Yesterday the Massachusetts Supreme Court issued a ruling rejecting a claim that developers of the Cape Wind project, a 130-turbine wind farm proposed off of Nantucket Sound, do not have proper authority to lay transmission lines in state territory.  In 2007, the Cape Cod Commission rejected Cape Wind's request to build undersea and underground transmission cables necessary to connect the project to the regional electric grid.  Last year, project developers made the same request of the Massachusetts State Energy Facilities Siting Board, which granted it.  Opponents of the project argued that the state Board exceeded its powers by overstepping the local ruling, and that it improperly focused on the effects of the transmission lines rather than the project as a whole.

In backing the state Board 's approval, the state Supreme Court held that the state Board’s authority trumped the local board’s authority, and that because Cape Wind is being built entirely in federal waters, the Board does not have the authority to reject the project by opposing the necessary transmission lines.

On July 21, U.S. District Judge Ralph R. Beistline ruled that the Department of the Interior violated the National Environmental Policy Act by failing to adequately asses the potential environmental impact of proposals to drill in Lease Area 193 in the Chukchi Sea. This is the latest of several setbacks that companies seeking to drill offshore in the Arctic have encountered. According to the LA Times, the ruling may also prohibit companies from conducting pre-drilling operations, which environmental groups argue are harmful to mammals.

Revising an earlier offshore drilling moratorium that had been enjoined by a federal court, U.S. Secretary of the Interior Ken Salazar issued a directive yesterday that suspends the drilling of offshore wells that use subsea blowout preventers (BOPs) or employ BOPs on a floating facility.  According to Sec. Salazar, this “pause” in deepwater E&P operations is necessary to allow for the collection of information regarding the ongoing BP oil spill, to assess national resources for wild well interventions, and to provide time for offshore operators to demonstrate that they have the capability to respond to an incident in the U.S. Gulf of Mexico.  Read more in the New York Times.

Last night the U.S. Court of Appeals for the Fifth Circuit issued an order denying Secretary of the Interior Ken Salazar’s request to stay a lower court’s decision to grant a preliminary injunction of a moratorium preventing offshore E&P activities in water deeper than 500 feet.  The order notes that the government failed to demonstrate that an irreparable injury would be suffered if the stay were not granted but that Secretary Salazar can apply for emergency relief if deepwater drilling activity “has commenced or is about to commence.”  The appeal examining the merits of the moratorium will be handled on an expedited scheduled so that oral arguments can take place during the week of August 30, 2010.

The oral arguments in this case are available on the Fifth Circuit’s website here.  In the argument, counsel for the government noted that DOI continues to work on developing new moratorium parameters

A coalition of environmental groups filed a lawsuit in federal court today claiming the Cape Wind farm approved for offshore Massachusetts violates federal law by endangering shorebirds and migrating whales.

The coalition, which includes the Alliance to Protect Nantucket Sound, the Public Employees for Environmental Responsibility, Californians for Renewable Energy Inc., and the Texas group Lower Laguna Madre Foundation, allege that the Bureau of Ocean Energy Management and the U.S. Fish and Wildlife Services violated the Endangered Species Act, the Migratory Bird Treaty Act, and the National Environmental Policy Act in approving the Cape Wind project.  Specifically, the coalition claims that the government failed to conduct required scientific studies and ignored protective measures.  Interior Secretary Ken Salazar approved construction of the wind farm last April.

Judge Martin Feldman of the U.S. Federal District Court for the Eastern District of Louisiana has granted a preliminary injunction against the imposition of a general moratorium on deepwater drilling for oil in the Gulf of Mexico. Judge Feldman found that the Department of Interior's decision to halt E&P operations in waters deeper than 500 feet was arbitrary and capricious.

Yesterday a three-judge panel of the U.S. Court of Appeals for the Ninth Circuit ruled that MMS “has met its obligation” in reviewing Shell’s proposal to drill exploratory wells offshore Alaska. NASDAQ provides more information.

