American Oil and Gas Reporter - February 2017 - 97

for some price certainties before finalizing
plans for additional development. The
offshore industry needs oil to hit $65 a
barrel under today's regulations, he says,
while an easing of federal rules-ranging
from insurance and decommissioning
costs to air quality standards-would lower
that floor to $60.
Onshore, the Haynesville Shale in
northern Louisiana continues to be a beacon of hope for the state, he holds.
"There actually have been more positive
than negative comments, along with guard-

ed optimism, that natural gas prices will
hold up," Hanks describes. "There sure
is a lot of excitement about the LNG
plants and other projects in the southwestern portion of the state, and along
the corridor with plants and expansions.
"The Haynesville Shale is exciting,
but as in all cases, you have legislators
who will extrapolate its activity across
Louisiana and make the argument that
the industry is coming back. That is not
the case for exploration and production
activities," he warns.

"With the uptick in prices, the first
area of increased activity will be on the
service company side," Hanks says. "Because of their reputation and work ethic,
many Louisiana service companies are
starting to put people back to work in
other basins, particularly the Permian
and Oklahoma's SCOOP and STACK
plays. They may not be operating in the
state of Louisiana, but at least some of
our folks will be able to get back to work
and start earning an income again." ❒

Judge Won't Enjoin BLM Flaring Rule
DENVER-The U.S. District Court for
the District of Wyoming has denied petitions by industry and affected states to
enjoin the U.S. Bureau of Land Management's final rule on venting and flaring,
thereby allowing the rule to take effect
as scheduled on Jan. 17.
Despite that setback, Kathleen Sgamma, president of the Western Energy Alliance, which along with the Independent
Petroleum Association of America filed
the industry's legal challenge to the
Methane and Waste Prevention Rule, expressed confidence in their ability to get
the rule overturned.
"While we are disappointed that we
didn't convince the judge to stay the rule,
we remain confident that when he considers
the full merits of the case, he will agree
this rule is unlawful federal overreach,"
Sgamma states, reiterating, "The venting
and flaring rule oversteps BLM's mandate
from Congress by usurping Clean Air Act
authority that resides only with the Environmental Protection Agency and the states."
IPAA and the Western Alliance filed
their lawsuit on Nov. 15, the day BLM announced the final rule. Their lawsuit contends
the rule creates a new air quality regime
that exceeds BLM's authority because Congress delegated exclusive authority to regulate
air quality under the CAA to EPA, state
and local governments, and Indian tribes
(AOGR, December 2016, pg. 32).
The states of Wyoming and Montana-
with North Dakota joining three weeks
later-filed a similar lawsuit after the final
rule was published in the Nov. 18 Federal
Register. Their lawsuit calls the venting
and flaring rule "a blatant attempt by a
land management agency to impose air
quality regulations on oil and gas operations under the guise of waste prevention"
(AOGR, January 2017, pg. 16).

that to obtain a preliminary injunction,
the petitioners must show, among other
things, a likelihood of success on the
merits, and that they will suffer irreparable
harm if the rule is allowed to take effect.
On the former, the judge cites Chevron
U.S.A. Inc. v. Natural Resources Defense
Council Inc. to conclude that he must
give deference to an administrative
agency's statutory construction in instances
where Congress has not spoken directly
to the question at issue. He then writes,
"Congress has not announced directly
that the precise activity in question not
be subject to federal regulation."
Skavdahl points out that the Mineral
Leasing Act "requires the lessee to 'use
all reasonable precautions to prevent waste
of oil or gas developed in the land.'"
Further, he says BLM is entitled to
deference regarding its determination of
how best to minimize losses of gas to
venting, flaring and leaks under the Federal
Oil and Gas Royalty Management Act,
which he says "arguably directs BLM to
consider any impact to 'the quality of . .
. air and atmospheric . . . values.'"
Judge Skavdahl holds that the venting
and flaring rule may overlap CAA regulations "if such rules are independently
justified as waste prevention measures,"
which BLM argued in its response to the
lawsuits.
While Skavdahl's opinion acknowledges
that much of BLM's stated rationale for
the rule, as well as the agency's cost/benefit
analysis, focuses more on the rule's environmental benefits, he nevertheless says he
cannot conclude "that the provisions that
overlap with air quality regulations promulgated under CAA authority lack a legitimate, independent waste prevention purpose,
or are otherwise so inconsistent with the
CAA as to exceed BLM's authority."

Success On The Merits
In his opinion released Jan. 16, U.S.
District Judge Scott W. Skavdahl notes

Irreparable Harm
On the second requirement for a preliminary injunction, Judge Skavdahl notes

the states contended they would suffer
irreparable harm in the form of decreased
tax revenue and lost jobs.
To this he responds, "Petitioners have
not shown BLM's overlapping 'air quality'
regulations to be inconsistent or significantly more onerous than the EPA's or
the states' own regulations. Neither have
the petitioners shown the rule's application
will hamper or delay oil and gas production
to the extent of causing imminent irreparable harm."
The industry lawsuits, Judge Skavdahl
continues, allege irreparable harm through:
* Payment of royalties the Methane
and Waste Prevention Rule characterizes
as "avoidably lost;"
* Costs of compliance; and
* Disclosure of proprietary, confidential and competitive information in
waste minimization plans that must accompany applications for permits to drill.
However, Judge Skavdahl finds, "Industry petitioners cannot demonstrate irreparable harm based on paying royalties
on gas the rule deems avoidably lost because, if petitioners ultimately prevail on
the merits and the court sets aside the
rule's royalty requirements, any overpaid
royalties can be recovered."
Unrecoverable compliance costs are
not imminent, the judge continues, because
many of the rule's requirements, including
replacing equipment, do not take effect
for a year. And, he adds, the plaintiffs
failed to show BLM's existing confidentiality protections are inadequate to protect
the information required in waste minimization plans.
Although he did not enjoin the venting
and flaring rule, Judge Skavdahl did
honor the plaintiffs' request for an expedited hearing schedule, ordering BLM to
file the administrative record no later
than Feb. 21. Plaintiffs' briefs are due 30
days after the record is filed, and defense
briefs are due 20 days after that.
❒
FEBRUARY 2017 97

American Oil and Gas Reporter - February 2017

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