CHAPTER 9 ENVIRONMENTAL LEGAL CHALLENGES TO OFFSHORE ACTIVITIES
| Jurisdiction | United States |
(Jan 2016)
ENVIRONMENTAL LEGAL CHALLENGES TO OFFSHORE ACTIVITIES
Steven J. Rosenbaum
Partner
Covington & Burling LLP
Washington, DC
srosenbaum@cov.com
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STEVEN J. ROSENBAUM of Washington D.C.'s Covington & Burling LLP has represented the oil and gas industry in energy litigation for over 20 years. In the last three years alone, he has successfully represented industry in defeating eight lawsuits brought by environmental non-government organizations, challenging the approval of numerous exploration and development projects. Mr. Rosenbaum has a particular expertise in Court of Federal Claims (CFC) litigation against the federal government, with his clients having been paid over $1.8 billion, most of them oil companies. This is believed to be a record for that court. Steve is an active trial lawyer, having completed five trials and arbitrations in a nine-month period. Representative matters include:
— Amber Resources et al. v. United States. This CFC lawsuit, brought on behalf of 11 oil and gas companies, sought monetary recovery for the Government's breach of oil and gas leases offshore California. The Court awarded $1.0 billion, which was affirmed by the Federal Circuit. This is likely the largest single award in the 150 year history of the CFC.
— Gulf Restoration Network, Inc. v. Salazar. Represented several national energy trade associations in successfully defeating challenge by environmental groups to sixteen Gulf of Mexico oil drilling projects approved by the Interior Department.
— Delta Petroleum Corp. v. United States. This CFC lawsuit addressed the Government's contention that it was absolved from its breach of the plaintiff's lease because the oil and gas underlying that lease had allegedly been drained by wells on an adjacent lease. After a nine-day trial including extensive expert testimony on geology, geophysics, reservoir engineering and rock mechanics, the Court agreed that any drainage had been de minimis, and it awarded Delta over $91 million.
Steve is a graduate of the University of Texas at Austin and Harvard Law School.
I. A Cautionary Tale.
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In 1999, the owners of 36 undeveloped federal oil and gas leases offshore California submitted seemingly routine applications to the United States Mineral Management Service ("MMS")1 for suspensions of production, the mechanism by which leases that have reached the end of their primary term without going into production are kept in place while the lessees complete their exploratory or related activities. The applications set forth in some detail their specific planned activities that would lead to the production of what MMS itself estimated, based on thirty plus exploratory wells drilled to date, was some one billion barrels of oil reserves.
It was not to be. Backed by the State of California, environmental organizations ("eNGOs") filed suit, arguing that amendments to the Coastal Zone Management Act ("CZMA"), 16 U.S.C. § 1451 et seq., enacted years after the leases had been issued, required that a determination be made whether the suspensions would be "consistent to the maximum extent practicable" with California's coastal management program, a review that the State would ensure the suspensions would never satisfy. Although nothing in those statutory amendments remotely suggested that they applied to lease suspensions, both the district court and Ninth Circuit held otherwise.2 The State purported to identify thirty-six separate deficiencies in MMS's subsequent consistency determination, and the review process collapsed.
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The lessees were able, after vigorous litigation, to recover the more than $1 billion bonuses paid for the leases.3 But the leases never went into production, and it seems unlikely that they ever will.
A. The New Wave of eNGO Challenges.
A simple list can sometimes convey more than many paragraphs of text. What do the following seventeen organizations have in common?
Alaska Community Action On Toxics
Center For Biological Diversity
Center For Sustainable Economy
Center For Water Advocacy
Cook Inlet Keeper
Defenders Of Wildlife
Environmental Defense Center
Florida Wildlife Federation
Gulf Restoration Network
Louisiana Environmental Action Network
Louisiana Shrimp Association
Natural Resources Defense Council
Oceana
Pacific Environment
Sierra Club
Surfrider Foundation
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Waterkeeper Alliance
The answer is, they have all filed lawsuits during the last five years challenging offshore oil and gas activities. And, they have been quite open about their intention to keep doing so, and ultimate goals. In a November 19, 2015 Law 360 article,4 the Sierra Club's top lawyer vowed to ramp up the organization's efforts to seek to curb the use of all fossil fuels and take on opponents in policy and legal battles at local, state, and federal levels. "Keep it in the ground" has become a mantra in the environmental movement, and the Sierra Club attorney said his lawyers are working on many oil and gas extraction-related legal initiatives, from challenges to, or moratoria on, hydraulic fracturing, to "hammering" the Department of Transportation over shipment of extracted crude oil and natural gas by rail.
