1. October 27, 20041 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. 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. October 27, 20043 The Rockies

4. October 27, 20044 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. October 27, 20045 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. October 27, 20046 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. October 27, 20047 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. October 27, 20048 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. October 27, 20049 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. October 27, 200410 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.

11. October 27, 200411

12. October 27, 200412 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

13. October 27, 200413

14. October 27, 200414 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. October 27, 200415 Circuit Court opinions: Pennaco Energy, Inc. v. DOI, 2004 WL 1776013 (10 th Cir., Aug. 10, 2004) Northern Plains Resource Council v. BLM, No. 04-35002, D.C. No. CV-01-00096-JDS (9 th 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. October 27, 200416 Leasing Challenges Pennaco Energy, Inc. v. United States Department of the Interior, 2004 WL 1776013 (10 th 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. October 27, 200417 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. October 27, 200418 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. October 27, 200419 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. October 27, 200420 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. October 27, 200421 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. October 27, 200422 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. October 27, 200423 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. October 27, 200424 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. October 27, 200425 All Industries Implicated All industries accused of unacceptable emissions – Oil and gas operations – Refineries – Coal mines – Power plants – Cement plants – Compressor stations – Gravel pits

26. October 27, 200426

27. October 27, 200427 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. October 27, 200428 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. October 27, 200429 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. October 27, 200430 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. October 27, 200431 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. October 27, 200432 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. October 27, 200433 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. October 27, 200434 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. October 27, 200435 Sage Grouse

36. October 27, 200436 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 Act 69 Fed. Reg. 21484 (April 21, 2004)

37. October 27, 200437 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. October 27, 200438 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. October 27, 200439 Criteria for Listing FWS may list species if any of following: A. Destruction, modification, or curtailment of habitat or range B. Overutilization for commercial, recreational, scientific, or educational purposes C. Disease or predation D. Inadequacy of existing regulatory mechanisms E. Other manmade or natural factors affecting continued existence

40. October 27, 200440 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. October 27, 200441 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 threaten the continued existence of the greater sage- grouse.” 69 Fed. Reg. at 21490

42. October 27, 200442 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. October 27, 200443 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. October 27, 200444 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. October 27, 200445 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. October 27, 200446 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. October 27, 200447 Thank You! Lawrence J. Wolfe Holland & Hart 2515 Warren Ave. Ste. 450 Cheyenne, WY 82001 Lwolfe@hollandhart.com 307-778-4218