10/16/2017 - Regulatory Rollback

Consolidated Federal Oil and Gas and Federal and Indian Coal Valuation Reform Rule

by EELP Staff

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Why it Matters

Properly valuing revenues from publicly held mineral rights provides certainty to lessees about their investments and ensures taxpayers get a fair return for their public resources.

Current Status

During the Trump Administration, DOI’s ONRR attempted to repeal the 2016 Valuation Rule in 2017 but the Northern District of California vacated DOI’s repeal, saying it violated the Administrative Procedure Act. DOI did not provide a “reasoned argument” for contradicting findings made when it issued the Valuation Rule. The repeal was “arbitrary and capricious.” The court found the agency’s explanations conclusory and inadequate. DOI did not adequately consider alternatives to a complete repeal of the rule and inappropriately relied on “predicted future actions” to support its decision. The agency also did not provide a meaningful opportunity for public comment because its proposal did not explain why problems it identified justify a complete repeal. Later in 2019, another court blocked a portion of the 2016 Valuation Rule from taking effect while litigation challenging that rule proceeded. On Oct. 1, 2020 ONRR published a new proposed rule revising the 2016 Valuation Rule, rolling back many of its provisions. The 2020 Valuation Reform and Civil Penalty Rule argues many of the 2016 Valuation Rule provisions are inconsistent with more recent executive orders and returns many of the provisions to their pre-2017 status, restoring practices and definitions that had not been updated since the 1980s. ONRR finalized the rule on Jan. 15, 2021.

On Jan. 27, 2021 President Biden issued Executive Order 14008 that includes instructions for the Secretary of the Interior to pause new oil and gas leases on federal lands and to reconsider leasing practices. The review will consider “whether to adjust royalties associated with coal, oil, and gas resources extracted from public lands and offshore waters, or take other appropriate action, to account for corresponding climate costs.” On Feb. 12, 2021, four days before the new rule was to go into effect, ONRR delayed the effective date for 60 days, until April 16, 2021. It also opened a new 30 day comment period through March 15, 2021.

History

July 1, 2016 The Department of the Interior (DOI) publishes a final rule reforming the valuation process for oil, gas, and coal on public lands (the Valuation Rule). The purpose is to ensure that the public receives a fair return on the minerals that it owns and to provide clarity and certainty to lessees.

December 29, 2016 Industry groups challenge the rule. Cloud Peak Energy, Inc. v. United States Dep’t of the Interior, No. 16CV315-F (D. Wyo.); American Petroleum Inst. v. United States Dep’t of the Interior, No. 16CV316-F (D. Wyo.); Tri-State Generation and Transmission Ass’n, Inc., Basin Electric Power Cooperative, and Western Fuels-Wyoming, Inc., v. United States Dep’t of the Interior, No. 16CV319-F (D. Wyo.)

Trump Era

February 17, 2017 Industry groups petition DOI to postpone the rule.

February 27, 2017 DOI postpones the rule “until the judicial challenges to the Rule are resolved.”

April 4, 2017 DOI publishes its proposal to rescind the valuation reform rule.

April 26, 2017 California and New Mexico sue DOI over the delay, arguing DOI did not follow proper administrative procedure. California and New Mexico v. Dep’t of Interior, No.17-cv-02376-EDL. 

August 7, 2017 DOI rescinds the valuation rule, publishing the repeal in the Federal Register that reinstates the prior valuation regulations.

August 30, 2017 The court rules that DOI had improperly delayed the rule, and should have notified the public of a proposed delay and taken comments on the proposal.

October 17, 2017 California and New Mexico sue DOI over the repeal. California  v. Dep’t of Interior, No. 4:17-cv-05948-SBA (N.D. Cal.).

November 3, 2017 Industry groups voluntarily dismiss without prejudice their challenge to the valuation reform rule, prompted by its repeal. Cloud Peak Energy, Inc. v. United States Dep’t of the Interior, No. 16CV315-F (D. Wyo.); American Petroleum Inst. v. United States Dep’t of the Interior, No. 16CV316-F (D. Wyo.); Tri-State Generation and Transmission Ass’n, Inc., Basin Electric Power Cooperative, and Western Fuels-Wyoming, Inc., v. United States Dep’t of the Interior, No. 16CV319-F (D. Wyo.).

March 28, 2018 A coalition of environmental groups joins the lawsuit.

