IPAMS lists irregularities in oil, gas leasing program

Conflicting decisions by the US Department of the Interior counter statements from the administration of President Barack Obama that support more US natural gas development by hindering producers’ efforts to develop vast gas resources on western public lands, the Independent Petroleum Association of Mountain States charged.

Nov 23rd, 2009

Nick Snow
OGJ Washington Editor

WASHINGTON, DC, Nov. 23 -- Conflicting decisions by the US Department of the Interior counter statements from the administration of President Barack Obama that support more US natural gas development by hindering producers’ efforts to develop vast gas resources on western public lands, the Independent Petroleum Association of Mountain States charged.

Arbitrary decisions and failure to follow established law are making it difficult for Rocky Mountain producers to continue developing gas that the nation needs to reduce greenhouse gas emissions, back up solar and wind energy, and increase US energy security, IPAMS officials said on Nov. 18 in a released position paper highlighting irregularities in DOI’s oil and gas leasing program.

The irregularities include $100 million of unissued leases in Colorado, Utah, and Wyoming; reduced lease sales, deferred leases, and withdrawn leases; permitting backlogs; failure to issue permits using categorical exclusions; and indefinite holds on project-level environmental analysis, IPAMS said.

“Efforts to restrict the federal natural gas and oil program put at risk 15% of the nation’s gas supply,” said Kathleen Sgamma, IPAMS government affairs director. “For example, DOI has severely reduced lease sales this year. Compared to the first year of the Clinton administration, the Obama administration has issued 1,934 fewer leases and 1,146,949 fewer acres in the Intermountain West, 32% and 46% reductions respectively.”

In response, a DOI spokeswoman told OGJ that Interior has offered more than 55 million acres in 29 onshore lease sales and two offshore auctions since January, which have raised more than $931 million in revenues. She said the US Bureau of Land Management, which plans to hold 35 onshore lease sales in 2009, already has held 29, including seven since the beginning of September. Those sales offered 2,288 tracts totaling 2.7 million acres, and the 1.2 million acres sold generated more than $126 million in revenue, she said.

Unissued leases
In its 9-page position paper, IPAMS said the terms of the Mineral Leasing Act (MLA), as amended by the federal Onshore Oil and Gas Leasing Reform Act, unequivocally require BLM to issue leases within 60 days following the date a successful bidder makes the required payments. But DOI is holding $100 million in unissued and suspended leases in clear violation of that law because of unresolved lease protests filed by environmental organizations opposed to any gas and oil development. “DOI refuses to issue these leases even though BLM authorized the leases in its management plans and analyzed the impacts of leases in environmental analyses,” IPAMS said.

This is occurring during a severe economic contraction and a more than 10% unemployment rate, IPAMS said. “Significant company capital is being held in an unproductive capacity by the government rather than being deployed by the private sector to develop energy and maintain employment,” it said, adding that producers have tried to engage DOI on this issue without success.

“BLM has taken the companies’ money, but is left waiting for guidance and direction from DOI before it can move forward and issue leases legitimately won in public auctions,” IPAMS said. “No other bidding system, from eBay to livestock auctions, allows a seller to withhold goods from a sale after someone has fairly won the bidding process.” This also is harming western states, which are struggling with their own budgetary shortfalls because they are not receiving their 49% share of the revenue being held in abeyance, IPAMS said.

It also said arbitrary decision-making, extensive deferrals, and a failure to follow established procedures has led DOI to reduce the amount of acreage offered and only issuing a small amount of what is actually sold. “Irregularities at lease sales are also a problem,” it said, adding, “At the June Utah sale, it was suddenly announced that BLM would honor protests submitted after the well-understood and publicly announced filing deadline.”

Noting that environmental groups protest 100% of the lease sales in the Intermountain West, IPAMS said it was left wondering why DOI would invite even more obstructionism. “We are left to surmise that normal procedure is being circumvented to benefit singular conservation interest without regard to negative economic impact or the energy needs of the nation,” it said.

Redundant reviews
IPAMS expressed concern that DOI’s planned comprehensive leasing reforms would restrict sales further by requiring additional redundant reviews beforehand. “DOI is contemplating a bureaucratic command-and-control system rather than the current MLA process, which allows companies with the knowledge and means to explore for and develop energy resources to nominate parcels within the areas identified in resource management plans (RMPs) as suitable for leasing,” it said.

IPAMS said there are numerous instances where industry has assumed the risk and applied technologies to develop resources previously considered unrecoverable. “The potential of the Bakken shale in North Dakota has only been fully realized within the last 3 years,” it noted. “Other shales throughout the US have just started to be exploited within the last 5 years. Ten years ago, the unconventional tight sands of the Pinedale Anticline were just beginning to be tapped, and today it is the fourth-largest gas field in the US.”

Leasing activity in the US fell in fiscal year 2009, which ended on Sept. 30, vs. that in FY 2008 in four of the five western states with the most public lands, IPAMS said. In these states—Colorado, Montana, New Mexico, and Wyoming—the number of new leases sold, new leases issued, new leased acreage, total revenue, and the state’s share all fell in FY 2009. These totals increased year-on-year in Utah, but only because activity was restricted during FY 2008 while BLM field offices in the state completed their RMPs, IPAMS said. “In comparison to [FY] 2007, leased acreage was down 37%” in [FY] 2009, it said.

