Friday, July 21, 2006

Blocking Offshore Oil Leases

Gov. Blanco has finally played her best card in Louisiana's campaign to receive this state's fair share of revenues from oil and gas produced off of our coastline - the State of Louisiana has sued the feds to halt all new oil and gas production off of our coastline.

With over 40 million cubic yards of our state having washed away since January 1st of this year - all of which is directly correlated to this offshore production - it is high time these revenues go towards restoring our land.

This land loss is also directly correlated to the destruction from Hurricane Katrina. All of these marshes act as a speed bump to any storm heading towards New Orleans.

The question remains as to whether or not she will be successfull... according to one oil & gas attorney I know, the answer looks positive.



Blanco's Threat To Block Offshore Federal Lease Sales: Credible or Blowing Smoke?

On January 30, 2006, Louisiana Governor Kathleen Blanco sent a letter to the Minerals Management Service (MMS) threatening to object to future oil and gas lease sales off of the Louisiana coast, specifically Lease Sale 198 set to occur in August of this year. In her letter, Governor Blanco put the MMS on notice that “there is growing tension between uncompensated support for OCS activities and the state’s coastal zone management program” and that the state is “currently unable to determine the consistency of Lease Sale 198.” Her stated purpose for doing so is to pressure the federal government in to giving Louisiana a fair share of the oil and gas revenues from these leases to help preserve the fragile Louisiana coast, made all the more necessary by the destruction caused by the recent hurricanes.

Since her statement there has been much confusion concerning whether or not her threat is a credible one. What are the meanings of these cryptic terms, i.e., “coastal zone management program” and “consistency?” Can a state governor really affect the sale of offshore federal leases and, if so, where does that authority come from? The unsatisfying answer to the former part of this question is “probably.” However, even if a governor cannot affect a lease sale, she can affect the post-lease sale awarding of permits and licenses needed for exploration, development and production, thus, de facto, serving the same purpose of denying offshore oil and gas development.

A brief history is in order. Louisiana passed the State and Local Coastal Resources Management Act (SLCRMA)[1] in 1978, and its subsequent approval by the U.S. Secretary of Commerce allowed Louisiana to create a state administrative agency for state coastal zone management under the authority of the Coastal Zone Management Act (CZMA)[2]. This agency, the Coastal Management Division (CMD) of the Department of Natural Resources (DNR), is responsible for state compliance with and the exercise of authority granted by the CZMA.[3] As part of the authority granted, the CMD is responsible for making consistency determinations for activities conducted in the coastal zone by federal agencies or federal permittees.[4] A "consistency determination" means that anyone undertaking a regulated activity in the coastal zone must certify to the state that the activity he proposes to conduct in the coastal zone will be consistent with the approved state Coastal Management Program (CMP). Only if the state concurs (with limited exceptions) with the certification will the activity be consistent for CZMA purposes. It is these provisions which allow a state to exert a great deal of control over activities in or affecting the coastal zone by essentially giving states a veto power over any federal activity or any activity requiring a federal permit or license.

The Coastal Zone Management Act of 1972 was passed by Congress in order to "preserve, protect, develop, and where possible, to restore or enhance, the resources of the Nation's coastal zone" and to "encourage and assist the states to exercise effectively their responsibilities in the coastal zone through the development and implementation of management programs to achieve wise use of the land and water resources of the coastal zone."[5] In the Coastal Zone Act Reauthorization Amendments of 1990, Congress went even further in its encouragement to the states, stating that "it is the purpose of Congress in this subtitle to enhance the effectiveness of the Coastal Zone Management Act of 1972 by increasing our understanding of the coastal environment and expanding the ability of State coastal zone management programs to address coastal environmental problems."[6] At the heart of the CZMA, Congress enacted a system by which a state is able, through its consistency determination authority, to exert control over activities in its coastal zone.

Once a state Coastal Management Program (CMP) has been approved by the U.S. Secretary of Commerce, the CZMA requires that federal activities and projects affecting the coastal zone, as well as activities and projects conducted by private parties which require a federal permit or license, be consistent with the approved state CMP.[7] Distinct sets of consistency standards and procedures apply to (1) federal agency activities and (2) other activities that require a federal permit or license.[8] In the first instance, federal agency activities "within or outside the coastal zone that affects any land or water use or natural resource of the coastal zone shall be carried out in a manner which is consistent to the maximum extent practicable with the enforceable policies of approved State management programs."[9] The federal agency which conducts or supports the activity makes the consistency determination, and the state may concur or object. If the state objects, it may pursue mediation by the U.S. Secretary of Commerce or seek judicial intervention to enjoin the activity.[10]

In the second case, federally permitted activities, including, possibly, OCS lease sales, and definitely, exploration, and development and production, must be conducted in a manner consistent with the state CMP.[11] Applicants for a federal permit must "certify" to the state agency that the proposed activity complies with the state's approved program.[12] If the state agency objects, the federal agency may not issue the necessary permits unless, on appeal or his own initiative, the Secretary of Commerce overrides the state objection.[13] The Secretary may override a state objection upon a finding that the activity is either consistent with the objectives of the CZMA or is necessary in the interest of national security.[14]

In Louisiana, the Louisiana State and Local Coastal Resources Management Act (SLCRMA) functions as the state coastal management program for CZMA purposes.[15] The SLCRMA established the state coastal zone boundary, implemented a coastal use permitting system to regulate activities occurring in the coastal zone, and provided for the development of state "coastal use guidelines" to serve as the criteria for granting, conditioning, denying, revoking, or modifying coastal use permits.[16] The Coastal Use Guidelines are quite extensive and allow the state to review virtually all significant activities occurring in the coastal zone area.

