Overcoming Opposition: The Challenges to Natural Gas Development in the Rockies

1. Overcoming Opposition: The Challenges to Natural Gas Development in the Rockies Larry Wolfe, Chairman - Natural Resources Dept. Holland & Hart LLP IPAA Annual Convention October 27, 2004

2. The Press View • San Francisco Chronicle – 10/25/04 • “The fight over drilling in federal lands around Pinedale (WY)…one of the most important land-use battles in the West, along with disputes in the PR region of northeast WY, the San Juan Nat. Forest in CO, the…Book Cliffs area of Central Utah and Otero Mesa region in SE NM.”

3. The Rockies

4. Major Federal Laws That Impact Development • National Environmental Policy Act (NEPA) • Endangered Species Act • Clean Water Act • Clean Air Act • FLPMA • National Historic Preservation Act

5. Tools to Stop Projects • Citizen’s Suits • CAA, CWA, RCRA, CERCLA, ESA • Appeals of Regulatory Decisions • Lobbying Governors and Legislators • Comments, Protests, Objections to Agency Decisions • Petitions for Agency Action

6. NEPA • For “major Federal actions significantly affecting the quality of the human environment” • Agencies must prepare an (EIS) analyzing the environmental impacts of the proposed action, and comparing them with the impacts of alternatives, including a no action alternative. • NEPA does not impose substantive requirements. NEPA requires the agency only to identify and evaluate environmental concerns. “Hard look” at the environmental consequences of their actions.

7. Endangered Species Act • Identification and listing of threatened and endangered Species which Federal agencies are required to conserve • Cannot jeopardize listed species or result in destruction or adverse modification of critical habitat • No unauthorized taking

8. Clean Water Act • Prohibits the discharge of pollutants to waters of the US. • States issue permits, called NPDES, for the discharge of water from CBM wells. • Quality of CBM water varies in the PRB but water can be very high quality.

9. Clean Air Act • Sets ambient air quality standards • Defines areas of the country that meet or do not meet standards • Protects areas such as National Parks, National Monuments, Wilderness • Visibility regulation

10. FLPMA and BLM Leasing • BLM develops broad land use plans, generally called Resource Management Plans (RMPs). • BLM issues leases, which must be consistent with the applicable RMP. • Lessee must obtain BLM approval of an application for permit to drill (APD) before commencing drilling operations or any related surface disturbance.

12. CBM Development in the Powder River Basin • 19,500 CBM Wells Drilled in PRB • 900 Million CFD • 566 Million Barrels of Water/Year (03) • 51,000 Wells Considered in BLM EIS • 25 TCF estimated reserve • 11 CBM Pilot Projects in other parts of Wyoming

14. What Is All the Litigation? • Challenges to EISs, RMPs and leasing decisions • Since February 2000, 25 of 26 BLM leasing decisions. Basis of these challenges include failure to analyze full range of alternatives, no protection of endangered species, impacts on winter ranges, impacts on cultural resources. • Water discharge – Interstate issues, quality, amount, timing, trespass, impairment of use of ranch land.

15. Circuit Court opinions: Pennaco Energy, Inc. v. DOI, 2004 WL 1776013 (10th Cir., Aug. 10, 2004) Northern Plains Resource Council v. BLM, No. 04-35002, D.C. No. CV-01-00096-JDS (9th Cir., August 26, 2004) In Wyoming Federal District Court: American Lands Alliance v. BLM, No. 04-CV-0019-J (D. Wyo.) Western Organization of Resource Councils v. Clarke, No. 04-CV-0018-J (D. Wyo.) In Montana Federal District Court: Environmental Defense v. Norton, No. CV 04-64-BLG-RWA (D. Mont.) American Lands Alliance v. United States BLM, No. CV 03-71-BLG-RWA (D. Mont.) Northern Cheyenne Tribe v. Norton, No. CV 03-78-BLG-RWA (D. Mont.) Western Organization of Resource Councils v. Clarke, No. CV 03-70-BLG-RWA (D. Mont.)

16. Leasing Challenges Pennaco Energy, Inc. v. United States Department of the Interior, 2004 WL 1776013 (10th Cir., Aug. 10, 2004) February, 2000: BLM issues 3 CBM leases to Pennaco. For NEPA compliance, BLM relied on two previously issued documents: October, 1985: Buffalo RMP EIS. Included analyses of the environmental impacts of conventional oil and gas development, but did not specifically address CBM development.

