Biden administration scores win in legal battle over federal oil, gas leasing

A legal victory backing, albeit on a technicality, the Biden administration's moratorium on federal oil and natural gas leasing is unlikely to rattle domestic production or prompt new action by the administration which had already turned to other means to address its concerns with onshore and offshore lease sales.

The 5th US Circuit Court of Appeals Aug. 17 threw out the nationwide injunction that in June 2021 forced the Department of the Interior to resume oil and gas lease sales on federal lands and in offshore waters (Louisiana v. Biden, 21-30505). The sales had been paused by an executive order that sought a comprehensive review of federal oil and gas permitting and leasing practices.

The most notable factor muting the potential impact of the court's ruling is the Inflation Reduction Act, signed into law Aug. 16. Though raising the costs producers will face to procure federal lands and waters, the historic climate bill made concessions ensuring future oil and gas leasing to secure support from moderate Democrat and fossil fuel-advocate Senator Joe Manchin of West Virginia.

"Against this backdrop, today's ruling might make it a little easier for Interior to drag its feet on oil and gas leasing, but the IRA seems likely to push a small number of sales ahead anyway," analysts at ClearView Energy Partners said in a research note. "The IRA seems more likely to set the pace of leasing than legal challenges to the pause ... for the foreseeable future," they said.

Mark Squillace, a professor at the University of Colorado Law School, said the administration appears ready to move forward with "a modest level of lease offers regardless of what happens in the litigation."

Squillace said "there is a big difference between offering lands for lease and actually issuing leases," and flagged a number of provisions in the IRA that he said would disincentivize leasing, including higher royalties, higher bonus bids, escalating rental rates, more costly bonding requirements and a new hefty fee to nominate tracts for leasing.

"I am sure that there will be some new leasing but I suspect that it will be far less than the 2 million acres that Interior must offer," he said.

IRA impacts

The IRA requires Interior within 30 days to reinstate Lease Sale 257, which opened up some 80 million acres of the Gulf of Mexico but was canceled by a federal judge over climate concerns. It also mandates that three cancelled offshore lease sales take place. Interior must hold Lease Sale 258 in Alaska's Cook Inlet by Dec. 31, and Gulf of Mexico lease sales 259 and 261 by March 31, 2023, and Sept. 30, 2023, respectively.

A provision of the law also ties certain renewable project development to oil and gas leasing.

Specifically, the bill bars Interior from issuing any rights-of-way for wind or solar projects on federal lands unless an onshore lease sale has been held within the last 120 days and onshore lease sales during the past year have at least totaled the lessor of 2 million acres or 50% of the acreage for which expressions of interest were submitted in that one-year period.

No leases for offshore wind development can be issued without an offshore oil and gas lease sale having taken place within that last year and at least 60 million offshore acres having been offered in that year-long period.

That provision likely prevents a complete phaseout of oil and gas lease sales on federal lands and offshore, pushing back both on Interior's newly reinstated authority to call for a moratorium and on the department's July 1 proposal for the 2023-2028 National Outer Continental Shelf Oil and Gas Leasing Program that put the possibility of zero lease sales over that five-year period on the table.

Litigation ongoing

Yet, Bret Sumner, an attorney at Beatty & Wozniak, said that the legal victory for the administration may be short-lived as the ruling was not on the merits of the case but based on a lack of specificity in the injunction and failure to adequately identify the actions it was enjoining.

Though the injunction was vacated, it was also remanded back to the US District Court for the Western District of Louisiana, which "could order additional briefing from the parties or could seek to craft a new injunction that satisfies the requirements identified by the 5th Circuit," Sumner said.

He added that the Louisiana-led group of 13 states that brought the lawsuit could also pursue the litigation on the merits, and that a decision remains pending in a companion lawsuit filed by the oil and gas industry in a Wyoming federal court.

"In short, the litigation does not go away, and litigation will likely continue if the Biden administration does not administer its onshore and offshore leasing programs as required by law," Sumner asserted.

Interior spokesperson Melissa Schwartz said the agency was reviewing the 5th Circuit's decision but declined to comment further on potential impacts or next steps.

Critics have accused the department of slow walking the restart of lease sales and still failing to abide by the letter of the law.

For instance, the Mineral Leasing Act requires Interior to hold onshore oil and gas lease sales at least quarterly, but the recent June sale is the only one to have occurred in the past two years.

"The [IRA] does not reduce the uncertainty of the federal onshore oil and gas leasing program or otherwise moot the ongoing litigation," Sumner said.

And the "hostage" provision of the IRA tying oil and gas to renewables "does not necessarily provide any certainty for the onshore leasing program, or guarantee that Interior will hold quarterly lease sales as Congress required in the plain language of the Mineral Leasing Act," he said.