The Center for Biological Diversity (CBD) has filed a formal notice of its intent to sue Secretary of the Interior Ken Salazar for not evaluating the environmental impact that could result from an oil spill off Alaska’s northern coast.  In late 2009, Secretary Salazar approved Shell’s plan to drill in the Beaufort and Chukchi seas.  The CBD argues that the Endangered Species Act requires Secretary Salazar to re-evaluate the validity of Shell’s drilling permits. 

MMS published a Federal Register notice on April 2 requesting comments on the Preliminary Revised 2007-2012 Five-Year OCS Oil and Gas Leasing Program for lease sales covering the 2007-2012 timeframe.  The comment period will be open through May 3, 2010.  The Preliminary Revised Program was required by order of the U.S. Court of Appeals for the District of Columbia in Center for Biological Diversity v. U.S. Dept. of Interior.  The Revised 2007-2012 Plan includes an expanded environmental sensitivity analysis and re-affirms the role of the Gulf of Mexico as the primary producing region, retaining the eight sales that have already occurred there and the four remaining on the schedule.  However, regarding development off of Alaska, the Revised Plan schedules no lease sales in the North Aleutian Basin or Beaufort Sea, and none in the Chukchi Sea other than Sale 193 (which took place in 2008).

A group of opponents of the Cape Wind project have filed a notice of violations with U.S. Secretary of the Interior Ken Salazar, stating that MMS and the Fish and Wildlife Services violated the Endangered Species Act and the Outer Continental Shelf Lands Act during their review of the project. The specific allegations involve concerns that the proposed offshore wind energy project would result in approximately 100 birds killed during the first 25 years of operation of Cape Wind. The Boston Herald provides further information.

Separately, BNA [subscription required] reports Secretary Salazar told the U.S. House Appropriations Subcommittee on Interior and Environment that he will decide whether or not to approve the Cape Wind project towards the end of April. Secretary Salazar noted that he expected to receive the findings of an advisory board appointed to study the project by April 15, 2010.

The Interior Department on February 25 notified the D.C. Circuit Court of Appeals that it would miss its self-imposed February 26 deadline to complete its internal review of a draft environmental sensitivity analysis of areas of the OCS, and an internal review of the balancing and exclusion determinations contained in the 2007-2012 Five Year Program.  Interior is conducting these reviews pursuant to court order.  It expects to complete them by March 29.

On Monday, U.S. District Court Judge John C. Coughenour denied American Petroleum Institute's (API) motion to intervene in Center for Biological Diversity v. EPA, a suit in federal court in Washington State attempting to force the EPA to consider ocean acidification when evaluating state water quality under the Clean Water Act.  The Clean Water Act requires each state to submit an "impaired waters" list to EPA every two years, and EPA must either approve or disapprove each state's list.  The Center for Biological Diversity claims that EPA violated federal law by approving Washington's most recent impaired waters list, which did not include any ocean water areas affected by acidification.  API sought to intervene in support of EPA, arguing that because some of its members currently hold licenses to discharge into Washington's coastal waters, it has an interest in the litigation that would not be adequately represented by EPA.

Earlier today the Supreme Court denied the government's petition of certiorari in Dep't. of  Interior v. Kerr-McGee Oil and Gas Corp. (Docket 09-54), an appeal of a Fifth Circuit ruling earlier this year that held the Deepwater Royalty Relief Act of 1995 did not authorize price thresholds in deepwater oil and gas leases issued between 1996 and 2000.

[Note: The Supreme Court's docketing sheet indicating denial of certiorari is a large document and may take time to download.]

The U.S. Court of Appeals for the Ninth Circuit in North Slope Borough v. Minerals Management Service et al., Case No. 08-35180, recently upheld MMS's actions regarding the proposed sale of certain oil and gas leases in the Beaufort Sea.  North Slope Borough and the Alaska Eskimo Whaling Commission had challenged the MMS's decision not to prepare a supplemental environmental impact statement for a proposed oil and gas lease sale on a tract of the OCS on the Beaufort Sea.  The three-judge appellate panel found that MMS's determination that new environmental assessments were unnecessary was not arbitrary and capricious, that the agency satisfied its duties under the National Environmental Protection Act, and that MMS took the required "hard look" at new information related to the impact of rising oil prices.  In addition, the court tip-toed around the climate change issues in the case and found that MMS did not act improperly in determining that the cumulative effects of global warming on polar bears could be mitigated.  In effect, this decision supports the lower court's finding that "the public interest in energy development favors proceeding with the scheduled sales" of the leases.