So, is an offshore federal lease sale one of the activities that is susceptible to a state’s consistency determination? In the United States Supreme Court case of Secretary of the Interior v. California[17], the Court held that the sale of oil and gas leases on the OCS was not an activity directly affecting the coastal zone so as to require a consistency determination under the CZMA.[18] The Court illustrated that there were four statutory stages under OCSLA to developing an offshore oil well: 1) preparation of a leasing program; 2) lease sales; 3) exploration by the lessee; and 4) development and production.[19] Prior to the 1990 Reauthorization Amendments, the CZMA read: “[e]ach federal agency conducting or supporting activities directly affecting the coastal zone shall conduct or support those activities in a manner which is . . . consistent with approved state management programs.”[20] The Court paid particular attention to the words “directly affecting” in reaching its decision that the first two stages above were not subject to consistency review, but the last two stages were.[21] The Court’s reasoning was that the purchase of an OCS lease, standing alone, entails no right to explore, develop or produce oil and gas, but merely gives a lessee a priority in submitting plans to conduct these activities. Thus, according to the Court, lease sales cannot be characterized as “directly affecting” the coastal zone, though stages three and four above, which require separate federal and state approval, do.[22]

However, in an apparent reaction to the case, the 1990 Reauthorization Amendments to the CZMA, changed the language of 1456(c)(1)(A) to read, “[e]ach federal agency activity within or outside the coastal zone that affects any land or water use or natural resource of the coastal zone shall be carried out in a manner which is consistent . . . with the enforceable policies of approved State management programs.”[23] The words “directly affecting” have been omitted and the scope of the activity, through the language “within or outside the coastal zone,” has been enlarged. Thus, at the very least, the argument can be made that offshore federal lease sales are now covered by the consistency determination requirements in the CZMA, though this has yet to be litigated. Therefore, under the authority of the CZMA and its 1990 Amendments, a State probably can affect the sale of offshore federal leases.[24]

Alternatively, even if OCS lease sales are not covered, the CZMA is quite clear in placing the permits and licenses that are required for exploration and development after a lease has been acquired firmly under the veto power of a state’s consistency determination. Section 1456(3)(B) of the CZMA states:

[A]ny person who submits to the Secretary of the Interior [a] plan for the exploration or development of, or production from, any area which has been leased under OCSLA . . . affecting any land or water use or natural resource of the coastal zone of such state [shall] attach to such plan a certification that each activity . . . in such plan complies with the enforceable policies of such state’s approved management program and will be carried out in a manner consistent with such program. No federal official or agency shall grant such a person any license or permit for any activity described in such plan until such state or its designated agency receives a copy of such certification and plan, and until such state or its designated agency . . . concurs with such person’s certification and notifies the Secretary [of Commerce] and the Secretary of the Interior of such concurrence.[25]

Thus, it appears clear that Governor Blanco’s letter to the MMS was not merely blowing smoke, but a credible threat to, at the very least, disrupt future oil and gas development off of the coast of Louisiana. Even if she is unable to block lease sale 198 through the CZMA’s consistency determinations, she is fully authorized to declare a lease holder’s plan for exploration and development inconsistent with the State’s Coastal Management Plan, thus, in effect, achieving the same goal of disrupting offshore development. A person who holds a federal lease, but is unable to drill a well, for example, is unable to develop his offshore property. As of the writing of this paper the MMS has yet to respond to the Governor’s letter, but even if the MMS decides to ignore the Governor’s threat and go ahead with the lease sale, the controversy is capable of ending up in lengthy mediations or litigation, each also serving the Governor’s goal of delaying and disrupting offshore development.

[1] La. Rev. Stat. Ann. § 49:214.21 (West 2005).
[2] 16 U.S.C.A. § 1451-1465 (2005).
[3] Id.
[4] 16 U.S.C.A. § 1456(c)(3)(A)-(B) (2005).
[5] 16 U.S.C.A. § 1452(1) (2005).
[6] Reauthorization Amendments of 1990, § 6202(b).
[7] 16 U.S.C.A. § 1456(c)(2005).
[8] Id.
[9] Id.
[10] Id.
[11] 16 U.S.C.A. § 1456(c)(3)(A)-(B) (2005).
[12] 16 U.S.C.A. § 1456(c)(3)(A) (2005).
[13] Id.
[14] Id.
[15] La. Rev. Stat. Ann. § 49:214.21 (West 2005).
[16] La. Rev. Stat. Ann. § 49:214.27 (West 2005).
[17] Sec. of the Interior v. California, 464 U.S. 312 (1984).
[18] Id. at 343.
[19] Id. at 337-340.
[20] Id. at 321.
[21] Id. at 340.
[22] Sec. of the Interior v. California, 464 U.S. at 341.
[23] 16 U.S.C.A. § 1456(c)(1)(A) (2005).
[24] See also, J. Christopher Martin, The Use of the CZMA Consistency Provisions to Preserve and Restore the Coastal Zone in Louisiana, La. L. Rev. 1087 (1991).
[25] 16 U.S.C.A. § 1456(3)(B) [Emphasis added]. As stated above, a negative consistency determination by a State can be overridden by the Secretary of Commerce on the finding that the activity is consistent with the objectives of the CZMA or is otherwise necessary in the interest of national security. 16 U.S.C.A. § 1456(c)(3)(iii).

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2 Comments:

Anonymous el stevo said...

Hmmm . . . I don't recall giving you the permission to use that paper. Nonetheless, have at it. Note, however, that it is an old copy and changes and corrections have been made.

2:20 PM, July 21, 2006  
Blogger TAG said...

I wonder how I got it then? Forward me the revised version and I'll repost. Thanks El Stevo.

3:29 PM, July 21, 2006  

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