17. Pennaco, continued May, 1999: Wyodak DEIS. It considered CBM development, but because it was a post-leasing study, it did not consider the “no action” alternative, that is, not issuing any leases at all. August, 2004: Tenth Circuit says the BLM did not take the required “hard look” at the environmental impacts of CBM development. The Tenth Circuit reversed the district court decision, and remanded with instructions to reinstate the IBLA decision. The IBLA decision remanded the matter back to the BLM “for additional appropriate action.” Reportedly, the BLM has not yet decided what the appropriate action is. Are these leases void? Or will they be saved by the fact that the BLM has since prepared EISs that address CBM impacts and a no action alternative.

18. Northern Plains Resource Council 1997 to 2001: 23 lease sales and 40 APDs approved. For NEPA compliance, BLM relied on previous documents: 1984 and 1985: EISs for Billings and Powder River Resource areas. 1994: Amendments dealing with oil and gas. BLM noted unknown factors such as the amount of produced water from CBM development, but anticipated only low levels of CBM development, and determined that some exploratory drilling could be accommodated. August 2004: Ninth Circuit affirmed -this limited level of CBM activity had been considered in the EISs, and would not violate NEPA. The court also held that a six-year statute of limitations prevented consideration of the adequacy of these EISs and amendments.

19. EIS Challenge American Lands Alliance January, 2003: Montana BLM issued EIS for CBM development statewide, and Wyoming BLM issued EIS for CBM development in the Powder River Basin. ALA asserts that the agencies did not take the required “hard look” at impacts on two wildlife species: sage grouse and black tailed prairie dogs. ALA filed in Montana federal district court. State of Wyoming intervened, and successfully moved to transfer the Wyoming portion of the case to Wyoming federal district court.

20. American Lands Alliance – continued Federal defendants brief: EISs analyze effects on groundwater, surface water, physiography, geology, paleontology, mineral resources, soils, landscape processes, vegetation and other land cover surfaces, wetlands, threatened species, cultural resources, visual resources, recreational resources, noise, air quality, climate, and wildlife. It addresses 24 short-grass prairie species, 25 shrubland species, 16 riparian species, and 12 coniferous woodland species. It includes a long list of mitigation measures for sage grouse and prairie dogs. Federal defendants brief: the ALA’s limited focus, solely on sage grouse and prairie dogs, is “fly specking” the EIS. Oral argument was held July 2, 2004, and the case is under advisement.

21. Western Organization of Resource Councils Plaintiffs or aligned with planitiffs: Natural Resources Defense Council, EarthJustice, Wyoming Outdoor Council, Powder River Basin Resource Council, and several individuals. Aligned with defendants: Western Gas, Marathon, Pennaco, Williams, Lance, Bill Barrett, Anadarko, Devon, and Fidelity. State of Wyoming intervened, and got Wyoming portion moved to Wyoming federal district court. However, Montana federal district court held onto jurisdiction over one of the basic questions: whether one EIS should have been done for CBM development in Montana and Wyoming. Oral argument July 2, 2004; case under advisement.

22. Western Organization of Resource Councils – continued Scope of EISs: 51,000 CBM wells in the Powder River Basin. 17,000 miles of roads and 26,000 miles of pipelines. 1 trillion gallons of produced water. Allegations include: BLM did not take the required “hard look” at groundwater, surface water, soils and vegetation, and air quality. BLM did not do an objective, unbiased review of impacts. BLM did not examine a reasonable range of alternatives. BLM did not allow adequate public comment.

23. New Mexico Litigation • San Juan Citizens Alliance v. Norton – recently transferred from DC to NM Fed. Ct. • Challenge to BLM RMP and EIS for the Farmington Regional office assessing multiple uses on Federal Land. • Authorized the development of 9,000 wells over 20 years. • Suit alleges Plan failed to evaluate impacts on environment, cultural resources and other uses, including cattle grazing.

24. Environmental Defense Fund – Air Quality Amended complaint filed August 16, 2004. Federal defendants have not yet answered. State of Wyoming has moved to intervene. Other motions to intervene are likely. Focus is on air quality issues: BLM was required to impose air emissions limits and controls. BLM was required to model cumulative air quality impacts.

25. All Industries Implicated • All industries accused of unacceptable emissions • Oil and gas operations • Refineries • Coal mines • Power plants • Cement plants • Compressor stations • Gravel pits

27. EDF Shift Regulation of Air Quality • Air quality currently regulated by states with EPA oversight • Lawsuit attempts to shift responsibility to BLM • Seeks to force BLM to adopt emissions limits and control measures in Resource Management Plans

28. EDF Shift Regulation, continued • NEPA and FLPMA challenge • Obligation to protect applicable increments • Bypasses air quality permit and regulatory systems under federal and state clean air laws that provide variances from Class I increments if no adverse effect on air quality-related values • Seeks most stringent PSD increments for Class I areas