In the four other states, however, new leased acreage declined from FY 2008 to FY 2009 by 62% in Colorado (from 211,001 to 80,850 acres), 62% in Montana (from 235,354 to 91,221 acres), 42% in New Mexico (from 178,760 to 104,442 acres) and 32% in Wyoming (from 807,846 to 548,163 acres). Utah’s new leased acreage climbed by 60% to 151,297 from 94,569 acres during the same period, according to figures in IPAMS’s position paper.

They showed lease revenue following a similar pattern year-to-year, rising 25% in Utah (to $10,684,989 in FY 2009 from $8,566,875 in FY 2008) but falling by 95% in Colorado (to $7,098,032 from $131,516,156), 60% in Montana (to $957,465 from $2,408,036), 69% in New Mexico (to $20,596,604 from $66,053,241), and 83% in Wyoming (to $16,866,113 from $96,589,837).

‘Extra-procedural’ deferrals
IPAMS said DOI is deferring parcels “for extra-procedural reasons” throughout the Intermountain West, such as tracts approved for leasing in existing RMPs based on wilderness legislation that Congress has not yet passed. “By doing so, [DOI] circumvents the public participation and cooperating agency provisions of [the National Environmental Policy Act] and [the 1976 Federal Land Policy and Management Act] planning provisions,” it said.

It said BLM deferred parcels totaling 7,750 acres near the McInnis Canyons National Conservation from a November sale in Colorado so the DOI agency could wait for the Little Snake and Grand Junction RMPs to be completed before deciding whether to list the tracts. “Land use management decisions, including leasing, are made according to current RMPs, and should not be held indefinitely in anticipation of plan updates or potential future policy decisions,” IPAMS said. RMPs routinely take more than 5 years, and sometimes as long as a decade, to complete and rarely remain on schedule, it continued, adding that “given the recent history of delays on the Little Snake RMP, it is very feasible that the RMPs will not meet their 2010 and 2011 deadlines.”

In New Mexico, IPAMS said BLM deferred parcels totaling 7,300 acres from an October lease sale because they were seven miles from the proposed Organ Mountains and Desert Peaks wilderness area. “The area has not been designated by Congress as a wilderness area, and even if it were, a wilderness area does not include an implied buffer area,” it said. “Boundaries are set for a reason, and the designation of wilderness does not emanate out to the surrounding area, and certainly not as far as seven miles.” Parcels in a proposed Utah wilderness area and in proximity to a Wyoming wilderness study area also have been deferred, it said.

IPAMS also said US Interior Secretary Ken Salazar’s decision in February to withdraw 77 Utah leases which were awarded at a lease sale the previous December “demonstrates a disregard for established natural gas and oil leasing procedures and three Utah RMPs.” Salazar has said he ordered the leases cancelled because he believed they were based on hastily completed RMPs and included at the Bush administration’s 11th hour. At the time of his decision, BLM could not issue the leases because of a federal judge’s temporary restraining order in response to a regional environmental organization’s lawsuit.

IPAMS said the Utah RMPs were the result of a $35 million, 7-year democratic process “where all voices were heard, including federal, state, tribal, and local governments; special interest groups; and the general public. In the extensive planning process, BLM ensured critical environmental protections for air, water, wildlife, cultural, and other resources were put in place. No new acreage was opened to leasing that was not available before under the Clinton administration, and no lands have fewer environmental protections than before.”

Wyoming action
BLM also announced in September that it would rescind 23 leases on 24,000 acres in the Bridger-Teton National Forest in Wyoming, IPAMS said. The Wyoming Range Legacy Act, which Congress had recently passed, prohibits future leasing in the area but specifically did not affect existing leases except where producers offered to voluntarily relinquish them. IPAMS called this “another arbitrary decision that sows uncertainty among independent operators that the time, effort, and resources they spend conducting geologic studies, nominating leases, and participating in lease sales will yield economic benefit or energy resources.”

The position paper said while obtaining an approved drilling permit on federal land has always been more time-consuming, expensive, and cumbersome than on state land, “the ‘slow-walk’ on permitting seen in [FY] 2009 is another example of DOI inaction that is hampering development of American gas and oil.” Long drilling permit application timeframes also violate specific deadlines established under the 2005 Energy Policy Act, it added.

“Depending on the field office, many permits have been taking over a year to process,” it said. “The slow-down and uncertainty in the leasing process is especially egregious, given the recent 62% increase in the [drilling permit application] fee to $6,500, despite the fact that for every dollar spent by BLM administering the federal gas and oil program, companies return $46 in royalties, rents, and bonuses.”

It noted that EPACT Section 390 directed BLM to use categorical exclusions (CXs0 to expedite energy supplies by avoiding redundant analysis and unnecessary red tape which often accompany the permitting process. “IPAMS is deeply concerned about potential actions from DOI that would eliminate or several limit the use of CXs by requiring review for extraordinary circumstances,” IPAMS said. “There is nothing in the statutory language that even mentions extraordinary circumstances. Rather, the language is straightforward in mandating the use of CXs. For DOI to review CXs for extraordinary circumstances is an overreach of the intent of the law.”

CXs are one of EPACT’s success stories, and their use in the energy permitting process has resulted in BLM field employees to increase environmental inspections and reduce the drilling permit application backlog, IPAMS said. They also are appropriate under NEPA, it continued, and were significant under the 2009 American Recovery and Reinvestment Act, when 134,000 CXs out of 139,000 NEPA reviews were used to distribute stimulus funds, according to the White House Council on Environmental Quality.

Contact Nick Snow at nicks@pennwell.com.

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