A federal court has thrown out key Endangered Species Act (ESA) analyses of oil and gas operations in the Gulf of Mexico, which will be vacated as of Dec. 20, 2024. The United States District Court for the District of Maryland ruled, in a lawsuit brought by environmental groups, that the National Marine Fisheries Service (NMFS) "underestimated the risk and harms of oil spills to protected species." The ruling creates uncertainty for oil and gas operations while NMFS completes a new biological opinion, as ordered by the Court.

Background and Applicable Law

The Outer Continental Shelf Lands Act (OCSLA), administered by agencies within the U.S. Department of the Interior, governs offshore oil and gas operations on the Outer Continental Shelf (OCS) of the United States, including in the Gulf of Mexico (GOM). The offshore oil and gas industry has been active in the GOM since the late 1940s, and the region is home to thousands of offshore wells, platforms, pipelines and other offshore facilities and structures necessary for oil and gas production. In order to staff, maintain, inspect and operate these offshore wells and facilities, the industry relies on the continuous operations of hundreds of marine vessels. The marine fleet supporting the offshore industry is an ubiquitous presence in the GOM, mostly operated by highly regulated, private U.S. maritime companies and supported by specialized ports located mostly in Louisiana and Texas.

The GOM is also home to thousands of marine species, many of which are listed as endangered or threatened and therefore protected under the ESA, including the Rice's whale, the Kemp's ridley sea turtle and the Gulf sturgeon. Section 7 of the ESA requires federal agencies to ensure that any agency action is "not likely to jeopardize the continued existence" of any endangered or threatened species, or result in modification or destruction of their habitat. 16 U.S.C. § 1536(a)(2). Thus, given that offshore oil and gas operations in the GOM OCS are made possible by agency action (i.e., lease issuance, permits, plan approvals), these agency actions are subject to Section 7 requirements.

Specifically, under Section 7 of the ESA, if an agency action may effect an ESA-listed marine species, then the agency must undergo formal consultation with the National Marine Fisheries Service (NMFS) to analyze the effects of the proposed action on the listed species and prepare a Biological Opinion (BiOp), which includes "reasonable and prudent alternatives" to avoid or mitigate adverse effects to the endangered species. 16 U.S.C. § 1536(b)(3)(A); 50 C.F.R. § 402.14. Additionally, even if NMFS makes a "no jeopardy" determination, NMFS must assess whether the proposed action could result in a "take" (or killing) of listed species and, if so, the BiOp must estimate the amount of the takes and describe the measures that should be taken to limit the takes. 16 U.S.C. § 1532(19); 50 C.F.R. § 402.14(i).

NMFS has previously undertaken multiple consultations relating to federal oil and gas leases in the GOM OCS using a broad or "programmatic" approach, meaning that the resulting BiOp issued in March 2020 was intended to cover all federal activities associated with all oil and gas operations in the GOM OCS under existing and new leases through 2029. In other words, for each separate agency decision or action, the agency relies on the 2020 BiOp rather than developing an individualized evaluation of the potential impacts the individual oil and gas activity may have on the listed endangered species. The 2020 BiOp concluded that no ESA-listed species would be jeopardized by the oil and gas leases except the Rice's whale. The 2020 BiOp was accompanied by a Reasonably Prudent Alternative Analysis (RPA) intended to mitigate threats to the Rice's whale and an Incidental Take Statement (ITS) permitting certain amounts of incidental takes for multiple ESA-listed species, including the Rice's whale. Because an ITS was issued in connection with Section 7 consultation for all oil and gas leases, any incidental takes by oil and gas operators consistent with those limits would not violate the ESA. Thus, in practice, the 2020 BiOp afforded oil and gas operators protections from ESA liability while removing the need for each regulated offshore operation to undergo its own ESA analysis. NMFS' findings and conclusions also dictate requirements and mitigation measures in lease agreements and other agency requirements, such as Notices to Lessees, and generally influence how the Bureau of Ocean Energy Management (BOEM) and Bureau of Safety and Environmental Enforcement (BSEE) regulate oil and gas operators with respect to species protection.

Lawsuit

A cohort of environmental groups filed a lawsuit in 2020 against NFMS challenging the 2020 BiOp and associated determinations under the ESA and the Administrative Procedure Act (APA). Oil and gas industry groups and offshore operators, intervened on behalf of the industry. Specifically, the plaintiffs alleged that NMFS underestimated the potential effects of listed species from oil spills in its BiOp and ITS and failed to consider the likelihood of a catastrophic oil spills, such as the spill that resulted from the Deepwater Horizon incident in 2010. Plaintiffs also argued that NMFS failed to adequately consider climate change and vessel strikes when evaluating the effects of the action and species recovery and in particular failed to ensure that mitigation measures would be sufficient to avoid jeopardy to the Rice's whale.

After multiple years of briefing and parallel legal proceedings, the Court ultimately issued its opinion on Aug. 19, 2024 (Opinion), finding primarily in favor of the environmental groups, vacating the 2020 BiOp and remanding to NMFS for further proceedings. In so finding, the Court reasoned that the 2020 BiOp violates the ESA and the APA because NMFS 1) underestimated the risk and harms of oil spills to ESA-listed species, 2) the jeopardy analysis for the Rice's whale and Gulf sturgeon was based on pre-Deepwater Horizon species population numbers, 3) the RPA was inadequate to prevent jeopardy of the Rice's whale and 4) the ITS failed to include oil spills in its incidental take numbers and relied on irrational reasoning to support the number of incidental takes by vessel strike.

