In a major decision, the Supreme Court overturned the Chevron doctrine, which for four decades led judges to defer to how federal agencies interpreted a law when its language wasn’t clear. In a later post, we will speculate on how this ruling could affect the offshore regulatory program.
One of the most important principles in administrative law, the “Chevron deference” was coined after a landmark case,Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 468 U.S. 837 (1984). The Chevron deference is referring to the doctrine of judicial deference given to administrative actions. In Chevron, the Supreme Court set forth a legal test as to when the court should defer to the agency’s answer or interpretation, holding that such judicial deference is appropriate where the agency’s answer was not unreasonable, so long as Congress had not spoken directly to the precise issue at question.
Carbon sequestration (i.e. subsurface disposal) is a controversial and divisive topic, and important questions regarding the costs and benefits remain. Nonetheless, the Infrastructure Bill of 2021 authorized the disposal of CO2 on the OCS, and stipulated that the Secretary of the Interior promulgate regulations for that purpose. However, that major task cannot be completed without a better understanding of the potential environmental impacts.
BOEM has announced a study (see attached pages from their new Environmental Studies Plan) to consider the potential for CO2 leakage and related environmental concerns. A few excerpts from BOEM’s summary follow:
Problem: Potential CO2 leakage from carbon sequestration (CS) project activities could occur via a number of pathways. Few studies model and/or measure CO2 leakage, transport, dispersion, attenuation, and environmental impacts in the offshore environment, and those that do exist are preliminary.
Intervention: BOEM needs more information about the dynamics, fate, transport, and potential environmental impacts of CO2 leakage under various scenarios, including worst-case, on the OCS to inform the new nationwide CS Program and to protect the environment from CO2 leakage.
Comparison: The study will model CO2 leakage under various scenarios, including worst-case scenarios, using the GOM OCS Region as a case-study and can be applied to all OCS regions. Outcome The leakage and worst-case scenario modeling will aid BOEM’s ongoing rulemaking efforts, program development and implementation, and future operational needs including NEPA analyses, lease planning, lease stipulations, consultations, plan and permit approvals, mitigation measures, risk assessment and monitoring requirements, etc. Study results will also provide direction for future studies to include field and/or laboratory analyses.
The performance period for this important study extends through 2027, so it’s hard to envision final CS regulations prior to that date. You can’t issue regulations without first assessing the potential harm that could result from their promulgation (as required by NEPA).
BOEM’s summary mentions “the anticipation of a CS lease sale in the GOM after final regulations are published.” Hopefully, this also means that BOEM will not permit improperly acquired oil and gas leases (Sales 257, 259, and 261) to be converted to CS leases.
“We will do everything we can to make sure that the market is supplied well enough to ensure as low price as possible for American consumers,” Hochstein told the newspaper. “I think that we have enough in the SPR if it’s necessary.” ~Amos Hochstein, Special Presidential Coordinator for Global Infrastructure and Energy Security.
Maybe they should remove “Energy Security” from his impressive title since that seems to be a low priority.
Apparently it’s fine (and environmentally friendly) to deplete strategic oil reserves to reduce prices prior to an election, but not to hold regular oil and gas lease sales in the adjacent Gulf of Mexico. 2024 will be the first year without an OCS lease sale since 1958, and the Administration bragged about the new 5 year leasing plan having the fewest proposed sales in history!
“Consistent with the requirements of the Inflation Reduction Act (IRA) concerning offshore conventional and renewable energy leasing, the Department of the Interior today published the final 2024–2029 National Outer Continental Shelf Oil and Gas Leasing Program (Program) with the fewest oil and gas lease sales in history.
These three lease sales are the minimum number that will enable the Interior Department’s offshore wind energy program to continue issuing leases in a way that will ensure continued progress towards the Administration’s goal of 30 gigawatts of offshore wind by 2030.”
The limited media coverage of the lawsuit originated from a single Reuters article. Apparently Reuters learned about the suit and reached out to the litigants. Their article quoted Louisiana Attorney General Liz Murrill as follows:
“This is a really egregious direct assault on intermediate level producers of oil and gas, and that affects a lot of business in our state,” Murrill told Reuters in an interview.
