American Oil and Gas Reporter - April 2016 - 118

Lease Cancellations
Industry groups also express concern
about the cancellation of existing leases
following public opposition to development.
When three leases in Pitkin County, Co.,
were challenged in 2004, the Interior Board
of Land Appeals ruled three years later that
BLM must "either do its own environmental
analysis or formally adopt" the Forest Service's 1993 environmental impact statement.
Last fall, BLM announced it would
produce a new EIS and conduct its own
environmental analysis of 65 leases in
the White River National Forest. According
to BLM, the analysis would determine
whether "the leases should be voided,
reaffirmed, modified or subject to additional mitigation measures."
By mid-February, BLM announced revisions to its draft EIS in which it declared
it preferred to cancel 25 nonproducing oil
and gas leases held by two operators within
the White River Forest's Thompson Divide
area. A preliminary draft in November
had recommended cancellation of 18 leases
and revisions for the remaining seven.
Press accounts indicate BLM is expected
to publish the final EIS this summer.
Sgamma observes that BLM makes
numerous references to the Forest Service's
22-year-old Nation Environmental Policy
Act analysis, but the bureau's draft does
not formally accept it. She goes on to describe the BLM's draft as a retroactive
NEPA review. "BLM was pressured by
the usual suspects," she recounts. "In this
case, the national environmental groups
prop up a few local front groups that find
it easy to stoke-up resistance and 'not in
my backyard' opposition."
By the public comment period's Feb.
1 conclusion, the bureau received nearly
50,000 comments, BLM says, adding
that a substantial volume of them urge
BLM to cancel the leases. "We have various groups send us 2,000 e-mail letters
at a time," press accounts quote BLM
Public Affairs Officer David Boyd. "They
are still coming in, and in the case of email, in big batches."
Colorado Governor John Hickenlooper
has backed the revision, stating the bureau's
draft EIS "wisely incorporates the Forest
Service's updated management plan for
future oil and gas leasing on the forest.
The most prospective portions of the forest
and areas where infrastructure already
exists would remain available. Areas where
there is little or no potential for oil and
gas and where there is no existing production would be closed. I support the
White River National Forest's oil and gas
management plan and BLM's proposed
action."
David Ludlam, executive director of

the West Slope Colorado Oil & Gas Association, characterizes the Thompson Divide
area as "nothing special" as forests go.
"Everyone thinks their little slice is unique,
but in this case you have to consider the
demographics," he maintains, alluding to
the Thompson Divide's proximity to the
resort town of Aspen, Co. In 2012, media
reports indicate, a local conservation group,
the Thompson Divide Coalition, notified
70 leaseholders that it wanted to buy the
leases at their original sale prices for the
purpose of retiring them.
Notwithstanding descriptions of a pristine and remote area, land around the
Thompson Divide has a history of mining
and oil and gas development, Ludlam
points out, citing a 2012 BLM report in
which the bureau cites a proposed oil
and gas unit's "high potential," and also
notes the immediate area includes significant development and hundreds of
producing gas wells.
Cancelling the Thompson Divide leases
also will bode poorly for the hundreds of
private mineral holders whose properties
adjoin the federal leases, Ludlam warns. "It
is unlikely any company will develop those
private leases in isolation," he considers.
Montana Cancellation
In a case one federal judge described
as "Kafkaesque," the Obama administration in January expressed its desire to
cancel a 33-year-old lease, and offered
the rationale that the government simply
had changed its mind, press accounts indicate. In mid-March, DOI made the cancellation official.
According to published reports, the
6,247-acre lease within an area of Montana's Lewis & Clark National Forest
known as Badger-Two Medicine was
originally sold in 1982. An application
for a permit to drill was issued to the operator four times between 1985 and 1991.
Later, DOI suspended those APDs four
times between 1994 and 1998.
After Baton Rouge, La.-based Solenex
LLC obtained the lease, the company
asked DOI to lift the permit suspension,
a request the department denied in May
2013, media reports detail. They go on
to explain that the company sued DOI a
month later, which initiated a series of
filings and motions that concluded in
July 2015 when the district court ruled
in the operator's favor.
According to published reports, the
court ordered the government to respond
with a schedule for the administrative
steps to approve the company's APD. The
government responded that it would take
nearly two years to complete the approval
process, which drew a protest from Solenex
that claimed the work reasonably could

118 THE AMERICAN OIL & GAS REPORTER

be completed in one year. Shortly thereafter,
the court issued a new order that sought a
declaration from the government to either
lift the suspension or cancel the lease.
In the latest round of a back-and-forth
series of filings and responses, press accounts say the Department of Justice has
declared the company's request for a
timetable invalid and has claimed that
agency officials are not prohibited "from
reconsidering any position previously
taken" by the government.
In a press release it issued on March
17, Interior Secretary Sally Jewell Press
announced BLM was cancelling the oil
and gas lease in the Badger-Two Medicine
area. After consulting with stakeholders
and other regulatory authorities, DOI
says, "BLM concluded the Solonex lease
was improperly issued in violation of
NEPA and the National Historical Preservation Act. Based on those findings and
recommendations from the Forest Service
and the Advisory Council on Historic
Preservation, DOI and BLM decided that
the pending APD should be disapproved,
the lease cancelled and any applicable
lease payments refunded."
Reports indicate Solenex's attorney
claims that cancelling an existing lease
where the operator has done nothing wrong
exceeds the government's authority.
Budget Direction
Obama's final budget request also includes clues about the administration's
federal land priorities. One example can
be found in the BLM request for continued
funding to strengthen its permit automation
and oversight system known as Automated
Fluid Minerals Support System II. The
bureau says its fiscal 2017 request of $15.2
million will further the transition to the
final phase of the AFMSS II rollout and
"support greater efficiencies in oil and
gas permitting and inspection activities."
The bureau's overall request of $186.6
million-which is $27.6 million more than
2016-includes revised fee schedules for
permit applications and inspections, and
makes specific reference to plans to enact
rules on measurement, flaring and venting.
According to the bureau, inspections
under the new budget will focus on "highrisk producing cases, which comprise about
13 percent of total cases but account for
more than 60 percent of oil and gas produced
on federal and Indian mineral estates." BLM
says annual inspections are required for all
leases that produce high volumes and those
with a history of noncompliance.
With the coming change in administrations, election of a Democratic president
likely will continue Obama's policies, Sgamma predicts. "That is why this election is
so important," she intones.
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American Oil and Gas Reporter - April 2016

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