Dunleavy administration sues federal government in ‘novel’ challenge of lost North Slope oil revenue

The Dunleavy administration sued the federal government this week, arguing that Alaska is owed $25 billion in lost state revenue from the Biden administration’s decision to cancel oil and gas leases on the North Slope.

Alaska oil and gas attorneys say the lawsuit, filed Tuesday, is a somewhat novel approach to seeking compensation from the federal government. The Dunleavy administration filed a similar lawsuit in March, claiming billions of dollars in lost revenue from the Environmental Protection Agency’s decision to halt the proposed Pebble Mine.

In January 2021, the first-ever oil and gas lease sale in the Arctic National Wildlife Refuge failed to live up to decades of hype. The lease sale raised $14.4 million in bids, with the vast majority of winning bids submitted by a state-owned development corporation.

President Joe Biden took office weeks later. His administration suspended those leases, then canceled them entirely — offering compensation to the companies and the state development corporation that held the leases. A slew of lawsuits have since been filed, challenging the Biden administration’s cancellation of the leases and its management of the National Petroleum Reserve in Alaska more generally.

One lawsuit dismissed by U.S. District Court Judge Sharon Gleason in August last year challenged the Department of the Interior’s decision to temporarily suspend leases in ANWR.

Trustees for Alaska, an environmental group involved in that lawsuit, said on Wednesday that the Department of the Interior had canceled the leases after identifying significant “violations” of laws intended to protect the health of the Coast Plain’s land and animals, and the people who rely on them.

“This latest lawsuit by the State of Alaska appears to be a thinly-veiled attempt to ignore the seriousness of those legal flaws and Interior’s current work to address them,” said Suzanne Bostrom, a senior staff attorney at Trustees for Alaska, in a prepared statement by email.

Tuesday’s lawsuit doesn’t seek to challenge the legality of the lease cancellations. Instead, the 18-page complaint, filed in the U.S. Court of Federal Claims in the District of Columbia, says that “this lawsuit seeks to compel the United States to face the logical and legal consequences of its policy decision.”

The state argues that the leases should only have been relinquished by the federal government if they had failed to produce oil or gas. And that the state potentially stands to lose billions of dollars in revenue from the lease cancellations.

“Billions of dollars in revenue that would have benefitted the education, health, and wellbeing of all Alaskans,” the state’s complaint says.

Brad Keithley, an oil and gas attorney with decades of experience practicing law in Alaska, said the Dunleavy administration has taken “a somewhat novel approach of pursuing damages rather than continuing to seek to reverse the decision to cancel the leases.”

”However, I doubt that will be any more successful than suing to reverse the cancellation,” he said.

When asked whether the Alaska Department of Law could point to other states that had secured compensation from the federal government using a similar legal argument, Ron Opsahl, a senior state assistant attorney general, said that “we are unaware of any other time where the federal government has violated its statutory duties so flagrantly that a state has had to make these arguments.”

He said that the lawsuit could technically be considered a “case of first impression,” meaning a legal argument essentially untested in court.

“However, the legal theories relied upon by the State in this case are well founded and align with the statutory and regulatory framework established by federal law,” Opsahl said.

The state’s complaint says that 3.4 billion barrels of oil could be produced from the Coastal Plain, netting the state up to $25 billion. But Keithley was skeptical about those revenue claims and the requests for damages.

“It is far, far from clear that the leases would ever have been developed, and thus, any significant damages are highly speculative, something courts do not favor,” he said by text message. “The suit seems more about making a political statement than pursuing a likely legal remedy.”

Opsahl said by email that there were fundamental differences between the North Slope lease legal challenge, and the March lawsuit seeking federal compensation for the Pebble deposit. He said the Pebble case was about the state seeking protections for its rights as a landowner, and compensation for an unconstitutional taking by the federal government.

In that 20-page claim, the state said it projects to lose $700 billion of revenue, or $700 million per year for 100 years. But the math doesn’t appear to add up. $700 million per year for 100 years would equal $70 billion.

“We apologize for the confusion on this point,” the Department of Law said in a statement.

The state had projected collecting $700 million in revenue from the mine; $700 billion represented the value in state land and minerals left in the ground. The two ideas were erroneously conflated in the complaint, the department said.

“And, while we cannot point to a case where another state had to assert these rights, there are many cases where private land owners have made the same claims, albeit not rising to the same level of compensation. The legal theories are well settled and should apply in these two cases,” Opsahl said by email.

Attorney General Treg Taylor said in the two cases, the state is “not pushing novel interpretations of the law or creating new rights or obligations.”

“We’re simply applying well-established precedent to particularly egregious facts and asking the Court to require the United States fully account for its policy decisions, especially when those decisions bring real economic impacts to Alaska and Alaskans,” Taylor said in a prepared statement by email.

On the same day the state filed its Pebble legal challenge in March, Northern Dynasty Minerals, which has worked for two decades to develop the Pebble deposit, filed a similar claim for $700 billion in damages from the federal government using a similar legal theory in the same U.S. Court of Federal Claims.

Environmental groups sharply criticized the Dunleavy administration’s Pebble lawsuit. Tim Bristol, executive director of SalmonState, said in March that “this is political posturing at its worst and pure legal fantasy.”

“The State’s legal filing is unhinged, sounding more like conspiratorial rantings from some dark corner of the internet than a legitimate legal argument,” Bristol said in a prepared statement at the time.

Davis Graham & Stubbs, a Colorado-based law firm, is representing the state of Alaska in its lawsuit challenging the North Slope lease cancellations. Consovoy McCarthy, a Virginia-based law firm, is appearing on behalf of the state for the Pebble mine legal challenge.

A spokesperson for the Alaska Department of Law did not immediately provide the state’s contracts with outside counsel in response to a request made Tuesday.