American Oil and Gas Reporter - January 2016 - 14

IndustryDigest
White House Appeals
Preliminary Injunction
Against BLM Frac Rule
WASHINGTON-The U.S.
Department of Justice is asking the U.S.
Court of Appeals for the 10th Circuit to
lift a Wyoming court's order blocking
the Bureau of Land Management's
hydraulic fracturing rules.
According to published reports,
Justice's Environment and Natural
Resources Division filed a motion on
Dec. 10 on behalf of the Department of
Interior, asking the 10th Circuit to lift
the preliminary injunction halting
implementation of the rules, which was
issued Sept. 30 by the U.S. District
Court for the District of Wyoming.
The reports note that the Sierra Club,
Earthworks, Wilderness Society,
Western Resource Advocates,
Conservation Colorado Education Fund,
and the Southern Ute Wilderness
Alliance also appealed the injunction to
the 10th Circuit on Nov. 27.
In a related matter, on Dec. 17, the
Wyoming district court denied a motion
by the six environmental groups to
consolidate its preliminary injunction
into a final judgment on the merits of
the case, as well as the groups' request
to stay proceedings until the 10th
Circuit ruled on their appeal, according
to other published reports. The
environmental groups contended that
consolidating the Wyoming court's
preliminary injunction would have
allowed them to file a faster appeal to
the 10th Circuit, the reports say.
DOI issued a final rule for hydraulic
fracturing on federal and tribal lands on
March 20 (AOGR, April 2015, pg. 54).
The regulations cover disclosure of
chemicals used in fracturing,
wastewater storage, and well
construction standards.
The Independent Petroleum
Association of America and the Western
Energy Alliance immediately appealed
the rules. The associations later filed for
a preliminary injunction in May, at
which point their case was consolidated
with lawsuits against BLM's rule
brought by the states of Colorado, Utah,
Wyoming and North Dakota, and the
Ute Indian Tribe.
BLM's rule was to take effect June
24, but on June 23, U.S. District Judge
Scott Skavdahl issued a stay and
ordered BLM to file its administrative
14 THE AMERICAN OIL & GAS REPORTER

record with the court (AOGR, July
2015, pg. 45). Judge Skavdahl later
enjoined BLM from enforcing the rule
until the lawsuits against it could be
heard (AOGR, October 2015, pg. 18).
Those lawsuits argue that the federal
statutes under which BLM claims
authority to regulate fracturing-the
Federal Land Policy and Management
Act, the Mineral Leasing Act of 1970,
and the Federal Oil and Gas Royalty
Management Act of 1982-do not grant
such authority, while the Safe Drinking
Water Act and the 2005 Energy Policy
Act expressly grant that authority to the
states.
In reacting to the Justice
Department's appeal, IPAA Senior Vice
President for Government Relations
and Political Affairs Dan Naatz told
reporters he believed DOI's appeal was
an acknowledgement of the strength of
the lawsuits against the fracturing rule.
"I think the government probably was
surprised at the depth and breadth of
(Judge) Skavdahl's ruling in our favor-
to such a great extent that it had to
recalibrate and figure out its strategy,"
Naatz is quoted. "We are confident of
the fundamental merits of our case and
are eager to move expeditiously." ❒

Wyoming Court Ruling
May Impact Leases In
Other States, Industries
CHEYENNE, WY.-A Wyoming
Supreme Court decision could force
operators to rewrite well leases, and
according to the Petroleum Association
of Wyoming, holds the potential to
affect other industries and other states.
The court issued its Pennaco Energy
Inc. v. KD Company LLC decision on
Dec. 2.
Pennaco began acquiring leases in
Sheridan and Johnson counties in the
1990s, and agreed to restore all
impacted lands after they were used,
court documents state. It later sold its
interests to CEP-M Purchase LLC,
which reassigned them to High Plains
Gas Inc., court documents say.
In the 2010 sale, Pennaco expressly
reserved its rights of access to explore
and develop the "deep rights" covered
by the leases, court documents point
out. In the agreement, the company also
retained the rights to complete, plug
wells, and restore sites at CEP-M's

expense if CEP-M failed to do so. After
CEP-M and High Plains defaulted, the
landowners won a district court ruling
that Pennaco remained liable, even after
the lease assignments.
Pennaco appealed to the Wyoming
Supreme Court, court documents say,
claiming the court erred in applying
contract law. The company asserts the
agreements create covenants running
with the land, which can be enforced
only against someone in a relationship
with the landowners.
The Wyoming Supreme Court
affirmed the district court decision,
ruling the agreements' lack of an
express clause terminating its
obligations kept Pennaco responsible
until its operations ceased and the lands
were reclaimed.
"Attorneys will have to review the
way their leases are written, to make
sure companies can assign a lease or
sell it to someone without
repercussions," assesses PAW President
Bruce Hinchey. "This decision
reverberates, not only across the oil and
gas sector, but other industries. It could
affect Texas and other states as well."
Pennaco is appealing the decision,
but Hinchey says a reversal will be a
long shot because the judges who made
the initial ruling will be hearing the
appeal as well.
In its rehearing petition, Pennaco
advances several arguments, including
claims the court was incorrect in
determining that the rights and
obligations included in surface use
agreements had fixed durations, and that
it incorrectly relied on general contract
law of assignment and mineral lease law
rather than on property law. ❒

BSEE's Safety Program
Targets Offshore Sites
WASHINGTON-The Bureau of
Safety and Environmental Enforcement
says its new pilot risk-based inspection
program will improve the agency's
focus on offshore oil and gas facilities
that show a higher risk profile.
"By focusing on facilities based on
their risk factors, BSEE can more
efficiently and effectively manage
limited inspection and audit resources,"
says agency Director Brian Salerno.
"Risk factors include design, operating
and environmental characteristics of a
facility that may correlate to a greater
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