The Interior Department’s Minerals Management Service (MMS) has agreed to delay future offshore oil and natural gas lease sales off the coast of Louisiana until a complete environmental review of state’s coastal region has been done, Louisiana Gov. Kathleen Blanco and MMS said Tuesday in announcing a settlement between the state and federal government.

In exchange, Louisiana has agreed to dismiss its lawsuit challenging MMS’ western Gulf of Mexico Lease Sale 200, which took place in August (see Daily GPI, July 31). U.S. District Judge Kurt D. Engelhardt of the Eastern District of Louisiana in late August rejected the state’s bid for a preliminary injunction to stop the lease sale. But the decision was not a complete setback for Louisiana. The judge said repeatedly that some of the claims in the state’s lawsuit against MMS had merit and that he was inclined to issue a permanent injunction following a hearing scheduled for Nov. 13 (see Daily GPI, Aug. 17).

Specifically, the settlement requires Louisiana to forgo any challenge to Interior issuing leases to companies for the Outer Continental Shelf (OCS) parcels that they acquired the rights to develop under Lease Sale 200, the MMS said. Sixty-two companies turned in high bids of $340.9 million during the August sale. Louisiana also has agreed to forgo any challenge under the National Environmental Policy Act (NEPA) to Interior’s approval of exploration plans for the Lease Sale 200 parcels, provided it has completed an environmental review during a time specified in the agreement, the agency noted.

As for its part of the bargain, Interior said it will not offer new leases in the Gulf off the coast of Louisiana before its issues a decision on an environmental review that takes into account the impact of Hurricanes Katrina and Rita on the state’s wetlands and infrastructure. In the meantime, the department said it would continue with the NEPA review of the 11 lease sales planned for the Gulf in its upcoming five-year leasing program (2007-2012).

“Resolving this dispute by agreement rather than litigation benefits our nation’s energy security by assuring we can move ahead on the leases issued in Lease Sale 200,” said Steve Allred, Interior’s assistant secretary for land and minerals management. “The agreement also sets the next five-year lease program on the right track.”

The Department of Justice, Interior, the state of Louisiana and the American Petroleum Institute have agreed to the final terms of the settlement, according to Interior. All parties to the agreement must submit their settlement agreement for approval to the U.S. District Court for the Eastern District of Louisiana in New Orleans.

In its lawsuit filed in July, Louisiana argued that the federal government failed to conduct an adequate environmental assessment of the damage to the state’s coastline caused by Hurricanes Katrina and Rita before moving forward with the lease sale. The state claimed that MMS’ environmental review of the lease sale fell short of the requirements of NEPA, the Coastal Zone Management Act and the Outer Continental Shelf Lands Act.

“Because we have had the courage to fight, because we have had the courage to play hardball, because we have had the courage to take the facts to the federal judicial system and state our case, we are now in a position to send a clear message that there is a new day dawning in Louisiana,” Blanco said during a press conference in Baton Rouge. “And that new day means, because of our success in forging an historic agreement, this generation and future generations of Louisianans will never be taken for granted again when it comes to the federal government’s energy development on our coast,” she noted.

“This victory will ensure that our state has a real seat at the table, controlling our own fate as the federal government’s number one offshore energy partner — the heart of America’s energy coast.”

In addition to seeking a better environmental assessment, Blanco wants the federal government to give Louisiana a greater share of the federal royalties from OCS production off its shores 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.

“Some continue to ask me if this lawsuit is really about money — if it is really about oil and gas revenues…This lawsuit and this agreement are about states’ rights and ensuring that the federal government abandons its ‘business-as-usual’ approach and recognizes the serious impacts to Louisiana’s coast from offshore oil and gas leasing,” Blanco said. But she acknowledged that her efforts are consistent with the state’s desire to share a greater portion of the federal oil and gas royalties from offshore production.

President Bush earlier this month signaled that he supports giving coastal states, such as Louisiana, a bigger portion of offshore royalties, Blanco noted (see Daily GPI, Oct. 13). “It is now time for the legislative branch to do its job. It’s time for Congress to pass a revenue-sharing bill that will allow us to get on with the business of restoring our coast and protecting the communities that support this country’s offshore energy supply.”

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