Sen. Murkowski (R-AK), the ranking member of the Senate Energy and Natural Resources Committee, released a statement yesterday urging the Interior Department to complete its environmental analysis of the 5-year offshore leasing program (2007-2012) as quickly as possible. The D.C. Circuit ordered this analysis in April when it vacated and remanded the plan, and this week clarified that its order applied only to leases off Alaska.

Secretary of the Interior Ken Salazar expressed approval of the U.S. Court of Appeals for the District of Columbia Circuit's clarification of its April decision vacating the 2007-2012 Outer Continental Shelf oil and natural gas leasing program. Salazar commented, "President Obama has made clear that a comprehensive energy plan that reduces America’s dependence on foreign oil must include domestic production and the Court’s ruling allows us to move forward in a balanced way. With respect to the Arctic Ocean and Alaska, we will continue to work expeditiously to address the environmental issues identified by the Court in the existing 2007-2012 5-year plan.”

In a decision handed down yesterday, Judge Kenneth Hoyt of the U.S. District Court for the Southern District of Texas has ruled in favor of defendant Maersk Contractors USA Inc. in patent litigation with Transocean, Inc., finding that dual-activity offshore drilling technology patented by Transocean is the result of years of progress in the industry and not, as the company claims, its own invention. The loss marks a departure from a string a victories, including jury awards and favorable settlements, that Transocean has amassed pursuing infringement claims over its drilling patents. 
 
Transocean claimed that since the mid-1990s, its technology has allowed oil rigs to drill wells faster and more efficiently by combining all the prior time-saving methods into one design. Maersk contested the claims arguing that Transocean's advances did not improve upon methods that had been patented by four separate inventors in the U.S. and U.K. between 1980 and the months before Transocean filed its first patent application. Transocean has stated that it plans to appeal the decision.
 
Until this ruling, Transocean had been victorious in its previous protection of the "dual-activity" patent. In August 2006, a jury found that GSF had willfully infringed the patents and awarded Transocean $3.6 million. Transocean filed a similar suit over the same patents against rival Noble Corp. in February 2007. The parties settled in July 2007 and signed a licensing agreement in which Noble consented to pay an undisclosed royalty to continue to use the technology. Also in July 2007, Pride International, Inc. agreed to pay Transocean $10 million to use one dual activity rig, plus $15 million for each subsequent rig and a 5% royalty on revenue generated in patented countries.
 
While Transocean has advised that Judge Hoyt's ruling will not have an impact on the current licensing agreements, it surely will affect Transocean's ability to continue licensing the technology to the Gulf Coast exploration and production industry.

The U.S. Court of Appeals for the District of Columbia yesterday issued an order which advised the Interior Department that the court's April decision -- which vacated Interior's 5-year leasing program (2007-2012) and remanded the matter back to Interior for reconsideration -- applies only to lease offerings in the Beaufort, Bering, and Chukchi Seas off the Alaska coast.  This clarification eases fears held by Interior and others, including Sen. Mary Landrieu (D-LA), that the April decision would derail the upcoming August 19 Gulf of Mexico lease sale, as well as cloud the continuing validity of some 1,800 previously awarded Gulf of Mexico leases.

On Monday the Department of Justice filed a Petition for Writ of Certiorari with the Supreme Court in Department of the Interior v. Kerr-McGee Oil and Gas Corp., seeking to challenge a Fifth Circuit ruling earlier this year that held that the Deepwater Royalty Relief Act of 1995 did not authorize price thresholds in deepwater oil and gas leases issued between 1996 and 2000.  Respondents have until August 12 to reply. View the Supreme Court docket here.

