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API Seeks Court Clarification Before August GOM Lease Sale

The American Petroleum Institute (API) has asked the appellate court in Washington, DC, to respond to requests for rehearing of its decision vacating the existing five-year offshore leasing plan before producers risk millions of dollars by bidding on blocks offered at the next scheduled Gulf of Mexico (GOM) lease sale in August.

In a notice of supplemental authority filed with the court, API said "a ruling on the pending motions for reconsideration in advance of Lease Sale 210 would provide welcome clarification regarding the status of the leasing program, as API members and others make their individual, multi-million-dollar decisions [as to] whether and in what manner to participate in that sale."

The Interior Department earlier this month said it planned to move forward with plans for the GOM lease sale in August while it awaits word from an appellate court on the contested five-year leasing plan for 2007-2012 (see NGI, July 20). "Yes, we're going ahead to advertise and schedule the next lease sale" in the GOM, but whether it actually takes place "all depends on the court," said Interior spokesman Frank Quimby. Interior notified the court on July 9 of its intent to schedule the lease sale.

Lease Sale 210, which includes 3,400 blocks covering about 18 million acres in the Western GOM Planning Area offshore Texas, is scheduled for Aug. 19. Bidders will be required to submit sealed bids to the regional director of Interior's Minerals Management Service (MMS) office in New Orleans by 10 a.m. on Aug. 18. MMS estimates that the proposed lease sale could result in the production of 242-423 million bbl of oil and 1.64-2.64 Tcf of natural gas.

Future offshore lease sales were thrown into question when the U.S. Court of Appeals for the District of Columbia Circuit in late April vacated and remanded the leasing plan for 2007-2012 (see NGI, April 20). The decision cited Interior's failure to "properly consider" the environmental sensitivity and marine productivity of the different areas of the Outer Continental Shelf (OCS) that are included in the leasing plan.

Within weeks the Department of Justice (DOJ) petitioned the court to clarify its ruling (see NGI, May 18). The ruling not only has the potential to upset the current leasing schedule, but it raises questions about oil and gas leases that have already been completed under the plan. The API also sought rehearing in May, asking the court to change its ruling from "vacate and remand" to simply "remand."

The DOJ asked the appellate court to confirm that the court's recent ruling does not require the retroactive invalidation of prior leases and allows the agency to move forward and fix the shortcomings in the environmental analysis for the existing five-year offshore leasing plan without developing and approving an entirely new five-year plan.

Interior "has already begun addressing the court's remand instructions," but the "government submits...that vacating the entire 2007-2012 program pending reconsideration will cause broader disruptions that would be both severe and unnecessary," the DOJ said in the petition for review. "In particular, vacatur might require interruption of exploration and production activity in the Gulf of Mexico and could call into question the validity of 487 leases already issued in the Chukchi Sea [in Alaska] and 1,854 more issued in the Gulf of Mexico."

The federal government called on the court to clarify the intended scope of its ruling and/or to amend the order to remand the OCS leasing program without vacating it. It also asked the court to specify whether Interior may conduct any lease sales under the 2007-2012 plan during the remand proceedings. "While delaying or canceling planned leases sales is less immediately problematic than halting activity on existing leases or canceling them, it presents the same potential for long-term disruption."

In its petition for rehearing, the API said the issue before the court is whether it should "vacate the 2007-12 five-year leasing program, and thus void the more than 2,300 leases that have already been purchased under the program for more than $9.9 billion, on which 47 wells have already been drilled at an estimated cost of more than $3 billion, resulting in 14 commercial discoveries to date with four wells already in production, and also void all scheduled future lease sales because a single, curable deficiency was identified in that program, which the government has concluded will contribute meaningfully to the country's economic well-being by producing over $170 billion of net economic benefit, and [will] contribute materially to the goal of national energy self-sufficiency by producing 10 billion bbl of oil and 45 Tcf of natural gas."

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