LEGAL DEVELOPMENTS IN 2009 AFFECTING THE OIL AND GAS EXPLORATION AND PRODUCTION INDUSTRY
| Jurisdiction | United States |
Editor 1
Crowe & Dunlevy, P.C.
Oklahoma City, Oklahoma
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I. Alabama
A. Judicial Developments
The case of Ala. Dept. of Conservation and Natural Resources v. Exxon Mobil Corp.2 was the third, and probably final, appeal in the litigation over royalties due the State of Alabama from Exxon's Mobile Bay gas production. The main dispute in the latest case was whether Alabama's statute3 imposing twelve percent interest on unpaid lease royalties could be stacked on top of Alabama's twelve percent post-judgment interest statute.4 The court ruled that the unpaid royalty interest
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statute imposed only pre-judgment interest that stopped accruing once judgment was entered. Another issue was whether post-judgment interest accrued on royalties on hydrocarbons that were produced after the January 31, 2008, date of the trial court's judgment in the case. The court held that post-judgment interest was not due on royalties that accrued after the date of the trial court's judgment.
In the case of Schultz v. Southeast Supply Header, LLC.,5 the United States District Court for the Southern District of Alabama ruled that a pipeline construction advanced damage release barred a landowner's claim for unanticipated damages caused by the pipeline construction. Prior to beginning construction of the pipeline, Southeast Supply Header obtained an easement deed and an advanced damage release from Donald and Erin Schultz. The advanced damage release relieved the defendant from liability for "all claims and damages of every kind whatsoever, present and future" arising from the construction of the pipeline. The court held that the advanced damage release included "all ... damages resulting from the construction" of the pipeline and showed the parties' intent to release future damages.
In the case of Odom v. Southeast Supply Header, LLC,6 the United States District Court for the Southern District of Alabama reformed a pipeline easement deed to eliminate a triangularly shaped gap ranging from 1.35 feet to 5.23 feet between the easement and a previously granted pipeline easement. The easement was to abut an adjacent preexisting pipeline easement and was to be twenty-five feet on either side of the centerline of the pipeline. The pipeline meandered, creating the small gaps. The landowners sued the pipeline company for fraud, continuing trespass, nuisance, and inverse condemnation. Southeast Supply Header, the pipeline company, counterclaimed for relief that included reformation. The court entered summary judgment reforming the deed so that the easement was a fifty foot strip of land immediately adjacent to the preexisting easement. The reformation precluded recovery on the fraud, trespass, nuisance, and inverse condemnation claims. A restoration claim survived the summary judgment.
II. ALASKA
A. Legislative Developments
The Omnibus Public Land Management Act of 2009, P.L. 111-11, amended the judicial review provisions of the Alaska Natural Gas Pipeline Act.7 The Act struck paragraph 3, which conferred original and exclusive
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jurisdiction on the United States Court of Appeals for the District of Columbia to determine, among other issues, "the adequacy of any environmental impact statement ... with respect to any action under this chapter."8 The Act replaced paragraph 3 with the following language:
"(3) the validity of any determination, permit, approval, authorization, review, or other related action taken under any provision of law relating to a gas transportation project constructed and operated in accordance with section 103, including --
(A) subchapter II of chapter 5, and chapter 7, of title 5, United States Code (commonly known as the 'Administrative Procedure Act');
(B) the Endangered Species Act of 1973 ( 16 U.S.C. 1531 et seq.);
(C) the National Environmental Policy Act of 1969 ( 42 U.S.C. 4321 et seq.);
(D) the National Historic Preservation Act ( 16 U.S.C. 470 et seq.); and
(E) the Alaska National Interest Lands Conservation Act ( 16 U.S.C. 3101 et seq.)." 9
The new language increases the scope of judicial review by the Court of Appeals for the District of Columbia to cover essentially any action "taken under any provision of law"10 relating to a gas pipeline constructed pursuant to the Alaska Natural Gas Pipeline Act.
