Changing federal priorities midstream in upstream development: federal energy development lease cancellations, environmental policy, historic preservation and takings.

Author:Wegener, Meredith A.
 
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  1. INTRODUCTION II. SIDNEY LONGWELL, THE UNITED STATES, SOLENEX AND A LEASE IN MONTANA A. The Early Years of the Lease--the 1980s B. Additional Environmental and Cultural Considerations and Secretary-Level Approval--the 1990s C. The Fight Continued--the 2000s D. Unreasonable Delay--2013-Present III. SIMILARLY SITUATED PARTIES A. White River National Forest, Colorado B. NEPA Compliance in Osage County, Oklahoma IV. FEDERAL STATUTES AND REGULATIONS A. The Mineral Leasing Act B. The National Emironmental Policy Act C. The National Historic Preservation Act D. The Statutes as Applied 1. Solonex and NEPA 2. The Black feet Nation, Solonex and NHPA V. THE TAKINGS CLAUSE A. Breach of Contract Claim VI. WHETHER A TAKING OCCURRED A. DOI Lack of A uthority B. Within DOI Authority 1. A Successful Takings Claim a. Lucas Analysis b. Penn Central Analysis 2. An Unsuccessful Taking Claim 3. Financial Viability of Federal Oil and Gas Leases VII. CONCLUSION "[N]or shall private property be taken for public use, without just compensation" (1)

  2. INTRODUCTION

    In 1982, Sidney M. Longwell was forty-four years old when he successfully obtained a lease from the United States Government through the United States Bureau of Land Management for oil and gas exploration and production (upstream development) in the Lewis and Clark National Forest, Badger-Two Medicine area in Montana. (2)

    Mr. Longwell is now in his late seventies, and after decades of wrangling through multiple lease suspensions, assignments, reassignments, environmental assessments (EAs), environmental impact statements (EISs), and now a district court case, the United States canceled the leases in 2016. (3) Against the backdrop of the National Environmental Policy Act (4) (NEPA), the National Historic Preservation Act (5) (NHPA), and the Mineral Leasing Act (6) (MLA), Mr. Longwell was never given the green light under the lease to drill a single well. (7)

    The Longwell tale (now Solenex, his company) is long and woven in layers of law and policy. All involved--energy companies, investors, federal agencies, government leaders, local citizens, tribal members (including the Blackfeet Nation), and conservationists--are passionate about how this lease, and its corresponding property and contractual rights, should be resolved.

    Oil and gas leases are not only agreements between parties like the United States and Solenex that delineate contractual rights, but are in and of themselves property with significant value. (8) Regardless of whether one stands on the side of continuing, ending, or curtailing fossil fuel development, lease cancellations--like the one currently challenged by Mr. Longwell--raise the question of whether the United States is taking valuable property and breaching contracts with little to no compensation.

    This Article specifically examines whether a federal oil and gas lease cancellation is a taking as set forth by the Fifth Amendment of the United States Constitution, for which a party must be justly compensated. (9) The consequences of the Secretary of the Interior's recent cancellation of the Solenex lease will be historic if upheld. The financial viability of federal oil and gas leases as valuable assets with contractual and property rights would be significantly diminished, if not entirely shattered. In addition to the Takings Clause analysis, this Article will demonstrate the uncertainty and lack of continuity created when energy, environmental, historical, and cultural interests compete in federal oil and gas development. The finality and consistency lacking in the administrative system would make even the most courageous wildcatter (10) or tribal leader hesitant about the rules of the game and how to anticipate their application.

    Parts II and III of this Article will detail the history of the Longwell/Solenex case and other federal oil and gas leaseholders similarly situated. Part IV will explore the multitude of federal laws for oil and gas leasing and development on federal and tribal lands with a focus on the United States' authority to issue oil and gas leases under the MLA, the applicability of NEPA in modern day energy production on federal lands, the overlap of leases and the NHPA, and the complexity that results when these laws are applied over several decades with varying outcomes. Part V will establish the current status of regulatory takings jurisprudence and its applicability to oil and gas leases. Part VI will analyze the rights of leaseholders, determine if a taking occurs when the United States cancels oil and gas leases, and explain the significant economic ramifications for the future of onshore federal oil and gas leasing if such uncertainty in property and contractual rights persists.

