As many of you know, permitting delays are not only frustrating but can have real consequences for project applicants with contractual deadlines. In the case of a federal oil and gas lease, operators should be mindful of the primary term in their lease as recently highlighted by the Interior Board of Land Appeals (IBLA) in Vaquero Energy, Inc. (185 IBLA 233, Decided Feb. 9, 2015.)
In Vaquero Energy, Inc., the California State Bureau of Land Management (BLM) Office refused to suspend the primary term under an oil and gas lease held by Vaquero Energy, Inc. (Vaquero) to give time for the Section 7 consultation process with the United States Fish and Wildlife Service pursuant to the Endangered Species Act. A Section 7 consultation was required because the lease is located in/near the Sespe Condor Refuge, which provides habitat for the endangered California condor and other protected species.
The BLM rejected the request for a suspension because Vaquero caused its own “dilemma” by failing to timely submit its Applications for Permit to Drill (APDs). Vaquero submitted its APDs with 62 days left in the primary term and requested a suspension of the primary term with only 36 days left. Generally, under the Mineral Leasing Act (30 U.S.C. § 209) suspension is mandatory where the Secretary of the Interior, or any federal agency, is the cause of delay which prevents a “lessee from commencing drilling operations during the primary or extended term of its lease.” (185 IBLA at 236 (internal citations omitted).) In contrast, as interpreted by previous IBLA decisions, the Mineral Leasing Act authorizes the Secretary to use discretion to suspend a lease where the lessee’s inability to commence drilling is due to the lessee’s own fault and not attributable to “any order, delay, or inaction by any federal agency.” (Id. (internal citations omitted).)
When the BLM first denied Vaquero’s request, they observed that “2 months did not allow sufficient time to process the APDs and comply with the [Endangered Species Act].” (185 IBLA 234.) In other words, Vaquero should have filed its requests much earlier, and there was no proof of delay by any federal agency that led to their inability to commence drilling.
By Michael Sherman and Shannon Morrissey. Ms. Morrissey is a Law Clerk with Stoel Rives LLP and is not currently licensed to practice law in California.