That quote is all we have from the AGs. Why the absence of announcements:
Interest in working with industry and the Federal govt to seek policy solutions that best address OCS decommissioning issues? (This would be encouraging.)
State of Louisiana, Louisiana Oil & Gas Association, State of Mississippi, State of Texas, Gulf Energy Alliance, Independent Petroleum Association of America and U S Oil & Gas Association
Defendant:
Deb Haaland, U S Dept of Interior, Bureau of Ocean Energy Management, Elizabeth Klein, Steve Feldgus and James Kendall
Case Number:
2:2024cv00820
Filed:
June 17, 2024
Court:
US District Court for the Western District of Louisiana
Presiding Judge:
James D Cain
Referring Judge:
Thomas P LeBlanc
Nature of Suit:
Other Statutes: Administrative Procedures Act/Review or Appeal of Agency Decision
Cause of Action:
28 U.S.C. § 2201 Constitutionality of State Statute(s)
California State Lands Commission decision on the pipeline right of ways (ROWs) in state waters. (Those ROWs had expired.)
Transfer of leases to Sable – Environmental groups, the California Coastal Commission and/or other parties could file suit challenging the transfer of the leases to Sable.
According to John, the question is not whether production will resume in 2024, but whether it will ever resume. And John reminds us that as of 1/1/2026, the SYU and all of the headaches revert to Exxon. See the SYU overview below:
This action figure of Willie Mays making his signature basket catch has been a prized possession since 1957. Baseball was, by far, the most important American sport back then and Willie was a megastar. I was a Phillies fan, but loved Willie, as did baseball fans everywhere. Below is a 7 minute video that nicely captures the man and his game.
From an offshore energy perspective, the US offshore program also had “rookie” status when Willie joined the Giants in 1951. BSEE’s borehole file lists 93 wells spudded prior to July 1, 1951 in what became the Federal waters of the Gulf. Per BOEM’s structures file, 27 platforms had been installed by that date. The Submerged Lands Act and OCS Lands Act were enacted 2 years later to provide a framework for the leasing and development that followed.
At Sale 261, Repsol was the sole bidder for 36 nearshore Texas tracts in the Mustang Island and Matagorda Island areas (red blocks at the western end of the map above). Exxon acquired 163 nearshore Texas tracts (blue in map above) at Sales 257 (94) and 259 (69).
The 199 oil and gas leases that were wrongfully acquired for carbon disposal purposes remain idle with the government collecting rental payments at the rate of $10/acre/yr ($7 for Sale 257 leases). Collectively, this amounts to approximately $10 million/yr.
Presumably, the lessees cannot claim CCS tax credits for their bonus and rental payments.
The primary term for these leases is only 5 years, and the clock is ticking. The 94 oil and gas leases acquired by Exxon at Sale 257 for carbon disposal purposes are approaching the end of their second year. They would be almost a year older if litigation hadn’t delayed the issuance of Sale 257 leases (break for Exxon?).
No exploration plans have been filed for any of these leases. Presumably Exxon and Repsol do not intend to drill any wells unless the leases are converted to authorize carbon disposal.
The “Infrastructure Bill,” signed 2 days before Sale 257, required the Secretary of the Interior to promulgate regulations not later than one year after the date of enactment (11/15/2021). That deadline has long passed.
The delay in the regulations is understandable given the complex lease management, operational, and environmental issues.
Like the practices and operations they are intended to enable, the regulations are certain to be divisive. Neither the offshore industry nor the environmental community are of one mind on these issues, particularly with regard to the acquisition of oil and gas leases for carbon disposal purposes.
Energy Intelligence suggests that final carbon disposal regulations will be promulgated this year. This is highly unlikely, given that a proposed rule must first be published for public comment.
Publication of a proposed rule prior to the election is unlikely – too controversial.
Presumably, the regulations will establish a competitive process for the conversion of any oil and gas leases.
The leases that were wrongfully acquired at Sales 257, 259, and 261 should not be extended for any period of time, even if their expiration date approaches before a competitive process is established.
Bud's Offshore Energy (BOE) 