  3. SIDNEY LONGWELL, THE UNITED STATES, SOLENEX AND A LEASE IN MONTANA

    Determining over thirty years ago to make a risky investment, and then being repeatedly prevented from discovering if the risk was worth it, would dishearten even the most tenacious businessperson. As a successful bidder in the early eighties on a federal oil and gas lease, Mr. Sidney Longwell of Baton Rouge, Louisiana undertook the risk for the prospect of oil and natural gas exploration and production in Montana. (11)

    The decades of drag and delay ultimately resulted in the Department of the Interior (DOI) canceling the lease, and Mr. Longwell never having the opportunity to explore and to produce oil and natural gas as provided for in the lease. (12) In 2016, Secretary of the Interior Sally Jewell concluded the lease was improperly issued in violation of NEPA and NHPA. (13) DOI's Bureau of Land Management (BLM) consulted with the United States Forest Service (Forest Service), the Advisory Council on Historic Preservation (ACHP), the Blackfeet Tribe, Mr. Longwell, and others. (14) Based on findings and recommendations from the Forest Service and ACHP, the Secretary of the Interior decided that the application for permit to drill should be disapproved, the lease canceled, and the lease rental payments refunded. (15)

    Solenex is currently challenging DOI's disapproval of the application for permit to drill and lease cancellation in court. (16) Solenex seeks what it originally owned--the right to explore and produce oil and natural gas in accordance with its lease. (17) With such a ruling doubtful, concurrent takings and breach of contract claims will follow.

    An evaluation of whether Solenex has a successful takings claim and a clear depiction of the frustration and economic limbo a leaseholder may encounter as federal approval to proceed is given, withdrawn, given again, suspended, and withdrawn requires a journey into the Solenex, LLC v. Jewell details. The other significant stakeholders in Solenex are the Blackfeet Nation and the United States Government. Their roles, participation and position are interwoven with Solenex and expanded in Part IV.

    1. The Early Years of the Lease--the 1980s

      In 1980, Congress passed the Energy Security Act, (18) which directed the Secretary of Agriculture to process applications for leases and permits to explore, drill, and develop natural resources from National Forest System lands. (19) At the time the Energy Security Act was passed, the Lewis and Clark National Forest in Montana had a backlog of over 200 oil and gas lease applications. (20)

      To alleviate this backlog of applications and to comply with the 1980 Energy Security Act and NEPA, the Forest Service and BLM prepared an EA for oil and gas leasing in the Lewis and Clark National Forest. (21) The Forest Service issued a Decision Notice and Finding of No Significant Impact, which allowed leases under certain conditions. (22) Adversely affected parties had forty-five days to file an appeal of the Decision Notice and Finding of No Significant Impact, but no appeals were filed. (23)

      Later that year, based upon the EA, the Forest Service and BLM grouped acreage to form lease tract NW-21 for an upcoming lease drawing. (24) BLM informed Mr. Longwell his application for lease tract NW-21 had obtained a priority at the lease drawing, and that the application would become an offer to lease upon Mr. Longwell's payment of the first year's rent. (25) After receiving Mr. Longwell's payment of the first year's rent, BLM accepted Mr. Longwell's offer to lease and issued the lease to Mr. Longwell, effective June 1, 1982. (26) No protests or appeals were filed asserting lack of compliance with applicable statutes or regulations, including NEPA and the NHPA, at the issuance of the lease to Mr. Longwell.

      With BLM's required approval, the following year, Mr. Longwell assigned the Lease to America Petrofina Company of Texas and other entities (collectively, "Fina") for valuable consideration. (27) In November 1983, Fina submitted a surface-use plan and an Application for Permit to Drill (APD). (28) Additionally, Fina submitted a cultural resource inventory report that found that "no known cultural resources will be impacted by the proposed undertaking." (29)

      In January 1985, the Forest Service and BLM issued a joint, 324-page EA with respect to the surface-use plan and the APD. (30) The Forest Service approved the surface-use plan, and BLM approved the APD, after the agencies concluded the project as proposed could be performed without any adverse environmental effects. (31)

      In March 1985, BLM's approval of the APD was appealed by a number of organizations and individuals to the Interior Board of Land Appeals (IBLA). (32) IBLA set aside BLM's decision and remanded with instructions for BLM to further consider certain issues. (33) In light of the IBLA's decision, Fina requested a temporary suspension of the lease, tolling the running of the lease's primary ten-year term while BLM addressed the remanded issues. (34) In November 1985, BLM suspended the lease, ultimately keeping it suspended for more than thirty years. (35)

      The following spring, the Forest Service approved a much broader land and resource...

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