Energy companies score massive refund checks

If forced to retract wilderness leases, the BLM could owe billions

  • Oil and gas companies have leased potential wilderness areas such as Desolation Canyon in northeastern Utah. Now they're preparing to drill.

    Ray Bloxham, SUWA
 

On Nov. 17, a federal judge ordered the U.S. government to pay $1.1 billion to buy back oil and gas leases off the coast of California, after energy companies claimed that changing environmental regulations prevented them from developing the leases (HCN, 6/23/03: Will offshore be off-limits?). The ruling is a major step forward in the effort to keep drill rigs away from the Pacific Coast. But it also raises questions about the ultimate costs of the Bureau of Land Management’s three-year-old efforts to lease potential wilderness areas for oil and gas drilling in the Rocky Mountain states.

In the California case, the companies argued that changes in federal and state law prevented them from drilling the leases and amounted to a breach of contract. U.S. Federal Claims Court Judge Eric Bruggink agreed, ordering the government to buy back 36 oil and gas leases from a dozen energy companies.

Some observers fiercely criticized the ruling: Peter Douglas, the executive director of the California Coastal Commission, blasted it as "a giveaway of public funds. Why do they get paid to comply with the law?" But the decision is not quite the bonanza it seems: The judge simply ruled that the government must refund the purchase price of the leases.

Regardless of whether leases are offshore or on, if a parcel has never been drilled, companies are limited in the costs they can claim. "Usually, the only thing you can get compensated for is things you can show receipts for," says Peter Aengst, The Wilderness Society’s energy campaign coordinator. That includes the original purchase price of a lease — but it also includes any environmental assessment work, and any road building or exploratory drilling.

In the California case, the companies are still seeking several hundred million dollars in compensation for exploratory drilling costs. If companies seek compensation for the potential mineral value of a lease — something they can’t show receipts for — payouts could be much, much larger. But they’re also harder to win.

"If you’ve already got your drill in the ground and it came up a dry hole, you’re out of luck," says Tom Sansonetti, a former assistant U.S. attorney general for environment and natural resources who now works at the Holland & Hart law firm. But, he adds, "If you’ve got a gusher, then you’ve got a pretty good claim that you should’ve been able to take that out of the ground."

The federal government may soon find itself sorting out such legal details in the Intermountain West. In April 2003, Interior Secretary Gale Norton settled a lawsuit brought by then-Utah Gov. Mike Leavitt, and stripped protection from millions of acres of federal land that had been identified by the BLM and citizens’ groups as eligible for wilderness designation (HCN, 1/19/04: Two decades of hard work, plowed under). Environmental groups, represented by the nonprofit public-interest law firm Earthjustice, have been seeking to overturn the settlement since it was signed. Meanwhile, the BLM has been steadily auctioning off potential wilderness areas for oil and gas drilling. So far, according to Earthjustice’s Sara Watterson, the agency has leased some 290,000 acres in Utah, Colorado, Wyoming and New Mexico.

Earthjustice attorney Jim Angell says that if the settlement is ruled illegal, it’s likely that "we would immediately sue on every single one" of the oil and gas leases sold after the settlement was signed, which could force the Bureau of Land Management to buy back those leases.

Even if the agreement holds up in court, a future administration could easily reverse it. The Bush administration had tried to prevent that with a consent decree from federal District Judge Dee Benson, who had initially approved the settlement. But Benson pulled his signature from the decree in August, saying future administrations should not be bound by the settlement. BLM will auction off another round of oil and gas leases in February, and a number of energy companies are preparing to drill wilderness leases in northeast Utah. Environmentalists say that if the wilderness settlement is ultimately knocked back — either by the courts or by a future administration — the feds will find themselves writing a few more massive refund checks. Says Angell, "They’re barging down a path they may have to retreat from."

The author is HCN’s associate editor.