June 13, 2018 California, New Mexico, and the coalition of environmental groups (Natural Resources Defense Council, Northern Plains Resource Council, The Wilderness Society, and the Western Organization of Resource Councils) moved for summary judgment, arguing the DOI’s ONRR violated the Administrative Procedure Act by failing to justify its reversal of the Valuation Rule. California v. Dep’t of Interior, No. 4:17-cv-05948-SBA (N.D. Cal.).

July 16, 2018 DOI and industry groups (American Petroleum Institute, National Mining Association, and the Wyoming Mining Association) file a cross motion for summary judgment. The court has stated it will rule on these motions without holding a hearing.

March 29, 2019 The Northern District of California vacates DOI’s repeal of the Valuation Rule, saying it violated the Administrative Procedure Act. The court determined that DOI did not provide a “reasoned explanation” for contradicting findings it previously made when it issued the Valuation Rule. DOI did not adequately consider alternatives to a complete repeal of the rule and inappropriately relied on “predicted future actions” to support its decision. The repeal was “arbitrary and capricious.” The agency also did not provide a meaningful opportunity for public comment because its proposal did not explain why the problems it identified justified a complete repeal. This decision is not appealed. California v. Dep’t of Interior, No. 4:17-cv-05948-SBA (N.D. Cal.).

June 12, 2019 Industry groups file a petition for review of the 2016 Valuation Rule after it is reinstated. Cloud Peak Energy, Inc. v. Dep’t of the Interior, No. 19-CV-120-SWS (D. Wyo.).

June 13, 2019 DOI issues a guidance document affirming the reinstatement of the 2016 Valuation Rule and instructing lessees to recalculate and submit corrected royalty payments according to the 2016 rule methodology.

July 19, 2019 Industry groups file a motion for preliminary injunction in response to the reinstatement of the 2016 Valuation Rule. Cloud Peak Energy, Inc. v. United States Dep’t of the Interior, No. 19-CV-120-SWS (D. Wyo.).

October 8, 2019 Federal judge grants a preliminary injunction blocking the 2016 Valuation Rule from taking effect for valuation of Federal and Indian coal royalties while the case proceeds. The judge leaves in place the oil and gas portion of the rule but finds it likely that the valuation procedures applicable to coal would be found “arbitrary and capricious or beyond statutory authority.” Cloud Peak Energy, Inc. v. Dep’t of the Interior, No. 19-CV-120-SWS (D. Wyo.).

November 20, 2019 DOI extends the timeline for lessees to recalculate and submit corrected royalty payments, saying additional time is necessary for industry to comply with the reinstated 2016 valuation methodology.

January 15, 2020 Environmental groups file a motion to enforce judgement in response to DOI’s postponement of lessees’ deadline to comply with the reinstated rule. California v. Dep’t of Interior, No. 4:17-cv-05948-SBA (N.D. Cal.).

June 30, 2020 DOI extends the timeline for lessee compliance once again.

July 30, 2020 The Northern District of California denies environmental groups’ motion to enforce the judgement by requiring ONRR to set an immediate deadline for compliance, saying the request goes beyond the scope of the court’s decision reinstating the 2016 rule. The court states that a new lawsuit would be the appropriate way to challenge DOI’s postponement. California v. Dep’t of Interior, No. 4:17-cv-05948-SBA (N.D. Cal.).

Oct. 1, 2020 ONRR publishes a new proposed rule revising the 2016 Valuation Rule to roll back many of its provisions. The 2020 Valuation Reform and Civil Penalty Rule argues many of the 2016 Valuation Rule provisions are inconsistent with more recent executive orders and returns many of the provisions to their pre-2017 status, restoring practices and definitions that had not been updated since the 1980s. The public comment period is open until Nov. 30, 2020.

Jan. 15, 2021 ONRR publishes its final 2020 Valuation Reform and Civil Penalty Rule. The rule goes into effect on Feb. 16, 2021.

Early Biden Actions

Jan. 27, 2021 President Biden issues Executive Order 14008 that includes instructions for the Secretary of the Interior to pause new oil and gas leases on federal lands and to reconsider leasing practices. The review will consider “whether to adjust royalties associated with coal, oil, and gas resources extracted from public lands and offshore waters, or take other appropriate action, to account for corresponding climate costs.”

Feb. 12, 2021 ONRR delays the effective date of the 2020 Valuation Reform and Civil Penalty Rule for 60 days, until April 16, 2021. It also opens a new 30 day comment period for comments both on the delay and the rule in relation to eight decision criteria outlined in the federal register notice. Public comments will be accepted through March 15, 2021.