House Energy Legislation

The US House of Representatives passed the Lower Energy Costs Act (March 30), comprehensive energy policy legislation, by a vote of 225 to 204, with 6 Members of Congress not voting. 4 Democrats supported the legislation, and 1 Republican voted in opposition.

In general, the bill seeks to expand oil and gas production by easing restrictive laws, particularly for public lands, reforming permitting processes, and increasing incentives. The legislation also seeks to ease regulatory requirements on mining to include, but not limited to, critical minerals.

Among the key aspects of the legislation highlighted by Republican leaders:

• Prohibits the Biden Administration from banning hydraulic fracturing.

• Repeals restrictions on the import and export of natural gas.

• Prevents “liberal” states from blocking interstate infrastructure projects.

• Repeals $6 billion in natural gas taxes.

• Eliminates a $27 billion “EPA slush fund.”

• Disapproves the canceling of the Keystone XL pipeline.

• Requires the Department of the Interior to resume lease sales on federal lands and waters.

The Senate is unlikely to consider any aspect of this legislation during the current Congress, except potentially permit reform, a version of which was considered, but failed to pass the Senate last year.

(posted: 3-30-23)

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New Gulf of Mexico Lease Sale Completed

The Interior Department completed its oil and gas offshore lease sale 259 (March 29) which covers 313 tracts covering 1.6 million acres in the Gulf of Mexico.

The sale was required within statutory language of the 2022 Inflation Reduction Act. Language was included as a compromise with oil and gas interests in the Congress to help ensure passage of the legislation. That said, the sale may have occurred with, or without, statutory language.

The sale generated nearly $264 million in revenue for the Federal Government. Exxon and Chevron were reportedly the largest buyers. 

It is important to note, however, that the purchase of lease does not necessarily mean that oil drilling will occur. Drilling decisions usually depend heavily on the amount of potential oil and oil market conditions, among other factors.

(posted: 3-31-23)

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Alaska Oil Drilling Project

A new large Arctic oil drilling project in Alaska was approved by the Department of the Interior––i.e., the Willow Project of ConocoPhillips.

The Interior Department announced (March 13) that it is moving forward with the project after completing its final environmental impact statement on the project in February along with a recommendation of a “preferred alternative” for executing the project. The preferred alternative reduced the footprint of the project 12% below than the company’s original project proposal to help protect caribou migration paths and yellow-billed loon nesting sites.

The Department summarized the specific measures taken along with the project’s approval that are intended to help mitigate impacts or expand protections elsewhere in the region:

• ConocoPhillips will relinquish rights to approximately 68,000 acres of its existing leases in the National Petroleum Reserve in Alaska (NPR-A), including approximately 60,000 acres in the NPR-A Teshekpuk Lake Special Area. This will eliminate 11 miles of planned roads, 20 miles of pipelines, and 133 acres of gravel.

• Two of five planned drill sites were not approved.

• Interior says it will initiate a rulemaking in the future to achieve “maximum protection” for Special Areas in the NPR-A, and “will consider additional protections for the more than 13 million acres designated as Special Areas in recognition of their importance to wildlife and subsistence uses” including limiting  future oil and gas leasing within the region in areas “known for their globally significant intact habitat for wildlife, including grizzly and polar bears, caribou, and hundreds of thousands of migratory birds.”

• The Administration also directed the Interior Department to remove about 2.8 million acres in the Arctic Ocean near the NPR-as “indefinitely off limits for future oil and gas leasing.” The area is considered important habitat for whales, seals, polar bears, as well as for local subsistence purposes. Interior believes this action will also ensure additional protection for Teshekpuk Lake by guarding any future Beaufort Sea oil and gas developments that would necessitate nearby pipeline infrastructure.

ConocoPhillips projects that the amount of oil to be drilled at this location is in the range of 576 to 614 million barrels over 30 years, enough to fund all US oil needs for 30 days. ConocoPhillips plans to spend upwards of $8 to $10 billion for the project's development.

The location is of concern to environmentalists not only because of future emission releases tied to oil drilled at the location, but because of the additional roads and pipelines necessary across Alaskan wilderness to facilitate drilling and transportation.

Despite the project's approval, environmental organizations are promising to challenge the project in courts.

