59 Found. J. for Nat. Resources & Energy L. 21 (2022) Oil and Gas Update: Legal Developments in 2021 Affecting the Oil and Gas Exploration and Production Industry
| Jurisdiction | United States |
The state reports presented below include key legal developments in most of the more-active states in the areas of oil and gas exploration, development, and production.
A. Legislative Developments
No substantive oil and gas legislation was passed in this year's state legislative session. However, at least one federal bill, House Bill 5376, or the Build Back Better Act—passed by the House of Representatives on November 19, 2021—directly implicates oil and gas matters within the State of Alaska. If passed, the Act will nullify all existing leases sold in the Arctic National Wildlife Refuge (ANWR) on January 6, 2021, and refund all lease-related payments to the lessees within 30 days after it is signed into law.
B. Judicial Developments
In Cook Inletkeeper v. Raimondo,2 the plaintiffs moved for summary judgment seeking a determination that the National Marine Fisheries Service's (NMFS) biological opinion (BiOp), environmental impact study, and incidental take regulations, which concluded that "take is not likely" to occur from Hilcorp Alaska, LLC's (Hilcorp), proposed oil exploration and production activities utilizing
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a tugboat in an endangered beluga whale habitat, were arbitrary and capricious under the Administrative Procedure Act (APA).3
The court granted the plaintiffs' motion, in part, holding that because NMFS failed to explain how it arrived at its conclusion and contradicted itself,4 it failed to adequately consider the direct effects of underwater noise made by vessels on belugas in its BiOp, and failed to take a hard look at the effects of vessels on belugas in its environmental assessment (EA), which was arbitrary and capricious under the APA.5 The court, however, declined to vacate the NMFS's authorization entirely and, instead, utilized its discretion to limit Hilcorp's activities.6
In 2018, ConocoPhillips applied to drill exploratory wells in the Bear Tooth Unit, west of Nuiqsut and the Greater Moose's Tooth Unit. In consideration of the application, the Bureau of Land Management (BLM) published an EA but did not subsequently issue an environmental impact statement (EIS). Instead, the 2018 EA purportedly incorporated by reference a 2012 integrated action plan (IAP)/EIS, the Greater Moose's Tooth First Supplemental Environmental Impact Statement (SEIS), and the Greater Moose's Tooth Second SEIS, which covered a greater area of land. Along with the final EA, the BLM also issued a "finding of no significant impact" for ConocoPhillips's 2018-2019 winter exploration program and did not subsequently issue a supplemental EIS for the program. The BLM also published an Alaska National Interest Lands Conservation Act (ANILCA) evaluation to approve the winter drilling exploration program. After receiving approval, ConocoPhillips carried out the program, including building ice pads, an ice airstrip, ice roads, and six new wells, which was completed on April 28, 2019.7
Prior to the program's completion, the plaintiffs, on March 1, 2019, brought suit against the BLM, alleging violations of the APA, NEPA, and ANILCA. The plaintiffs' claims centered on the 2018 EA's explanations for impacts on caribou and subsistence, and the BLM's consideration of alternatives to ConocoPhillips's proposal. The district court granted ConocoPhillips's motion to intervene. The BLM and ConocoPhillips (collectively, defendants) and the plaintiffs filed cross-motions for summary judgment.8
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The district court granted the defendants' motion for summary judgment in January 2020, finding that, while the 2018-2019 exploration activities could not be technically repeated, the BLM would authorize future winter exploration in the area using an EA that ties to the 2012 IAP/EIS and the GMT1 and GMT2 SEISs to support conclusions regarding impacts to caribou and subsistence land users.9 As such, the dispute was "capable of repetition yet evading review."10 The plaintiffs subsequently appealed the district court's ruling on the merits, and the defendants renewed their argument that the case was moot.11
On appeal, the plaintiffs argued that the capable of repetition, yet evading review exception to mootness should be applied on the grounds that the 2018-2019 winter exploration program lasted only five months (which was not enough time for the case to be decided on the merits) and that the issue implicated a reasonable expectation of repetition.12 After considering these factors—premised on updates to relevant NEPA regulations, the fact that the BLM adopted an entirely new IAP/EIS that superseded the 2012 IAP/EIS, and ConocoPhillips's declaration that it does not plan to conduct additional winter exploration in the area—the Ninth Circuit held that the case was moot and that no relevant exception applied.13 As a result, the Ninth Circuit vacated the district court's decision and remanded with instructions to dismiss the case as moot.14
