A federal court judge in New Orleans, LA late Tuesday rejected a request by the American Petroleum Institute (API) to keep sealed all bids stemming from the western Gulf of Mexico lease sale that will take place Wednesday (Aug. 16).
U.S. District Judge Kurt D. Engelhardt of the Eastern District of Louisiana issued his decision following a Tuesday afternoon telephone conference with representatives from API, the Interior Department’s Minerals Management Service (MMS) and the state of Louisiana.
The judge further said that energy companies will have until noon CDT Wednesday at a New Orleans hotel to submit or withdraw their bids on tracts that will be offered as part of Lease Sale 200 off the coasts of Louisiana and Texas. Bids were to be opened at the hotel at 9 a.m. Wednesday, but the latest ruling by Engelhardt resulted in the lease sale being pushed back to a starting time of 2:30 p.m., according to an MMS spokeswoman.
In a reversal of position the API, which had opposed Louisiana Gov. Kathleen Blanco’s request to block the opening of the bids, asked Engelhardt to keep the lease sale bids sealed because of the proprietary nature of the bids. The amount that a company bids on an offshore tract is “something that no company wants to share,” said API spokesman Juan R. Palomo in Washington, DC. Blanco sought to block the lease sale on the grounds that the federal government failed to conduct a proper environmental assessment that took into account the impact of Hurricanes Katrina and Rita on the state’s coastline.
The judge’s decision to unseal the bids followed his ruling Monday denying the state of Louisiana’s request for a preliminary injunction to halt the scheduled oil and natural gas lease sale. But Engelhardt warned potential bidders to beware because the leases that are awarded may turn out to be worth little.
In Blanco’s quest to halt Lease Sale 200 off the coasts of Louisiana and Texas, Engelhardt ruled that the state failed to sufficiently show that, absent a preliminary injunction, “irreparable harm” would occur to it during the period between the lease sale and an upcoming trial that is scheduled for November.
While Lease Sale 200 will proceed, Engelhardt said he will consider the state’s request for a permanent injunction at a trial scheduled for Nov. 13. If Louisiana is granted a permanent injunction then, the high bidders in the lease sale will “obviously not” be required to pay the MMS for the tracts on which they bid, said agency spokesman Gary Strasburg. In the meantime, Engelhardt has urged the two sides — Louisiana and the Department of Interior — to seek a possible resolution to their dispute.
The threat of a permanent injunction prompted API to seek to seal the bids. If the leasing process comes to a halt in November, “everyone will know what a specific company bid” for certain tracts, said API’s Palomo. And if those tracts come up for bid in the future, competitors “will have information on how valuable certain tracts are to certain companies,” he noted.
In denying Louisiana’s request for a preliminary injunction, the court said, “The generally stated harm cited by the…governor and state [is] real and demonstrable, but will not be enhanced by the opening of lease bids on Aug. 16, 2006 and the subsequent awarding of such bids between now and trial date. In fact, any injunctive relief provided by this court following the trial in November will be just as effective as the preliminary injunction sought at this point in time.”
The court said it was aware that bidders on Lease Sale 200 will be “greatly inconvenienced” if a permanent injunction is granted following the November trial. MMS, which will oversee the lease sale, contends that a threat of an injunction may cause potential bidders not to bid, or withdraw or reduce their bids, the court order said.
“Those who bid on Lease Sale 200 do so now with such knowledge that,” in the opinion of the court, the federal government’s compliance with the National Environmental Policy Act (NEPA), the Coastal Zone Management Act (CZMA) and the Outer Continental Shelf Lands Act (OCSLA) “is questionable at best, and that [the state has] a substantial likelihood of prevailing on the merits of one or more of these claims at the November trial,” the court said. “Injunctive relief to ensure compliance may well be in order.”
In a lawsuit filed in July, the state of Louisiana argued that Interior’s environmental review of the proposed Lease Sale 200 fell short of the requirements of NEPA, CZMA and the OCSLA by failing to recognize the stark changes to the state’s coastline in the wake of Hurricanes Katrina and Rita last year.
The court urged potential bidders and other interested parties participating in Lease Sale 200 to “guide their conduct accordingly, and factor in the risks associated with the apparent failure of MMS and/or [Interior] to satisfy their obligations on one or more of these federally mandated requirements…These parties may employ the doctrine of caveat emptor [let the buyer beware] on Aug. 16, 2006.”
Blanco said she was “encouraged” by Engelhardt’s ruling. “While I fought to secure a preliminary injunction to block the Aug. 16 lease sale, I am pleased that the judge has set this matter for an expedited trial” and “agreed that an adequate environmental assessment was not done,” she noted.
“Louisiana’s coast is in a state of crisis. I will keep fighting to ensure that the federal government takes into account the devastating changes in our coastal landscape as a result of Hurricanes Katrina and Rita. The federal government must not turn its back on its number one energy partner. This case goes to the heart of our country’s need to protect its most vulnerable energy assets.”
In addition to seeking a better environmental assessment, Blanco wants the federal government to give Louisiana a greater share of the federal royalties from Outer Continental Shelf production offshore Louisiana to help restore the state’s receding coastal areas.
Under current law, interior states that allow oil and gas drilling receive 50% of the royalties from production on federal lands. But coastal states that support offshore production, such as Louisiana, receive only a small fraction of the royalties on production from the OCS, with the bulk of the revenues going to the federal government. Blanco, as well as Louisiana’s congressional lawmakers, are seeking to change that equation.
Lease Sale 200 includes 3,865 unleased blocks of approximately 20.87 million acres in the OCS Planning Area offshore Texas and in the deeper waters offshore Louisiana. The blocks are located from three to about 210 miles offshore, according to MMS. The agency estimates the sale could result in the production of between 136 million and 262 million barrels of oil and 0.810 Tcf to 1.440 Tcf of natural gas.
In the western Gulf of Mexico lease sale that took place in August 2005, the MMS received high bids of $285.2 million. The agency reported that 56 companies participated and submitted 422 bids.
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