(posted: 3-13-23)

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Gulf of Mexico Lease 257 Reinstatement

The Interior Department reinstated the results (September 14) of a November 2021 oil and gas lease sale 257 in the Gulf of Mexico. The recently-enacted Inflation Reduction Act (IRA) specifically required in statute the reinstatement of the results of this sale.

At the time, Interior accepted 307 bids for drilling within the leased area. While a Federal judge had set the lease results aside following a lawsuit from environmental groups, the matter became moot with the inclusion of the IRA provision on this lease.

That being the case, drilling within the lease area is not necessarily immune from future environmentally-driven litigation. The announcement in the lease results reinstatement itself acknowledges that “leases resulting from this sale include stipulations to protect biologically sensitive resources, mitigate potential adverse effects on protected species, and avoid potential ocean user conflicts.” In addition, seismic studies must be completed and drilling permits secured before actual drilling operations can commence. Finally, market-driven considerations may, more than anything, guide decisions by companies to drill.

(updated: 9-14-22)

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Offshore Drilling Safety Rules

The Interior Department announced (September 12) a set of offshore drilling proposed rules intended to help protect workers and prevent disasters like the 2010 Deepwater Horizon oil spill.

Most importantly, the proposed rules will require blowout preventer systems (BOPs) to be able to close and seal, at all times, wells to prevent blowouts and uncontrolled spills. In addition, shear ram standards will increase, as will requirements for the sharing of equipment failure data with the Federal Government and the timing of inspections.

The proposed rules are subject to a notice and comment period and are unlikely to be finalized until 2023, at the earliest.

(updated: 9-13-22)

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Oil & Gas Drilling Leasing

A series of court cases around the country in August and September may lead to at least near-term delays in oil and gas lease awards on Federal lands and waters.

A District Court (Wyoming) that the Biden Administration did have the authority to defer oil and gas leasing on Federal lands when it did so in 2021. A separate District Court (Washington, DC) ruled that two Gulf of Mexico leases awarded in 2018 were unlawful because they did not properly analyze  risk under the National Environmental Policy Act. In addition, while a District Court (Louisiana) issued a permanent injunction against a moratorium on oil and gas drilling on certain Federal lands and waters, environmental groups believe the ruling is nevertheless permissive of individual leasing reviews based on environmental concerns.

Leasing issues have been ping-ponging around the courts after the Biden Administration put an initial moratorium in place at the beginning of its term in office in January 2021. While further moratoriums by the Biden Administration are unlikely given the Louisiana ruling, the Administration may move forward with more robust environmental analysis of leasing projects. It is not yet clear, however, how such reviews will conflict (if at all) with negotiated commitments to help advance near-term oil and gas projects negotiated as part of the Inflation Reduction Act..

(updated: 9-11-22)

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Tradeoffs for Clean Energy Proposals

Celebration by supporters of the Inflation Reduction Act (enacted in August 2022), which includes $370 billion worthy of resources for climate-related action, is softened a bit by provisions which advance fossil fuel production.

Among other things, the proposal requires the Federal Government to hold oil and gas lease sales as a condition for selling leases for renewable energy on public lands and waters. Specifically, to enable new onshore wind and solar development on Federal lands, onshore drilling lease sales will be required. New offshore wind energy leases will require corresponding lease sales for offshore drilling. The bill also requires the president to establish 25 “priority” projects on federal lands that must include fossil fuels and nuclear energy.

The Federal Government will be specifically required to reinstate the results of Gulf of Mexico offshore drilling lease 257, which was awarded last November, and was struck down by courts on environmental grounds (note: Lease 257 was reinstated on 9-14-22). In addition, the Federal Government is required to “take all necessary actions to permit the construction and operation” of the Mountain Valley (West Virginia) Pipeline project. 

Environmental reviews, overall, would be streamlined with a two-year time limit for any challenges on projects with a major impact, and a one year time limit for less significant projects. States will have a one-year time limit to object to infrastructure projects that run through their waters, though water quality impacts of the activity must be the basis of the review.

It is important to note that while drilling lease sales may represent a disappointment to environmentalists, new drilling lease sales in the future were very likely irrespective of this legislation. In addition, lease sales will not necessarily translate into actual drilling.

(updated: 9-14-22)

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Ocean Oil and Gas Drilling Leasing

The Interior Department issued (July 1st) a required five year proposal for offshore oil and gas exploration leasing. The proposal calls for up to 10 oil and gas lease sales in the Gulf of Mexico and one off of the Alaska coast over the next five years. No lease sales are proposed off of either the Atlantic or Pacific coasts, continuing the current approach of the last plan (2016). The proposed new plan is subject to a 90 day public comment period, after which the number of planned lease sales and the proposed locations could change.