B. A New and Widening Path.
As these statements make clear, the oil and gas industry is increasingly in the crosshairs of environmental litigants, who are expanding the range of industry activities under challenge. In the years since the Deepwater Horizon event, eNGOs have filed challenges against a range of industry and Government activities relating to oil and gas extraction, including offshore lease programs, lease sales, drilling plans and permits, and shipment of extracted oil and gas by pipeline or rail. These challenges have been lodged under a variety of statutes, including the National Environmental Policy Act ("NEPA"), Endangered Species Act ("ESA"), Marine Mammal Protection Act ("MMPA"),
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Outer Continental Shelf Lands Act ("OCS Lands Act"), CZMA, Clean Water Act ("CWA"), Freedom of Information Act ("FOIA"), and Administrative Procedure Act ("APA").
Industry and the Government have largely been successful thus far in defeating the eNGOs' challenges. But the trend demonstrates that environmental litigants are increasingly opportunistic in raising legal challenges targeting every possible pressure point perceived as capable of inhibiting oil and gas extraction. Industry can therefore expect new and ever-widening challenges. Industry's experience with the Norton litigation in California demonstrates the impact when environmental litigants successfully seize a new opportunity to "Keep it in the ground."
II. Pressure Points Challenged Following the Deepwater Horizon Event.
A. Challenges to the OCS Lands Act Development Process.
1. The 2012-2017 Five-Year Offshore Leasing Program.
Under the OCS Lands Act, the Secretary of the Interior has since 1978 been required periodically to issue a program setting forth the areas he or she intends to make available for leasing over the subsequent five-year period. 43 U.S.C. § 1344. The program must provide "a schedule of proposed lease sales indicating, as precisely as possible, the size, timing, and location of leasing activity which he determines will best meet national energy needs for the five-year period following its approval or reapproval." 43 U.S.C. § 1344(a). Without an approved program, there cannot be any federal offshore leasing. 43 U.S.C. § 1344(d)(3) ("No lease shall be issued unless it is for an area included in the approved leasing program....").
The 2012-2017 five-year leasing program, under which Interior and industry are currently operating, was approved on August 27, 2012 and called for 15 potential lease sales in the Gulf of Mexico as well as the Chukchi Sea, Beaufort Sea, and Cook Inlet leasing areas offshore Alaska. In its cost-benefit analysis assessing the proposed leasing,
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Interior estimated that the net social benefits from the program would range from $90.83 billion to $620.88 billion.
The eNGO challenged the leasing program in the D.C. Circuit, which has exclusive jurisdiction over any legal challenge to a five-year program. 43 U.S.C. § 1349(c)(1). In addition to a standard NEPA claim that the Environmental Impact Statement ("EIS") accompanying the program was inadequate, the challenge raised arguments combining environmental issues with economics never before raised against a leasing program by environmental litigants.5 The eNGO argued that Interior failed adequately to assess the "net public benefits" of the leasing program as required by the OCS Lands Act because, among other things, (1) Interior's cost-benefit analysis did not allocate anticipated environmental costs to the areas of the country where such costs are "actually" borne, and (2) Interior failed to consider the "option value" of delaying leasing to a later time period when the agency would have greater information about the environmental and social costs of leasing. The Government and industry vigorously defended the reasonableness of Interior's economic analysis, and challenged the eNGO's standing to bring the lawsuit in the first instance.
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On March 6, 2015--nearly three years after the program was approved--the D.C. Circuit rejected the eNGO's challenge. The court endorsed industry's argument that the petitioner's claims under NEPA were unripe, and could only be raised at later stages of the four-stage OCS development process created by the OCS Lands Act. The court also found that Interior's methodology for conducting its net public benefits calculation was within the reasonable range of options open to the agency, consistent both with the OCS Lands Act's "national focus" for costs and benefits and the great "leeway" afforded to Interior in evaluating the costs of leasing that are difficult to quantify.6 The legal...
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