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Judge Says Stay of NatGas Valuation Rule Illegal, But Declines to Reinstate It

A federal judge in San Francisco ruled that the Trump administration broke the law in February when it issued a stay of an Obama-era rule that amended how the government calculates royalties for oil, natural gas and coal produced on public and tribal lands. But the judge declined to put the rule back in effect.

Meanwhile, the Department of Interior (DOI) announced Friday that it had appointed 38 members to an advisory committee tasked with helping to improve the government's policies on royalties.

In U.S. District Court for the Northern District of California on Wednesday, U.S. Magistrate Judge Elizabeth Laporte ruled that DOI's Office of Natural Resources Revenue (ONRR) violated the Administrative Procedure Act (APA) when it issued a stay of the Consolidated Federal Oil & Gas and Federal & Indian Coal Valuation Reform Final Rule, also known as the 2017 Valuation Rule.

At the time, the ONRR cited three separate legal challenges to the rule that were filed last December in U.S. District Court for the District of Wyoming. The stay also came in the wake of an executive order by Trump requiring every federal agency to establish a regulatory reform task force to identify regulations that should be repealed or modified.

But Laporte agreed with the plaintiffs, California Attorney General (AG) Xavier Becerra and New Mexico AG Hector Balderas, that the ONRR violated the APA when it issued the stay.

"By acting outside its statutory authority to in effect repeal the rule without allowing the public to comment, ONRR improperly put the cart before the horse," Laporte said in her ruling. "While defendants argue that its subsequent rulemaking included notice and comment to adopt the repeal rule months later, that does not cure the failure to give the public an opportunity to weigh in with comments beforehand as required by the APA."

Last month, the ONRR announced that it would repeal the 2017 Valuation Rule, effective Sept. 6.

Although the ONRR had run afoul of the law, Laporte said "vacatur would be unduly disruptive because it would require the industry to comply with the rule for only a short time before switching gears to comply with its predecessor.

"If there comes a time in the future when the repeal rule itself is vacated, the issue of vacatur of the postponement could be addressed then."

Still, Balderas said he was happy with the ruling. "AG Becerra and I sued President Trump because his administration broke the law trying to deny New Mexico's public school students the royalties they are owed," he said in a statement Wednesday. "I'm pleased that a federal court agreed with us that Donald Trump broke the law as this is a big win for New Mexico's students, families and teachers."

The case is Xavier Becerra et al v. DOI et al [No. 17-cv-2376].

New royalty committee appointed

On Friday, the DOI said it had appointed 20 primary and 18 alternate members to its new Royalty Policy Committee. The department said the committee, which will meet for the first time on Oct. 4, would advise DOI Secretary Ryan Zinke on policies to improve management of a multi-billion mineral revenue program from public and tribal lands.

"Working closely with the committee, we will come up with solutions for modernizing the management of public and American Indian assets, while building greater trust and transparency in how we value our nation's public mineral resources," Zinke said. "It's important that the taxpayers and tribes get the full and fair value of traditional and renewable energy produced on public lands and offshore areas."

The committee includes several members from the oil and gas industry, many of whom strongly supported repeal of the 2017 Valuation Rule.

Primary members of the committee will include Randall Luthi, president of the National Ocean Industries Association; Patrick Noah from ConocoPhillips, and Estella Alvarado from Anadarko Petroleum Corp. Alternate members will include Kathleen Sgamma, president of the Western Energy Alliance; Albert Modiano, president of the US Oil & Gas Association; Kevin Simpson from Shell Exploration and Production Co.; Greg Morby from Chevron North America E&P, and Gabrielle Gerholt from Concho Resources Inc.

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