29. EDF Cumulative Air Quality Analysis • EIS’s for RMP’s did not analyze cumulative air impacts of CBM development plus all other existing and reasonably foreseeable sources • Analysis would take so much time that all CBM development in PRB could be halted for years

30. EDF Cumulative AQ Analysis, continued • Model could show that theoretical, modeled exceedances have already occurred • Basis for actions in courts and agencies seeking emission reductions by sources of all kinds • Already used by environmental groups in North Dakota

31. State-wide Trigger of PSD Baseline • Alleges that applicable PSD baselines for Wyoming and Montana were triggered decades ago • Follows that PSD increments already consumed or exceeded • Then new sources could get no permits without offsets • Existing sources would be pressured to reduce emissions

32. EDS – Claims Standards Are Already Exceeded • Ambient standards already violated by existing sources • Result in reclassification as nonattainment areas • Offsets for new sources • Industry sources would be principal if not sole target of SIPs

33. EDF – How to Resolve • Industry interveners want to make sure they are at table if settlement discussions occur. • NPS has aggressive agenda regarding protection of Class I areas • Major air quality policy and regulatory issues determined by Interior (BLM and NPS) in western U.S.

34. Other Challenges • Sage Grouse - potential listing as threatened and endangered. • SF Chronicle – “Upper Green boom could turn into a bust because of a black-and-white, chicken sized bird.” • Big effort in many states to gather data and establish conservation plans to head off listing.

35. Sage Grouse

36. Greater Sage-Grouse Petition • U.S. Fish & Wildlife Service Notice of 90-Day Finding on Petitions to List Greater Sage-Grouse as Threatened or Endangered under Endangered Species Act69 Fed. Reg. 21484 (April 21, 2004)

37. Petition to List • Petitioners • Institute for Wildlife Protection • American Lands Alliance • FWS required to make finding within 90 days of receiving petition as to whether petition presents “substantial information” that action may be warranted.ESA § 4(b)(3)(A)

38. FWS Finding • Petitions “present substantial information indicating that listing the greater sage-grouse may be warranted” • FWS “accept[s] petitioner’s sources and characterizations of the information” • Next step is more thorough review

39. Criteria for Listing • FWS may list species if any of following: • Destruction, modification, or curtailment of habitat or range • Overutilization for commercial, recreational, scientific, or educational purposes • Disease or predation • Inadequacy of existing regulatory mechanisms • Other manmade or natural factors affecting continued existence

40. Sage-Grouse Habitat • Relies on sagebrush for cover and food • 1800 – 1.1 to 16 million birds • 2000 – 100,000 – 500,000 birds • Sagebrush once covered 156 million acres • One-half of original area occupied by sage-grouse no longer capable of supporting sage-grouse year-round

41. Factor (A) – Habitat Destruction • FWS finds that there is “substantial information . . . indicating that previous and ongoing habitat loss, degradation, and fragmentation within remaining habitats are factors that may threatenthe continued existence of the greater sage-grouse.”69 Fed. Reg. at 21490

42. Factor (D) – Insufficient Regulatory Mechanisms • Notwithstanding state and BLM management authorities, “[t]o the extent that . . . human-caused habitat degradation is contributing to population declines of greater sage grouse . . . it indicates that existing regulatory mechanisms . . . may be inadequate with regard to addressing threats to the species.”69 Fed. Reg. at 21492

43. Implications • Sage-grouse is but one of many species that are still numerous enough to be hunted under state laws but that are declining. • ESA 90-day finding process • Puts burden on affected parties to disprove allegations of petitioners, rather than burden on FWS to go behind petitions • FWS still has to conduct rigorous review before final decision to list

44. Other Issues • Big game migration – Antelope and mule deer impose winter drilling limitations • Colorado Endangered Fish – Squawfish, Humpback Chub • Historic Trails and cultural artifacts • Off highway vehicle use

45. What Can Industry Do To Head Off Litigation • BE PROACTIVE! Make sure that the agency analyzes the impacts. • Get involved in the EIS and RMP planning process. • In Wyoming and other states multiple EISs and RMPs are under review and being revised by the BLM to keep up with the impacts of development. • Predevelopment communication with land owners and downstream water users.

46. Example of Ways to Resolve Litigation • Bill Barrett Corp. recently resolved a lease challenge in Wyoming. Biodiversity Conservation Alliance withdrew its appeal. • Barrett agreed to: reduce traffic during sage grouse and hawk breeding and nesting; reduce water discharges; safeguard water quality; avoid prairie dog colonies; additional dust suppression; establish a $50,000 conservation fund.

47. Thank You! Lawrence J. Wolfe Holland & Hart 2515 Warren Ave. Ste. 450 Cheyenne, WY 82001 Lwolfe@hollandhart.com 307-778-4218