10/16/2017 - Regulatory Tracker

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

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Why it Matters

Properly valuing revenues from publicly owned fossil fuels provides certainty to lessees about their investments and ensures taxpayers get a fair return from the extraction of these resources by private companies on public lands.

Under President Obama, the Department of the Interior’s (DOI) Office of Natural Resources Revenue (ONRR) issued a new royalty rule, the 2016 Valuation Rule, that put in place new prohibitions on private companies seeking to extract oil and gas on federal and Indian lands, including blocking companies from selling coal at discounted rates to subsidiaries and improving oversight of royalty dues.

Current Status

In 2017, the Trump ONRR sought to repeal the Obama-era 2016 Valuation Rule; the repeal was vacated in March, 2019 by a federal court as a violation of the APA. Then, on Oct. 8, 2019, a federal judge issued a nationwide preliminary injunction blocking portions of the 2016 Valuation Rule from going into effect as litigation over the rule continued. On Jan. 15, 2021 ONRR published a final rule (the 2020 Valuation Reform and Civil Penalty Rule) rolling back many provisions of the 2016 Valuation Rule.

The Biden administration delayed the 2020 Valuation Reform Rule’s effective date until Nov. 1, 2021, and withdrew the rule on Sep. 30, 2021. The 2016 Valuation Rule remains in effect, except for the provisions regarding reporting and payment of federal and Indian coal, which were vacated by a federal court on Sep. 8, 2021.

OBAMA Administration
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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 in federal court. 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 Administration
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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; did not adequately consider alternatives to a complete repeal; 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 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.). By vacating the repeal, the court reinstated the
2016 Valuation Rule with an effective date of January 1, 2017.

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 A federal judge grants a partial preliminary injunction, staying any reporting and payment of royalties with respect to Federal and Indian coal under the 2016 Valuation Rule. The judge leaves in place the oil and gas portion of the rule but finds it likely that the valuation procedures applicable to coal will 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.

Biden Administration
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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.

April 16, 2021 ONRR further delays the effective date of the 2020 Valuation Reform and Civil Penalty Rule until Nov. 1, 2021 in order to “avoid placing undue regulatory burdens on lessees caused by allowing the 2020 Rule to go into effect” while ONRR considers whether to revise or withdraw the rule.

May 5, 2021 ONRR sends a proposed rule to OMB that will amend regulations for valuing oil, gas, coal, and Indian coal produced from federally-administered leases for royalty purposes and for issuing notices of non-compliance and assessing civil penalties for mineral leases.

Sep. 8, 2021 The District Court for the District of Wyoming vacates the federal and Indian coal-valuation provisions of the 2016 Valuation Rule. These provisions never went into effect due to the court’s earlier partial preliminary injunction granted on Oct. 18, 2019.  The reporting and payment of royalties for federal and Indian coal will be governed by the pre-2016 provisions. The court upholds the remaining provisions of the rule. Cloud Peak Energy Inc et al v. DOI, No. 2:19-cv-00120 (D. Wyo.).

Sep. 30, 2021 ONRR withdraws the 2020 Valuation and Civil Penalty Rule, citing several “defects” with the rule, including an inadequate comment period, lack of discussion of alternatives, and inadequate justification for changes to the 2016 Valuation Rule.

Nov. 2021 DOI issues its report on the federal oil and gas leasing program, as required under Executive Order 14008. The report finds that federal oil and gas royalty rates are “particularly outdated,” having not been raised for 100 years, and urges BLM to adjust royalties for competitive leases and initiate a rulemaking to establish a higher minimum royalty for onshore oil and gas leases. The report also urges BLM to limit discretionary royalty relief and update current royalty relief guidance, including reassessing the economic assumptions used when evaluating relief applications.