Oil and gas group says feds illegally canceling lease sales

By Matthew Brown, Associated Press

A trade group for the energy industry accused federal officials Thursday of illegally canceling or postponing the sale of more than two dozen oil and gas leases over the past two years.

 

BILLINGS, Mont. (AP) — A trade group for the energy industry accused federal officials Thursday of illegally canceling or postponing the sale of more than two dozen oil and gas leases over the past two years.

The Western Energy Alliance sued the Obama administration in U.S. District Court in New Mexico, seeking to force officials to hold lease sales four times a year as required under the federal Mineral Leasing Act.

The group said sales have been called off in Montana, Colorado, New Mexico, North Dakota, Oklahoma, Texas, Utah and Wyoming.

U.S. officials have blamed at least some cancellations on companies' limited interest, citing low oil and gas prices that have drastically slowed exploration over the past two years.

Of more than 2.2 million federal acres offered for sale last year, just over a half-million acres received bids, according to the Interior Department's Bureau of Land Management.

Mark Barron, lead attorney on the lawsuit, said the leasing cancellations have extended even into oil and gas fields where operating costs are low and companies can still make a profit, such as the Permian Basin of New Mexico and Texas.

"There's a simple requirement under the Mineral Leasing Act. They are not adhering to it at this point and our question simply is why," Barron said.

Interior Department spokeswoman Amanda Digraph said the agency was aware of Thursday's lawsuit but does not comment on pending litigation.

Less frequent lease sales can hit smaller companies particularly hard, said Jerry McHugh Jr., founder of San Juan Resources, a Denver-based company that operates several dozen wells in New Mexico's San Juan Basin.

McHugh said low oil prices can drive down lease prices, presenting an opportunity to build up inventory. If lease sales are held in other areas but not regularly in the San Juan Basin, that does his company little good.

"I'm not interested in leases in Kansas or Oklahoma or Texas," he said. "If they were issuing leases every quarter, I would have an opportunity to add to my leases, to develop."

The Bureau of Land Management oversees lease sales on more than 700 million acres of public lands and private lands where the underlying minerals are publicly owned. It said last month that low prices are projected to reduce drilling on public lands by 40 percent versus historical levels in coming years.

Interior officials did not immediately respond to questions on whether the number of existing leases was sufficient to satisfy industry demand.

Just over 32 million acres of federal lands were under lease at the end of last year. That's down more than 30 percent since peaking in 2008 and the least amount of land in at least two decades, according to government data.

However, the number of acres where companies were producing oil and gas has remained relatively flat during that period and stood at 12.7 million acres last year.

Chris Seager, a spokesman for the left-leaning Western Values Project, said the industry lawsuit "ignored the reality" of companies leasing far more land than is used for drilling.

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