Secretary of the Interior Ken Salazar yesterday asked the Department of Justice to seek clarification from the U.S. Court of Appeals for the District of Columbia Circuit on the scope of its April 17, 2009 decision that Bush Administration officials did not conduct sufficient scientific and environmental analysis before scheduling oil and gas lease sales on the Outer Continental Shelf off Alaska.

In a recently issued opinion carrying potentially far-reaching consequences for the offshore oil and gas industry, the U.S. Court of Appeals for the District of Columbia vacated Interior's current 5-year leasing program (2007-2012) and remanded the matter back to the Secretary of the Interior for reconsideration.  The case, Center for Biological Diversity v. U.S. Department of the Interior, involved a challenge to the Secretary's approval of the leasing program on various environmental and procedural grounds.  Specifically, the petitioners (Center for Biological Diversity, Alaska Wilderness League, Pacific Environment, and the Native Village of Point Hope) expressed concern that the approved leasing program would adversely impact the areas surrounding the lease offerings in the Beaufort, Bering, and Chukchi Seas off the coast of Alaska. 
 
The court's decision injects some uncertainty into the status of lease sales scheduled under the current leasing program as well as leases already awarded pursuant to the plan.  In the near term, the decision may cause the August 2009 Western Gulf of Mexico lease sale to be delayed.  Interior has said, however, the impact of the decision needs to be carefully evaluated before it makes any determinations with regard to leases and sales implicated by the current leasing plan.  Given that the case focused on lease offerings in Alaska and that many environmental studies have been conducted related to oil and gas activities in the Gulf of Mexico, this decision could have a greater impact on future Alaska sales.  In any event, the Secretary will have an opportunity to revisit aspects of the leasing plan formulated by the Bush Administration.       
 
The Petitioners in the case argued that  the  leasing program violated the Outer Continental Shelf Lands Act (OCSLA) and the National Environmental Policy Act (NEPA) because it failed to account for the impact of climate change in the leased areas and was approved without conducting sufficient biological baseline research for the Alaskan Seas.  The Petitioners also claimed that  the program violated the Endangered Species Act (ESA) because Interior did not consult with either the U.S. Fish and Wildlife Service or the National Marine Fisheries Service about the potential harm to endangered species.  The court ruled that the petitioners' NEPA and ESA claims were not yet ripe for review.  The court found, however, that the OCSLA-based challenges were justiciable.  Of the three OCSLA-based claims, the court ruled that the petitioners' climate change and baseline data challenges to the leasing program lacked merit.
 
The Petitioners did prevail on one claim, asserting that the leasing plan violated OCSLA because it irrationally relied on an study by the National Oceanographic and Atmospheric Administration (NOAA Study) when assessing the environmental sensitivity of the leasing program on OCS planning areas included in the leasing program.  OCSLA requires agencies to consider "the relative environmental sensitivity of ... different areas of the [OCS]."  The Petitioners argued that Interior's sole reliance on the NOAA Study to measure environmental sensitivity was improper.  In short, the court held that the NOAA Study only assessed the effects of oil spills on coastal areas, it did not assess the environmental sensitivity of the leasing program on the OCS, which is required by statute.  The court stated, "the law plainly requires that Interior examine and compare the environmental sensitivity of different areas of the OCS."  Because the court concluded that Interior did not properly assess this impact, it found that Interior is unable to adequately balance competing environmental and commercial interests. The court ruled, therefore, that on remand the Secretary has to conduct a more complete analysis, which includes all planning areas in the current leasing plan.

The U.S. Court of Appeals for the Fifth Circuit today ruled in the matter of Kerr-McGee v. Allred that the Deepwater Royalty Relief Act of 1995 did not authorize Congress to include price thresholds in oil and natural gas leases issued between 1996 and 2000. In a unanimous opinion, the court found that Congress clearly intended to provide volumetric royalty relief to producers, noting such relief could not be reduced based on the price of the commodity. While the court’s ruling was clear, there still remains considerable debate in Congress as to the intent of the statute.  This ruling has tremendous implications for a related matter involving deepwater leases issued in 1998 and 1999 that did not contain price thresholds. In the wake of the court’s ruling, several members voiced their disapproval and vowed to revisit the issue.