Ruling opens fight for Gulf oil

WASHINGTON — The future of offshore drilling in the Gulf of Mexico has fallen into greater uncertainty after a federal judge invalidated a lease sale in the Gulf of Mexico on Thursday night, the latest blow to the oil industry in its ongoing legal fight with environmentalists over how the federal government should consider climate change in permitting drilling projects.

President Joe Biden had campaigned on the promise of ending the leasing of federal lands and waters for oil and gas drilling, only to have that policy overturned by a federal judge in Louisiana last year. But that decision was essentially reversed by Thursday’s ruling, which held the Department of Interior had not properly considered the greenhouse gas effects of allowing leasing to continue.

“It strengthens the hand of the Biden administration in insisting there be a careful review of the impacts of major federal actions,” said Michael Gerrard, a law professor at Columbia University. “That’s been a hot-button issue.”

It remains unclear if the Interior Department will appeal the ruling — something that would be expected under normal circumstances. But if the Biden administration does not, the American Petroleum Institute and Louisiana Attorney General Jeff Landry have already intervened in the case and could appeal the decision themselves.

A spokesman for Landry said they were “exploring potential legal remedies.” API, an industry lobbying group, declined to comment on whether it would appeal.

The ruling left oil companies scrambling Friday morning. Companies including the oil majors Exxon Mobil, BP and Chevron collectively agreed to pay more than $190 million for the right to drill across 1.7 million acres in the Gulf at November’s lease auction.

During an earnings call with Chevron executives Friday morning, financial analysts asked for a reaction to the ruling from CEO Mike Wirth, who said he was “disappointed” and called the Gulf of Mexico “a strong part of our base business.”

“This has opened up a bit of a hornet’s nest around offshore leasing,” said Erik Milito, president of the trade group National Ocean Industries Association. “There’s a lot of concern about the way this decision was handed down.”

The ruling Thursday followed a series of recent federal court decisions that have left the offshore oil and gas industry on increasingly shaky legal ground. In 2020, the 9th Circuit Court of Appeals in San Francisco canceled an offshore drilling project in Alaska, ruling that the Trump administration had failed to assess the impact on climate change.

In his ruling Thursday night, D.C. District Judge Rudolph Contreras followed that standard, ruling that the Biden administration’s modeling failed to consider the full implications for climate change, said Thomas McGarity, a law professor at the University of Texas.

“It doesn’t move the needle a great deal,” he said. “A couple of other courts have already ruled the model was no good. This court basically said, ‘I have no reason to disagree with those courts.’ ”

The modeling used by the Interior Department to justify the November lease sale relied on the premise that stopping leasing on U.S. federal lands and waters would actually increase greenhouse gas emissions because the oil and gas would just be produced in countries with looser environmental standards, said Brettny Hardy, a senior attorney at Earthjustice, one of the plaintiffs in the case.

In its lawsuit, Earthjustice argued against that assumption. And in a recent environmental assessment for a planned lease sale in waters off the northern coast of Alaska, Biden’s Interior Department switched how it modeled emissions.

“They discovered if they don’t hold the lease sale they’d save 31 million tons of greenhouse gas emissions,” Hardy said.

Annual U.S. greenhouse gas emissions are estimated at 6.6 billion metric tons.

The question now is whether the Supreme Court and its new conservative majority will at some point intervene on the question of how government should consider greenhouse gas emissions in decision-making. The justices are set to hear another climate change case later this month, in which West Virginia has questioned the extent of the federal government’s authority to regulate greenhouse gas emissions from power plants and industrial facilities.

And with government agencies increasingly looking to greenhouse gas modeling in decision-making, many energy companies would like to see the Supreme Court offer a verdict.

“This conflict between the courts is a good argument for the Supreme Court to step in, but that doesn’t mean it will,” said James Coleman, a law professor at Southern Methodist University. “They often leave tension unresolved.”

Paul Takahashi contributed to this report. james.osborne@chron.com