Judge Strikes Down Repeal of Oil & Gas Royalties Rule

OAKLAND, Calif. (CN) – Finding the Trump administration failed to justify its reversal of an Obama-era regulation, a federal judge struck down the repeal of a rule that will boost state royalties for oil and gas leases on federal land.

In a decision filed March 29 and made public Friday, U.S. District Judge Susan Brown Armstrong concluded the U.S. Department of Interior’s Office of Natural Resources Revenue (ONRR) failed to explain “inconsistencies” between its prior findings and its decision to repeal a rule it spent five years crafting under the previous administration.

“Although the ONRR is entitled to change its position, it must provide ‘a reasoned explanation … for disregarding facts and circumstances that underlay or were engendered by the prior policy,’” Armstrong wrote in her 35-page opinion, quoting the Supreme Court’s 2016 decision in Encino Motorcars v. Navarro.

The Obama-era royalties rule was finalized in July 2016 and set to take effect on Jan. 1, 2017. The Interior Department estimated it would increase royalty collections by $72 million to $85 million per year and reduce the industry’s administrative costs by $3.6 million.

California and New Mexico sued the Trump administration in October 2017 after the Interior Department formally repealed the rule. The formal repeal occurred on Oct. 17, 2017, just 12 days after another federal judge found the Trump administration illegally blocked the rule from taking effect.

In her March 29 ruling, Armstrong found the Interior Department failed to consider alternatives to repeal and did not provide a meaningful opportunity for public comment.

The judge also rejected the Interior Department’s argument that the repeal was meant to comply with President Donald Trump’s March 2017 executive order directing executive agencies to suspend, revise or rescind all regulations that “unduly burden the development of domestic energy resources beyond the degree necessary to protect the public interest or otherwise comply with the law.”

Armstrong found the agency failed to adequately explain how the repeal promoted that policy objective.

California receives an average $82.5 million annually for about 600 oil and gas leases on more than 200,000 acres of federal land. The leases produce about 15 million barrels of oil and 7 billion cubic feet of natural gas every year, according to the state’s lawsuit.

New Mexico, second only to Wyoming in the number of oil and gas leases on federal land in its state, obtains an average $470 million each year in royalties. The state says it uses most of that money to help fund public education.

A separate case is also pending in federal court in Oakland over the Trump administration’s repeal of related rules aimed at stopping methane flaring and reducing air pollution from oil and gas wells on federal land. The Trump administration reversed that regulation in September 2018 after a federal judge ruled months earlier that the Interior Department illegally blocked the rule from taking effect. 

California Attorney General Xavier Becerra called the ruling a victory for American taxpayers, saying they will now receive their “fair share” of royalties from private companies that profit from extracting oil, coal and natural gas on public land.

“Once again, the Trump Administration has been checked by the courts in its unlawful attempt to bend over backwards to please special interests at the expense of hardworking Americans,” Becerra said in a statement Friday.

The U.S. Department of Interior did not immediately respond to an email request for comment Friday. 

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