In 2016, Hilcorp, LLC (Hilcorp), applied to expand the Falls Creek Participating Area to include an 80-acre portion of land leased by PLC, LLC (PLC), an overriding royalty interest (ORRI) holder.15 The Department of Natural Resources (DNR) denied the expansion, concluding it was not "reasonably estimated to be capable of producing" natural gas in paying quantities.16 PLC appealed DNR's decision to the Natural Resources Commissioner, then to the superior court, arguing that DNR was wrong not to approve the original application, which included Hilcorp's methodology utilized to determine the likelihood of hydrocarbon presence under the expanded area, and because Hilcorp "asserted PLC's acreage was 'proven to contribute' to the production of natural gas."17 Both the Commissioner and the superior court denied PLC's appeal on the basis that PLC lacked standing as an ORRI leaseholder to appeal a unit expansion decision.18
The Alaska Supreme Court reversed the superior court's decision, holding that PLC had sufficient standing because it would have been entitled to a
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share of the profits of production of natural gas from the entire participating area, and remanded the matter to the DNR.19
Sovereign Iñupiat for a Living Arctic v. BLM stems from ConocoPhillips's proposed oil and gas development project under leaseholds in the northeast area of the National Petroleum Reserve called the "Willow Master Development Plan" ("Willow plan").20 In connection with ConocoPhillips's application to conduct the proposed activities, the U.S. Fish and Wildlife Service (FWS) issued a BiOp, concluding that the Willow plan was "not likely to jeopardize the continued existence of polar bears" or their habitat.21 The BLM subsequently authorized the Willow plan and issued an EIS. The plaintiffs filed an action and moved for summary judgment on the grounds that the review and approval of ConocoPhillips's Willow plan was improper under NEPA, the Clean Water Act, and the ESA.22
The district court held that the BLM failed to analyze the effect of greenhouse gas emissions that result from consuming oil abroad or adequately explain why the analysis was not possible in its EIS.23 The district court further found that the BLM also failed to "adequately analyze a reasonable range of alternatives for the Willow Project—a process that is 'the heart of the [EIS].'"24 Additionally, the FWS's take analysis for polar bears violated the ESA, as it was deficient under relevant regulatory requirements.25 As a result, the court vacated both the BLM's approval and FWS's BiOp, effectively halting the Willow plan.26
Gwich'in Steering Committee v. Bernhardt27 arises from three cases brought by the plaintiffs28 challenging the BLM's January 6, 2021, sale of leases
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in ANWR and seeking a preliminary injunction that would enjoin the defendants29 from issuing oil or gas leases or authorizing seismic exploration in ANWR until the court entered final judgment on the merits of the plaintiffs' claims. The court denied the plaintiffs' motion for injunctive relief because the proposed seismic exploration application was pending at the time, and there was no established likelihood that the application would be authorized before the merits of the case were decided. As such, there was no agency action to review and the plaintiffs could not show irreparable harm. The court noted that, if the BLM approves the defendants' proposal in the future, the plaintiffs could seek an injunction for relief at that point.30
In 2017, the Department of Revenue (Department) issued an advisory bulletin to address oil and gas tax code provisions specifically implicating the interaction between legislation enacted in 2006 that created a "minimum production tax that North Slope oil producers must pay" and legislation enacted in 2013 that prohibited a producer from "using the sliding scale tax credit to reduce its tax liability below zero."31 The Department concluded that, "based on the plain language of the tax credit statute, the relevant legislative history, the commutative property of math, and its regulations, a producer choosing to use a sliding scale tax credit to reduce its tax liability could not reduce its tax liability below the minimum tax."32
Oil producer Exxon Mobil Corporation challenged the bulletin, seeking a declaratory judgment that the interpretation was contrary to law. The Department moved for summary judgment, which the court granted on the basis that the challenge was not yet ripe, as no current tax dispute existed between the parties.33
In 2021, the Trump administration approved a plan to allow oil leasing and development in more than 80% of the 23-million-acre National Petroleum Reserve. Specifically, the plan opened to leasing an additional 7 million acres, or about 30% of the...
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