Senator Feingold introduced S. 1623 on August 6, 2009 and the bill was in the Senate Committee on Energy and Natural Resources at the end of 2009.11 The bill would prohibit the Secretary of the Interior from authorizing any new lease for exploration or production of oil or natural gas unless the lessee: 1) certifies for each existing lease that the lessee has diligently developed the lands in order to produce oil or natural gas, or is in fact producing oil or natural gas from such lands, or 2) has relinquished all federal oil and gas leases that are not being diligently developed. The bill would also instruct the Secretary to promulgate "diligent development" regulations that include benchmarks for development to ensure lessees produce oil or gas within the original five-year term of each lease and require lessees to create and submit "diligent development" plans showing how the lessee will meet the benchmarks. The bill proposes civil penalties for non-compliance.
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There has been no significant state legislation this year which expressly addressed Alaska oil and gas issues.
B. Judicial Developments
In Wilderness Society v. Salazar,12 the Wilderness Society and seven other environmental organizations sued the Secretary of the Interior, the Bureau of Land Management, and the Fish and Wildlife Service challenging a decision by the Secretary to conduct oil and gas leasing in the National Petroleum Reserve - Alaska. The plaintiffs claimed that the Environmental Impact Statement violated the National Environmental Policy Act ("NEPA"), Executive Order 11,990, and the Endangered Species Act ("ESA"). On cross motions for summary judgment, the District Court found the ESA claim moot13 and, on the other claims, that the defendants complied with NEPA and the Executive Order. Specifically, the court found that the environmental impact statement adequately addressed site-specific impacts,14 wilderness as a discrete resource,15 cumulative impacts,16 and impacts on wetlands.17
Following the Supreme Court's decision in Exxon Shipping Co. v. Baker,18 where the court held that under maritime law, punitive damages must not exceed compensatory damages, the Ninth Circuit considered the issues of post-judgment interest and costs and attorney's fees. The court held in In re The Exxon Valdez v. Exxon Mobil Corp.19 that interest ran from the date when the original district court judgment was entered on September 24, 1996.20 The court also ordered each party to bear its own appellate costs.21
In 2005, the Department of Interior began the administrative process to expand leasing areas within the Outer Continental Shelf ("OCS"). The lease program expanded previous lease offerings in the Beaufort, Bering, and Chukchi Seas. In Center for Biological Diversity v. United States Department of the Interior,22 the Center for Biological Diversity filed petitions for review challenging the Secretary's decision to expand the
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leasing program on the grounds that: (1) the leasing program violates the Outer Continental Shelf Lands Act ("OCSLA") and NEPA because the Department failed to consider the effects of climate change on OCS areas and the leasing program's effects on climate change; (2) the leasing program violates the OCSLA and NEPA because the Department did not conduct sufficient biological baseline research for the Alaskan seas and failed to provide a research plan detailing how it would obtain this data; (3) the Department violated the ESA by failing to consult with other Federal agencies about potential harm to endangered species in the OCS area before adopting the leasing program; and (4) the leasing program violates the OCSLA because it irrationally relied on an insufficient study by the National Oceanographic and Atmospheric Administration ("NOAA") assessing environmental sensitivity.23 The court determined that the NEPA-based challenges were not ripe for review. The court further held that the OCSLA-based claims lacked merit, but that the Department irrationally relied on NOAA's environmental sensitivity study.24 The court vacated the leasing program and remanded to the Secretary for reconsideration.25
In August 2006, the U.S. Fish and Wildlife Service ("USFWS") promulgated regulations under the Marine Mammal Protection Act ("MMPA") that authorized for a five-year period the non-lethal "take"26 of polar bears and Pacific walrus by oil and gas activities in and along the Beaufort Sea. Under the regulations, individual oil and gas operators could apply to the USFWS for a letter of authorization to conduct activities that may result in a take. In Center for Biological Diversity v. Kempthorne,27 the plaintiffs argued that the regulations violated the MMPA and the NEPA. On appeal, the court first determined that the term "oil and gas exploration, development and production activities," as used in the regulations, was a "specified activity" within the meaning of the MMPA.28 The court then held that the USFWS finding of "negligible impact" on the polar bear population was not arbitrary and capricious.29 With regard to the NEPA challenge, the court determined that the USFWS finding of no significant impact was not arbitrary and capricious and that the USFW did
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not commit clear error in deciding to not produce an environmental impact statement.30 The court upheld the regulations.
In...
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