The proposed plan follows a recent decision by the Biden Administration to cancel all three of its pending ocean drilling lease sales for 2022: lease Sale 258 in Alaska's Cook Inlet and two in the Gulf of Mexico - 257 and 259 (note: Lease 257 was reinstated on 9-14-22 given a requirement in the Inflation Reduction Act). As reported by USA Today (May 12, 2022), a Department of Interior spokesperson said that the Alaska lease process cancellation was “due to a lack of industry interest in leasing in the area" and the Gulf of Mexico leasing processes were dropped “as a result of delays due to factors including conflicting court rulings that impacted work on these proposed lease sales.”

Gulf of Mexico Lease 257 was auctioned off in November last year after a court challenge to Biden Administration delays, but then the completion of the sale was halted in January after a separate court challenge resulted in a District Court blocking the sale. Earthjustice had filed the lawsuit and claimed the Administration "outrageously concluded" that the sale would not contribute to climate change. The District Court found that the agency’s failure to calculate potential emissions from foreign oil consumption had violated the National Environmental Policy Act.

(updated: 9-14-22)

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Drilling on Public Lands

The Biden Administration completed (June 30th) a number of oil and gas lease auctions in Wyoming, Colorado, Montana and the Dakotas, Nevada, and New Mexico which together netted an estimated $22 million in royalties.

A group of environmental organizations have filed a lawsuit against these lease sales, claiming environmental laws have been violated. The group says that the Bureau of Land Management should have prepared a comprehensive environmental impact statement, rather than the “piecemeal analysis” used.

The Administration previously announced (April 15th) that it was ready to restart its oil and gas leasing program on public lands after “significantly” reforming the program. The reforms included, among other things, striving to put approved parcels near existing development and infrastructure to help reduce the need for natural gas venting and flaring; avoiding “important” wildlife habitat including migration corridors, and also sensitive cultural areas; using greenhouse gas emissions (GHG) emissions and the social cost of GHG emissions in estimating the potential impact of each parcel; and, raising Federal royalty rates from 12.5 to 18.75%.

The Department suggested that collectively, these efforts resulted in a low level of parcels approved for permitting – i.e.,173 parcels on 144,000 acres compared to the 643 parcels on 733,000 acres nominated by industry.

(updated: 7-2-22)

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DOI Offshore Drilling Report

The Department of the Interior released a report (November 26, 2021) on Federal oil and gas leasing and permitting practices. The report includes a number of planned reforms including increasing royalty and bonding rates, prioritizing leasing in areas with known potential, and avoiding leasing that conflicts with other priorities such as recreation, wildlife, conservation, and historical preservation. 

Some recommendations can be addressed through regulation and other administrative measures (e.g., bonding rates), while others may require legislative action (e.g., minimum royalty levels on public lands). The Department's announcement does not include any specific timeline or schedule to address any of the report's reforms.

(updated: 2-2-22)

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Infrastructure Act - Orphaned Wells

The Department of the Interior announced (January 31, 2022) that it is ready to distribute the first installment of Infrastructure Act funding intended to address orphaned wells. The Infrastructure Act included $4.7 billion for programs to plug, remediate, and reclaim orphaned wells on Federal, State, and Tribal lands.

The first installment -- $1.15B -- is for formula grants to States that submitted a Notice of Intent (NOI) indicating interest in applying for a formula grant for the proper closure and cleanup of orphaned wells and well sites. A total of 26 States have been deemed eligible for first stage funding, with another $1.4 billion in formula grants expected in the future.

(updated: 2-2-22)

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Methane emissions

The EPA announced a proposing a rule (November 15, 2021) to reduce methane emissions from the oil and gas sector, primarily by rescinding a rule implemented during the Trump Administration which effectively eliminated emissions standards for the industry. Methane emissions are considered to be the second-most contributing factor to global warming behind carbon dioxide, and methane is about 25% more potent. A recent study by the Environmental Defense Fund suggests that the oil and gas industry emits about 13 million metric tons per year, an amount substantially higher than previous estimates of the EPA. This is enough unused gas to power 10 million homes for a year. 

(updated: 2-2-22)

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