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Ruling in Oklahoma County Could Affect Industry, Other Cases

In a ruling that could affect every oil and gas well drilled in Osage County, OK, since 1970, a federal district court judge invalidated a lease and two drilling permits on tribal land on the grounds that federal agencies failed to comply with the National Environmental Policy Act (NEPA) before issuing them.

The ruling could affect two separate cases in the county -- a class action by landowners and a lawsuit by a producers association -- both of which target the federal government.

On Dec. 21, U.S. District Court for the Northern District of Oklahoma Judge Gregory Frizzell invalidated Chaparral Energy LLC's 2013 oil and gas lease with the Osage Nation. He ruled that the Department of Interior (DOI) and its Bureau of Indian Affairs (BIA) had failed to comply with NEPA when it issued the two drilling permits in 2014.

Frizzell -- in the case Hayes v. Chaparral Energy LLC et al -- disagreed with the BIA's assertion that the approval of the Chaparral lease fell within a categorical exclusion of NEPA, and that the approval of the two drilling permits was covered by a 1979 agreement that DOI and the Osage Agency would prepare an environmental assessment (EA) for oil and gas operations in the county.

Frizzell also agreed with the plaintiff, David Hayes, that the 1979 agreement was too broad and doesn't contain any discussion of the environmental impacts from hydraulic fracturing (fracking). At the time, Phillips Petroleum Co. and Kewanee Petroleum were the only companies fracking in Osage County, and the practice was called "expensive" and "only in the experimental stage," which the judge seized upon.

"Today, virtually every well drilled in Osage County involves hydraulic fracturing, and the systems and technology used in such operations have changed dramatically," Frizzell said. "The government cannot reasonably contend that these changes are insignificant or that they are somehow irrelevant to the environmental impacts of drilling operations in Osage County.

"The court, therefore, concludes that the government's reliance on the 1979 [agreement], without supplementation, was arbitrary and capricious."

Donald Lepp, an attorney with Tulsa-based Drummond Law PLLC representing Hayes, told NGI's Shale Daily the main focus of the Hayes case is that there was no site-specific environmental assessment of his client's property.

"The 1979 agreement is outdated and no longer valid," Lepp said Thursday. "But even if it was good, the simple fact is nobody ever looked at the environmental impact of drilling Mr. Hayes's property. That's why they're violating NEPA. That agreement only addressed whether you could do leasing in Osage County."

Lepp said Frizzell's ruling could potentially impact every oil and gas well drilled in Osage County since 1970 -- the year NEPA took effect -- but said the issue of whether all of the wells were legally permitted has not yet been the focus of any litigation. "The only thing that's been litigated is the lease on Mr. Hayes's property," he said.

Ruling could affect two other cases

But Frizzell's ruling could affect two other cases in the Northern District of Oklahoma, the first of which is very similar to Hayes.

In Donelson v. Devon Energy Production Co. LP et al, Osage County landowner Martha Donelson filed suit in June 2014 against Devon, the DOI and the BIA, alleging that the government agencies violated NEPA when they approved leases and drilling permits without first preparing an environmental impact statement (EIS). The case, which is before District Court Judge James Payne, was converted into a class action lawsuit two months later, with another 28 oil and gas producers added as defendants.

"It's our belief that every other lease and permit in Osage County has been handled just like Mr. Hayes's, and there was no site-specific EA conducted prior to the superintendent [of the Osage Agency of the BIA] approving the leases," said Lepp, who also represents Donelson. "Presumably, if other leases on other property have been handled just like Mr. Hayes's, then the same result would apply."

Meanwhile, the Osage Producers Association (OPA) filed a separate lawsuit against the DOI, the BIA and others in August 2015. In Osage Producers Association v. Jewell et al, the OPA asked Frizzell for a review of agency action under the Administrative Procedures Act (APA).

"The drop in the number of wells drilled is due in part to the tacit denial of all drilling permits submitted to the Superintendent of the Osage Agency...many of the permits have been before the superintendent for over a year," the complaint says, adding that OPA believes more than 400 permits are before the superintendent, ready for approval.

Lepp motioned to intervene in the Osage Producers case in October 2015. "We moved to intervene because we believe that even though it wasn't mentioned in the complaint, NEPA is really at the heart of why the superintendent hasn't approved the permits," he said.

But Jamie Sicking, an attorney for the OPA, said the BIA's delay in issuing permits, not NEPA, is central to the producers' complaint.

"On the surface it appears as if this ruling in Hayes might affect our permitting case, but it truly doesn't," Sicking told NGI's Shale Daily on Thursday. "Our case remains the same, and that is these permits have been either unlawfully withheld or unreasonably delayed.

"It doesn't matter what the reasoning is, or what the BIA cooks up as to why they haven't done their job. The fact remains people applied for permits in a timely manner and they have yet to receive them. The responsibility to meet the NEPA requirements is on the government. It's not the job of the producer to do the EA; it's the government's job."

But Sicking added, "I guess that you could say that the Hayes ruling affects a possible solution to our case, but it doesn't affect the heart of the matter, which goes to the unlawfully held or unreasonably delayed approvals."

According to Sicking, the BIA office in Pawhuska, OK, had more than 500 permits -- including plugging, workover and drilling permits -- under consideration in November 2015. He said it was unclear why the BIA had not equipped Pawhuska "with the staff or the ability to keep up with the oil and gas production." He added that the BIA had approved about 15 permits in the last 18 months, but that pales in comparison to the 500 permits a year that were anticipated in an inspector general's report from October 2014.

Sicking added that the OPA had agreed to two requests for stays by the government "because we were under the impression that they were doing everything they could to get permits out. And that's what we're after. We're just trying to go to work."

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