A federal judge in Montana has thrown out more than 1.5 million acres of Wyoming oil and gas leases sold under the Trump administration, a sweeping ruling that Wyoming attorneys said will force the state to return $50 million in payments and imperil $180 million in future revenue for schools and other public services.
The ruling also affects an additional 185,000 acres of oil and gas leases in Montana and the Dakotas.
The decision, issued by Chief Judge Brian Morris out of the U.S. District Court of Montana on June 12, is sparking outrage in the oil and gas community. It’s the third time Morris, an Obama appointee, has ruled against the U.S. Department of the Interior over the protection of sage-grouse habitat.
“The environmental group found a sympathetic venue in Montana to file their case and ultimately hurt Wyoming,” oil and gas landman Steve Degenfelder told Cowboy State Daily. “I am hopeful the State of Wyoming will appeal this decision with everything they have. Other than a successful appeal, it’s my understanding we would need an act of Congress to overturn this injustice. I wonder how Montana would feel if a Wyoming judge hurt their state to this magnitude?”
Ryan McConnaughey, with the Petroleum Association of Wyoming, said it’s just the latest example of how activists are misusing the judicial system to attack industries they dislike.
“Anti-oil and natural gas activists have a sympathetic ear in Montana, which is why they continuously file cases there,” he told Cowboy State Daily. “The hard truth is that until Congress steps in to restore the original intent of laws like NEPA and the Endangered Species Act, every land management decision will be decided out of public view by the courts. It’s further proof that permitting reform is absolutely necessary if the United States wants to be a country that harvests energy and builds things again.”
Wyoming’s Bureau of Land Management office referred Cowboy State Daily for comment about the case to Montana’s office, which did not respond.
It was not known Tuesday afternoon whether BLM will appeal the case, or what its next step will be for the leases.
The Wyoming Attorney General’s Office was also consulted, but had not responded at the time this story was posted.
Sage-Grouse Protection At Issue
At the heart of the case brought by the Montana Wildlife Federation, The Wilderness Society, National Audubon Society, National Wildlife Federation and Montana Audubon is how the BLM applied its 2015 sage-grouse conservation plans in Wyoming.
The groups argued that leasing should have been steered first to areas outside of key habitat so the bird would stay off the federal endangered species list.
The 2015 sage-grouse plan required the agency to “prioritize” oil and gas leasing and development outside of sensitive habitat, particularly in designated priority areas.
But, in 2018, the BLM issued a new instruction memorandum that effectively told staff to disregard those prioritization requirements when offering new “fluid mineral” leases in sage-grouse country.
Wyoming has a voluntary sage-grouse protection plan, one that guides development away from those areas without any prioritization on BLM’s part, Wyoming attorneys argued.
However, the judge ruled that the prioritization error “infected everything” that followed, making it infeasible for BLM to keep the current leases in place.
BLM offered about 1.25 million acres of oil and gas leases in Wyoming in 2019 alone, roughly 785,000 acres in its February 2019 sale and more than 493,000 acres combined in the September and December 2019 sales.
Altogether the June 12 order affects about 1.5 million acres of Wyoming leases sold between December 2017 and December 2019. December 2020 sales were excluded because the judge found that no final agency action yet exists to vacate or remand those sales.
Wyoming Warns Of Deep Revenue Losses
In court filings, Wyoming attorneys laid out what the revenue losses will mean to local and state governments providing public services.
Federal defendants estimated that vacating Phase Three leases will require the return of more than $50 million in revenue that has already been allocated and spent. The state would also lose future severance, ad valorem, and conservation taxes on the leases, totaling at least $180 million over the life of the wells.
Funding cuts due to losing these revenues will affect a range of public services in Wyoming, from employment, roads, IT, fire personnel, hospitals and other daily operations, Wyoming’s lawyers argued, and should prompt the court to remand without vacating the leases.
In Campbell County, for example, oil and gas revenues help fund the senior center, homeless shelter and soup kitchen, domestic violence shelter, youth crisis and treatment home, and the Boys and Girls Club.
In Converse County, half the annual budget relies on oil and gas revenue, which helps fund senior services, the Humane Society, a youth crisis center, the Boys and Girls Clubs of Douglas and Glenrock, a domestic violence and sexual assault survivors crisis center and shelter, a mental health crisis and intervention center, and more.
State Already Protects Sage-Grouse
Wyoming attorneys also argued that the state is already protecting sage-grouse habitat — so well that it was praised by the Obama administration at the time.
Since 2008, federal oil and gas leases in core sage-grouse habitat have declined 63%, Wyoming’s attorneys wrote, and reduced production in those areas by 48%.
The state’s plan has also reshaped development, Wyoming contended.
“From 2006 to 2012, vertically drilled well permits declined 65%, while directionally and horizontally drilled wells from outside core areas increased by 66% and 1,337%,” the attorneys wrote. “The trend continues with 95% of wells drilled in Wyoming from 2020 to 2024 being directional or horizontal, reducing sage-grouse disturbance.”
Horizontal wells disturb up to 3.5 acres, compared with 19 acres for vertical wells.
“Thus, deferrals are not needed to guide development away from sage-grouse habitat,” the attorneys wrote. “In sum, the state’s strategy — adopted by BLM — has shifted development away from sage-grouse habitat and changed development patterns to meaningfully reduce impacts.”
Drilling in lower conflict areas is already preferred through the state’s sage-grouse mitigation plan, which protects habitat while allowing economic opportunities, they said.
Economic Harm Vs. Legal Violations
The judge in the case acknowledged disruptive economic impacts caused by vacating the lease sales, but concluded that BLM’s legal violations outweighed those considerations except in cases where a lease was already producing oil and gas.
Wyoming, Jonah Energy, and Continental Resources, which intervened in the case, argued that the judge should carve out an exception for leases for wells that have already been drilled and completed.
Jonah Energy told the court it had already spent $68 million developing its leases. Continental said it had spent more than $97.6 million for nine producing wells.
“The considerations of equity require that the court not vacate the nine already producing leases stemming from the challenged Phase Three lease sales,” Morris agreed, likening the situation to a scrambled egg that can’t be put back into its shell. “Vacatur as to the producing leases could not restore the leases to the pre-leasing condition without further disruption.”
Renée Jean can be reached at renee@cowboystatedaily.com.