A major contention during these proceedings was the significant and far-reaching impacts that overturning the BiOp without a replacement in place would cause for the offshore oil and gas industry. During the proceedings, BOEM reinitiated consultation with NMFS, and the government sought stay of the case and voluntary remand in an attempt to satisfy all parties and avoid such impacts. At this time, BOEM also attempted to assuage the environmental groups' concerns with respect to the Rice's whale by issuing a Notice to Lessees for expanded Rice's whale protection efforts, trying to incorporate such protections into new leases and attempting to block off millions of acres from potential drilling for the sake of Rice's whale protection. BOEM's attempts to hold lessees to such additional restrictions ultimately failed due to administrative errors during the lease sale and a parallel legal proceeding in which a Louisiana federal court held that BOEM's actions were unlawful.

Ultimately, the Court denied the government's request for voluntary remand and proceeded to issue a decision on the merits, vacating the BiOp and allowing the potentially substantial consequences to play out. After recognizing an immediate vacatur of the 2020 BiOp would "likely disrupt oil and gas activity in the Gulf [of Mexico] without necessarily mitigating the dangers to listed species," the Court ruled that the 2020 BiOp would be vacated on Dec. 20, 2024.

Potential Outcomes and Challenges

In its decision, the Court agreed that an immediate vacatur could have significant consequences and delayed vacatur of the BiOp to Dec. 20, 2024, in an attempt to give NMFS time to either issue a new BiOp or come up with a temporary solution until a new BiOp can be issued. However, NMFS had previously informed the Court that, while its ESA review was in progress, a new BiOp would not be issued until late winter/early spring 2025 at the earliest. Therefore, the Court's decision leaves a strong likelihood that there will be a gap between invalidation of the existing BiOp and issuance of a new BiOp. As indicated in both the government's and the intervenor industries' briefings, the impacts of this gap in ESA analysis coverage are far-reaching and potentially severe, leaving offshore oil and gas operators in a state of uncertainty.

The offshore oil and gas industry relies on various plans, permits and other approvals, largely issued by BOEM, BSEE and the Environmental Protection Agency (EPA), to support the structures and activities that make offshore oil production possible. In turn, most of the plans, permits and approvals were issued in reliance on NMFS' 2020 BiOp, ITS and RPA. Indeed, many of these decisions not only incorporate aspects of NMFS' analysis but even make compliance with the BiOp, ITS and RPA a condition of approval. Without the 2020 BiOp or any alternative that would have supported the approval, the validity of these decisions are in question. If these agency decisions are deemed invalid, offshore oil and gas operations could come to a halt, jeopardizing continued oil production in the GOM, which accounts for 15 to 20 percent of total U.S. crude oil production.

Furthermore, without the 2020 ITS or a replacement in place, offshore oil and gas operations could lead to an "unauthorized take" under Section 9 of the ESA. The 2020 ITS authorized incidental takes by operators during offshore oil and gas activities, provided that the operations were in compliance with the 2020 BiOp mitigation measures and the number of incidental takes was consistent with the ITS. Once the 2020 ITS is invalidated without a replacement, any "take" of an ESA-listed species (broadly defined as to "harass, harm, pursue, hunt, shoot, wound, kill, trap, capture or collect") or significant modification or degradation of a listed species' habitat could be construed as an unauthorized take in violation of the ESA, subjecting oil and gas operators to civil or even criminal responsibility under the ESA.

Thus, operators will have to decide whether they continue to operate at their own risk (with or without additional mitigation procedures aimed at protected endangered species like the Rice's whale), or shut down their activities while NMFS completes a new BiOp in accordance with the Court's opinion. Arguably, even shutting in platforms and ceasing activity may not completely eliminate enforcement or litigation risk because the very structures are permitted to be present within the OCS GOM pursuant to the lease and related plans that were issued in reliance on the 2020 BiOp. Also, even if shut in, operators would still have to perform certain activities (e.g., inspections, maintenance and monitoring required by regulation) and drive vessels to and from structures within the OCS to comply with BSEE's environmental and safety standards.

Additionally, agencies may halt administrative permitting and approval actions until the uncertainty has been addressed by NMFS, either by instituting a temporary measure or issuing a new BiOp, which may be unlikely given the ongoing efforts to develop and publish a permanent replacement to the 2020 BiOp. Without the 2020 BiOp, the agencies have no way to complete the requisite ESA analysis under Section 7 unless they undergo an individual ESA Section 7 consultation for every individual permit application or plan approval request, which BOEM has already indicated would be infeasible. Thus, new or pending applications for GOM oil and gas activities may stall or even come to a standstill during this period of uncertainty. Additionally, it is very unlikely that the agency will consider and decide on individual applications for incidental take permits (ITPs) under the ESA to cover incidental takes by each individual operator during the gap in coverage.

In the near term, it is likely that appeals may be filed to review and potentially stay the Court's decision. But, if the Court's decision stands and there is no new BiOp in place by Dec. 20, 2024, operators will be faced with a high degree of uncertainty and potential risk of enforcement or challenge by environmental groups. Given the significant consequences of the decision, the oil and gas industry may also advocate for legislative solutions, despite the looming election and potential "lame duck" congressional session anticipated later in the year.

Oil and gas operators should work closely with environmental counsel to review their activities in the OCS GOM that may be ongoing during the potential gap in coverage and develop a plan of action as soon as possible to mitigate these risks.