American Oil and Gas Reporter - November 2019 - 17

Federal Judge Denies
Oil, Gas Complaints On
ONRR Valuation Rule
CHEYENNE, WY.-Some energy
producers won a split judicial decision
when a federal court upheld a preliminary
injunction against the Office of Natural
Resources Revenue's valuation rule as it
applies to coal produced on federal and
Indian lands. However, the U.S. District
Court of Wyoming, ruling in Cloud Peak
Energy v. U.S. Department of the Interior,
said the decision would not include
similar legal resolution sought by the oil
and natural gas sector.
ONRR published the rule in 2016,
changing how lessees calculate the
value of natural resources when paying
royalties on the oil, gas and coal
produced on federal and Indian lands,
the court decision describes.
The Trump administration attempted
to repeal the rule early in 2017 and
replace it with the former valuation
methods. A federal judge vacated this
repeal rule in March 2019, saying ONRR
violated the Administrative Procedure
Act. Three months later, ONRR ordered
lessees to adhere to the 2016 rule in their
calculations for paying royalties.

Cloud Peak, joined initially by the
National Mining Association and
Wyoming Mining Association, and later
by the American Petroleum Institute,
filed suit, alleging the 2016 valuation
rule violated APA, was arbitrary and
capricious, and exceeded ONRR's
authority, the court decision states. The
Independent Petroleum Association of
America filed an amicus curiae brief
supporting the petitioners.
U.S. District Judge Scott Skavdahl's
decision supports the injunction
request regarding the rule's application
to coal valuations, saying the
petitioners established the legal
requirements for an injunction.
He stated he saw no likelihood for
success for challenges to the
methodologies underlying oil and gas
valuations. The decision says the rule is
unlikely to be found arbitrary or
capricious, citing ONRR's examination
of relevant data and articulating a
satisfactory explanation for changing the
methods used to value produced oil and
gas. He points to the 21 pages included
in the published valuation rule that
summarized 1,000 pages of written
comments and the agency's explanations.
In response to the complaint that

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the rule ignored key legal and
economic concerns, Skavdahl held that
agencies were not required to adopt
comments during proposed rule
makings, but only must demonstrate
responding to significant comments
during the public comment period,
which he says ONRR did.
The complaint also contends the rule
erroneously requires arm's-length
contracts to be in writing and signed by
all parties, or a default provision may
allow ONRR to calculate the value of
the fossil fuel, which the petitioners say
is an outdated requirement inconsistent
with current procedures. The decision
asserts ONRR agreed oral contracts are
legally binding but noted those
contracts and their written follow-ups
by letter or email significantly impede
or render impossible its duty to audit
lessee's royalty payments. ❒

D.C. Appeals Court
Overthrows EPA's
Good Neighbor Rule
WASHINGTON-The U.S.
Environmental Protection Agency's
2018 rule that allowed upwind states to

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American Oil and Gas Reporter - November 2019

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