High Country News Classifieds
  • OLIVERBRANCH CONSULTING
    Non-Profit Management Professional specializing in Transitional Leadership, Strategic Collaborations, Communications and Grant Management/Writing.
  • SAGE GROUSE CCAA COORDINATOR
    The Powder Basin Watershed Council, headquartered in Baker City, Oregon, seeks a full-time Sage Grouse CCAA Coordinator. This position is part of a collaborative effort...
  • MARKETING COMMUNICATIONS MANAGER
    High Country News, an award-winning media organization covering the communities and environment of the Western United States, seeks a Marketing Communications Manager to join our...
  • EXECUTIVE DIRECTOR - OKANOGAN LAND TRUST
    Executive Director, Okanogan Land Trust Position Announcement Do you enjoy rural living, wild places, family farms, challenging politics, and big conservation opportunities? Do you have...
  • GREAT VIEWS, SMALL FOOTPRINT
    Close to town but with a secluded feel, this eco-friendly home includes solar panels, a graywater reuse system, tankless hot water, solar tubes, and rainwater...
  • EXECUTIVE DIRECTOR
    Powder River Basin Resource Council, a progressive non-profit conservation organization based in Sheridan, Wyoming, seeks an Executive Director, preferably with grassroots organizing experience, excellent communication...
  • COMMUNITY ORGANIZER- NORTHERN PLAINS RESOURCE COUNCIL
    Organize with Northern Plains Resource Council to protect Montana's water quality, family farms and ranches, & unique quality of life. Starts $35.5k. Apply now- northernplains.org/careers
  • BEAUTIFUL, AUTHENTIC LIVE YULE LOG CENTERPIECE
    - beautiful 12" yule log made from holly wood, live fragrant firs, rich green and white holly, pinecones and red berries. $78 includes shipping. Our...
  • CRAZY HORSE MEMORIAL DIRECTOR OF PROGRAMS FOR THE INDIAN UNIVERSITY OF NORTH AMERICA
    Crazy Horse Memorial, in the Black Hills of South Dakota, is currently accepting applications and nominations for the Director of Programs for The Indian University...
  • CRAZY HORSE MEMORIAL® MANAGER OF RESIDENCE LIFE FOR THE INDIAN UNIVERSITY OF NORTH AMERICA®
    Crazy Horse Memorial is currently accepting applications for the Manager of Residence Life for The Indian University of North America. This position is responsible for...
  • EXECUTIVE DIRECTOR
    Are you an art lover who dreams of living in the mountains? Is fundraising second nature to you? Do you have experience managing creative people?...
  • EXECUTIVE DIRECTOR
    The Public Lands Foundation, a non-profit organization supporting the multiple-use management of public lands managed by the Bureau of Land Management, seeks an experienced leader...
  • COLD WEATHER CRAFTS
    Unique handmade gifts from the Gunnison Valley. Soy lotion candles, jewelry, art, custom photo mandalas and more. Check out the website and buy Christmas locally...
  • EXECUTIVE DIRECTOR
    North Cascades Institute seeks their next Executive Director to lead the organization, manage $4 million operating budget, and oversee 60 staff. Send resume/cover letter to...
  • EDITOR-IN-CHIEF
    High Country News, an award-winning media organization covering the communities and environment of the Western United States, seeks an Editor-In-Chief to join our senior team...
  • LENDER OWNED FIX & FLIP
    2 houses on 37+ acres. Gated subdivision, Penrose Colorado. $400k. Possible lender financing. Bob Kunkler Brokers Welcome.
  • HISTORIC LODGE AND RESTAURANT - FULLY EQUIPPED
    Built in 1901, The Crazy Mountain Inn has 11 guest rooms in a town-center building on 7 city lots (.58 acres). The inn and restaurant...
  • POLLINATOR OASIS
    Seeking an experienced, hardworking partner to help restore a desert watershed/wetland while also creating a pollinator oasis at the mouth of an upland canyon. Compensation:...
  • ELLIE SAYS IT'S SAFE! A GUIDE DOG'S JOURNEY THROUGH LIFE
    by Don Hagedorn. A story of how lives of the visually impaired are improved through the love and courage of guide dogs. Available on Amazon.
  • COMING TO TUCSON?
    Popular vacation house, furnished, 2 bed/1 bath, yard, dog-friendly. Lee at [email protected] or 520-791-9246.