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Producers, Utah Counties Challenge Interior Decision Revoking Leases

Three independent producers and three Utah counties filed separate lawsuits last Wednesday challenging Interior Secretary Ken Salazar's decision in February to withdraw 77 oil and natural gas leases from development in Utah, saying that the secretary had exceeded his authority.

Denver-based Impact Energy Resources LLC, Peak Royalty Holdings Inc. of Utah and Denver-based Questar Exploration and Production Co. argue that Salazar violated the Mineral Leasing Act (MLA) and the Federal Land Policy and Management Act (FLPMA) by withdrawing the Utah leases after they had been awarded to high bidders in a December 2008 auction. The Utah counties of Uintah, Duchesne and Carbon made similar claims in their complaint. Both the producer and county complaints were filed in the U.S. District Court for the District of Utah in Salt Lake City.

The leases were withdrawn and bids refunded nearly two months after "declaring plaintiffs the successful, qualified high bidders for their respective lease parcels at the December 2008 lease sale; accepting and cashing plaintiff's statutorily required initial bonus payments, administrative fees and first-year rentals for the leases immediately following the sale; accepting and cashing plaintiffs' checks for full payment [of] all bonus bids for each lease sold to plaintiffs; and mailing receipts to plaintiffs acknowledging that all payments had been accepted and that the high bids were accepted," the three independent producers said in their complaint. The producers had nine lease parcels withdrawn.

"The MLA mandates that 'leases shall be issued within 60 days following payment by a successful bidder of the remainder of the bonus bid, if any, and the annual rental for the first year.' Accordingly, defendants were statutorily and contractually obligated to issue plaintiffs leases once plaintiffs fulfilled these conditions and terms," they said.

The producers have asked the court to enjoin Salazar and Kent Hoffman, deputy state director of minerals in Utah's Bureau of Land Management (BLM) office, from withdrawing the producers' lease parcels from sale and lease. It also asked the court to clear the way for the producers to redeposit with Interior all payments for their lease parcels; and to be reinstated as high bidders on their nine lease parcels.

"Salazar lacked [the] legal authority to direct BLM to retroactively withdraw plaintiffs' lease parcels from the...lease sale and to refund plaintiffs' bonus and lease rental payments after the lease sale closed and the statutory lease payments were remitted," the producers said.

They conceded that the Interior secretary, through BLM, has "broad discretion" under the MLA and FLPMA to determine which lands to lease for oil and gas exploration and development. However, that discretion "can only be exercised prior to holding a competitive oil and gas lease sale, prior to accepting bids, prior to accepting payment the day of the sale, and prior to accepting full payment for lease parcels.

"Under the MLA, once the defendants [Interior] made the decision to lease, conducted the competitive December 2008 lease sale, declared the plaintiffs high bidders for the lease parcels, and accepted full payment for the lease parcels from plaintiffs, neither the secretary nor BLM could retroactively withdraw the lease parcels," the independents argued.

In early February, Salazar withdrew leases on 130,000 acres of public lands in Utah. He cited the leases "close proximity" to Arches and Canyonlands national parks, Dinosaur National Monument and Nine Mile Canyon as the reason. His action overturned the results of a final oil and gas lease auction held in the final days of the Bush administration (see NGI, Feb. 9).

Producers bid about $6 million on the 77 parcels that were later withdrawn (see NGI, Dec. 22, 2008).

Salazar said the environmental review of the disputed parcels "was from our point of view not complete...There are other important factors that should have been considered in that review, including the factors of air quality and impact of development on air quality in the vicinity of the parks. These are real issues and the U.S. District Court has agreed these are real issues."

Following the December auction, a federal judge in Washington, DC, granted a temporary restraining order to seven environmental groups. He ruled that Interior had not completed a sufficient environmental analysis, particularly on how air quality around Utah's Arches and Canyonlands national parks and Dinosaur National Monument might become degraded because of drilling (see NGI, Jan.26).

"The Bush administration rushed ahead to sell oil and gas leases at the doorstep of some of our nation's icons, some of our nation's most treasured landscapes" in Utah, Salazar said.

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