On April 27, 2012, Director of the Bureau of Safety and Environmental Enforcement ("BSEE"), James Watson, vacated NTL No. 2010-N05, originally issued on June 8, 2010.¹  BSEE's action stems from an appeal filed by Independent Petroleum Association of America ("IPAA") challenging the NTL's requirement that the Chief Executive Officers of federal offshore operators had to certify, on short notice and under threat of administrative sanction and criminal penalty, that their companies were in compliance with offshore regulations and had completed certain reviews of its operations. 

The vacatur of the NTL assures that the Department of the Interior cannot take any administrative enforcement action against the CEOs for any errors in the certifications.

CEO Certification Requirements   

Within the months following the loss of the Deepwater Horizon, the Department of the Interior ("DOI") issued several reports, directives, and memorandums detailing "safety recommendations" for offshore operators. One of the recommendations was that DOI, in conjunction with the Department of Homeland Security, "verify compliance by operators with existing regulations and [the] National Safety Alert." See "Increased Safety Measures of Energy Development on the Outer Continental Shelf" (May 27, 2010) at 26.

The National Safety Alert recommended that operators and drilling contractors inspect and review their control equipment, rig drilling/casing/completion practices, and emergency shutdown procedures. See "National Safety Alert on Deepwater Horizon Explosion and Fire Resulting in Multiple Fatalities and the Release of Oil" (Apr. 30, 2010) at 1.

On June 8, 2010, the DOI expanded these verifications and issued National Notice to Lessees and Operators of Federal Oil and Gas Leases, Outer Continental Shelf (NTL No. 2010-N05) ("NTL 2010-N05"). The National NTL required that the offshore operator certify that it was in compliance with various offshore regulations and had conducted specific reviews on its own operations in compliance with the National Safety Alert recommendations. 

But, related to those certifications, NTL 2010-N05 required that the CEO also certify that he/she "understand[s] that the submission of false statements to the United States is a criminal offense under 18 U.S.C. Section 1001." 18 U.S.C. § 1001 contains harsh penalties – he/she "shall be fined under the title or imprisoned not more than five years who knowingly and willfully:

1. falsifies, conceals, or covers up by any trick, scheme, or device a material fact;
2. makes any materially false, fictitious, or fraudulent statement or representation; or
3. makes or uses any false writing or document knowing the same to contain any materially false, fictitious, or fraudulent statement or entry."

CEOs were required to provide this certification within 20 days of the issuance of the issuance of the National NTL on June 8, 2010. If the CEOs failed to provide this certification, BOEMRE would issue an incident of non-compliance to the operator, which may result in a shut-in order. Notices of NonCompliance, under 30 C.F.R. 250.1453, must be corrected within 20 days, otherwise BOEMRE could issue a Notice of Civil Penalty, in the amount of $500 per violation per day, or in this case, about $2500 per day. If the violation was not corrected within 40 days, the penalty may be increased up to $5,000 per violation per day, up to a maximum of $20,000 per day. See 43 U.S.C. § 1350, 30 C.F.R. § 250.1453.     

IPAA's Appeal to the Board

IPAA timely appealed to the Interior Board of Land Appeals ("Board") concerning the CEO certifications, including the requirements that he/she must execute the certifications under threat of civil liability and criminal penalty. IPAA made two substantive arguments. 

First, the CEO certifications were substantive rules under the Administrative Procedure Act, which required BOEMRE to comply with notice and comment rulemaking requirements. Since BOEMRE failed to comply with the notice and comment rulemaking requirements, NTL 2010-N05 should be vacated. 

Second, if BOEMRE intended not to comply with notice and comment rulemaking requirements, it was required to provide a basis on which its failure to comply was subject to the good cause exception and include a finding and brief statement of reasons for why it did not comply. IPAA argued that BOEMRE failed to include this reasoning, and therefore, the National NTL should be vacated.

In response, BOEMRE filed a Motion to Dismiss, arguing that the issue was moot. BOEMRE initially argued that NTL 2010-N05 was no longer in effect or being enforced because of the judgment in Ensco Offshore Company v. Salazar, 10cv1941, in which the Court held that "NTL-N05 imposes additional duties on operators and lessees; it mandates new certifications and safety inspections that were not in place before; it does not simply track statutory language or reiterate existing duties. 

It is, by its very thrust, substantive. Notice and comment were required by law. The government did not comply, and the NTL-N05 is of no lawful force or effect." Although NTL 2010-N05 was never vacated, at that point, BOEMRE advised that it had stopped enforcing it.  Moreover, BOEMRE argued that three of the five certification requirements were superseded in October 2010 by a new rule: "Oil and Gas and Sulphur Operations in the Outer Continental Shelf – Increased Safety Measures for Energy Development on the Outer Continental Shelf," 75 Fed. Reg. 63346.

BOEMRE's additional argument was that the Board had no effective remedy with respect to potential criminal liability for an individual who makes a false statement. It argued, under Bryson v. United States, 396 U.S. 64 (1969), "whether [a statute or regulation] was unconstitutional or not is legally irrelevant to the validity of petitioner's conviction under [18 U.S.C.] § 1001, the general criminal provision punishing the making of fraudulent statements to the Government."

IPAA responded, advising the Board that even though NTL 2010-N05 was not being enforced and had been, at least partially replaced by the new rule, that the certifications which CEOs had previously executed were still in force and effect. Thus, until NTL 2010-N05 was vacated, CEOs who executed the CEO certifications remained at risk for civil liabilities or criminal penalties. In response to BOEMRE's second argument, IPAA stressed to the Board that it was not seeking the Board to enjoin future prosecution under 18 U.S.C. § 1001, but that the CEO certifications should never have been required in the first instance. 

BSEE Vacates NTL No. 2010-N05    

On April 20, 2012, the Board denied BOEMRE's Motion to Dismiss, and directed it to show cause as to why NTL 2010-N05 should not be vacated. On April 27, 2012, BOEMRE complied with IPAA's request to vacate the NTL. On that date, Director James Watson issued a memorandum stating that he was "by this memo, vacating and rescinding the "Safety NTL" (NTL No. 2010-N-5) of June 8th, 2010." On May 3, 2012, the Board issued an Order mooting the appeal based on BSEE's vacating of the NTL. 

Fulbright represented IPAA in the appeal.

This article was prepared by L. Poe Leggette (pleggette@fulbright.com, 303 801 2746 in Denver or 202 662 4646 in Washington, D.C.) and Jennifer Cadena of the firm's Energy Practice Group.

Learn more about Fulbright's Offshore Oil and Gas Task Force at www.fulbright.com/offshore.

1  The NTL was initially issued by the former Bureau of Ocean Energy Management, Regulation and Enforcement ("BOEMRE"). After IPAA filed its appeal, BOEMRE was reorganized. Responsibility for NTL No. 2010-N05 was subsequently transferred to the jurisdiction of BSEE.