of lands from potential bidders, the BLM selects parcels of lands that are categorized as open for leasing. While all parcels receiving a nomination must be included in the lease sale, the BLM may “suspend the offering of a specific parcel while considering a protest or appeal against its inclusion in a Notice of Competitive Lease Sale.” However, if a parcel is not suspended by the BLM, that the parcel “shall be offered by oral bidding.” Once the lands are purchased at the sale, the lease must be issued within 60 days.
How BLM sidesteps the law
Although the federal law appears to be clear, the BLM appears to be sidestepping the issue.
The BLM’s procedural handbook directs its employees and agents to act notwithstanding federal law:
“If a protest is received on the holding of a lease sale or the inclusion of a specific parcel in the sale, while the merits of the protest are being considered, the State Director may either elect to hold the sale or suspend the entire lease sale (or offering of the parcel).... If a bid is received on any parcel involved in the protest, the protest must be resolved before issuance of the involved lease.”
More recently, the BLM has attempted to address the issue in a notice of competitive lease sale:
“If I am the high bidder at the sale for a protested parcel, when will BLM issue my lease? We will make every effort to decide the protest within 60 days after the sale. We will issue no lease for a protested parcel until the State Director makes a decision on the protest. If the State Director denies the protest, we will issue your lease concurrently with that decision.”
Lessees sue the BLM
The issues with the BLM’s practice are becoming more and more apparent.
Of the oil and gas lease sales from 2007 to 2009 in four western states, 74% of competitively sold lease parcels were protested. During this same period, more than 91% of the time in Utah and up to almost 100% of the time in Wyoming, the BLM failed to issue purchased leases within the 60-day period. Furthermore, the BLM’s practice has spurred two recent lawsuits: Impact Energy Resources LLC vs. Salazar and Western Energy Alliance vs. Salazar.
In Impact Energy Resources, the court considered the withdrawal by the Secretary of 77 out of 132 leases that were sold at the Dec. 19, 2008, federal lease sale in Salt Lake City.
Two days prior to the scheduled lease sale, an environmental group filed a lawsuit against the BLM challenging the BLM’s decision to offer leases on the 77 parcels. Despite the pending litigation, the BLM did not withdraw the lease parcels, and all of the 77 leases were sold at the lease sale. A few days after the sale, the environmental group obtained a temporary restraining order to prevent the BLM from issuing the 77 disputed leases.
On Feb. 4, 2009, the Secretary of the Interior, Ken Salazar, announced that he had directed the BLM to not issue the 77 disputed lease parcels based upon his own view that the environmental review process for the lease sale was not adequate. Subsequently, Salazar formally withdrew the disputed leases and refunded the lease payments to the respective successful bidders.
Still desiring their leases to be issued, several of the bidders filed suit against the BLM and the Secretary in a Utah federal court on May 13, 2009. The underlying issue of the case was whether or not the secretary or the BLM has discretion to issue a lease after it has been purchased at a competitive lease sale. The court found “the statutory language is unambiguous. ‘It is a basic canon of statutory construction that use of the word ‘shall’ indicates a mandatory intent.’” “Shall means shall. The Supreme Court and [the Tenth Circuit] have made clear that when a statute uses the word ‘shall,’ Congress has imposed a mandatory duty upon the subject of the command.”
Therefore, the Secretary does not have the authority to withdraw leases after they have been sold.
Notwithstanding the court’s conclusion regarding the interpretation of the statute, the court ultimately held in favor of the BLM and the Secretary because the plaintiffs’ claims were time-barred by a 90-day statute of limitation requirement imposed by the MLA. However, the holding sent a shock to the oil and gas industry. While this case did not specifically settle the issue whether the BLM must issue purchased leases within 60 days, the court appeared to hold to the strict language of the statute.
The 60-day issue
In an attempt to address the 60-day issue directly, Western Energy Alliance filed a suit against the BLM in a Wyoming federal court on Oct. 18, 2010.
The plaintiffs alleged they were the successful bidders of federal oil and gas leases in Wyoming for a combined total of $4,523,251 for 118 leases since 2005, none of which had yet been issued by the BLM. In their complaint, the plaintiffs set out arguments nearly identical to those presented in Impact Energy Resources LLC vs. Salazar. This case remains pending, and a decision is expected later this year. Relying on the precedent of Impact Energy Resources, it seems apparent the court will hold in favor of the plaintiffs based upon the statutory language of the MLA.
Meanwhile, oil and gas industry advocates are eagerly awaiting the court’s decision. Advocates realize the BLM’s practice will likely continue until the BLM is specifically directed otherwise by a court. Perhaps only then the question will finally be answered: “Is the BLM overstepping its authority?”
References
Contact the author for a list of references.
The author
David B. Hatch ([email protected]) is a law clerk for the firm of Beatty & Wozniak, P.C., Salt Lake City. He is a second-year law student at the University of Utah. He was previously employed as a landman for Anderson Exploration Co., Salt Lake City.
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