A Maryland Court Ruling Endangers Gulf Oil Production – Here’s What You Need to Know

Click here for a shareable sheet on how the court’s decision on the National Marine Fisheries Service’s Biological Opinion (BiOp) could impact US energy production.

In August 2024, a U.S. district court ruled in favor of environmental groups in a pivotal court case for energy production in the Gulf of Mexico. The ruling in this court case has been met with vehement opposition from federal agencies and energy industry players alike, stating that the court’s decision could bring energy production in the Gulf to a screeching halt.

What happened?

The U.S. District Court for the District of Maryland vacated the U.S. Department of Commerce, National Marine Fisheries Service’s (“NMFS”) 2020 programmatic Biological Opinion on the Federally Regulated Oil and Gas Program Activities in the Gulf of Mexico (the “2020 BiOp”) as part of the case Sierra Club et al. v. NMFS, API, et al.

The BiOp assessed risks to marine species, including an endangered whale species (Rice’s Whale) found in the Gulf, and implemented mitigation measures for their protection. The court found the BiOp insufficient in safeguarding the whale species and set a deadline of Dec. 20 for NMFS to issue a new opinion, at which point the 2020 BiOp will be vacated.

The 2020 BiOp was originally challenged by the environmental groups (Sierra Club, Center for Biological Diversity, Friends of the Earth, and Turtle Island Restoration Network) in 2021, but litigation has continued to drag on for several years, until this most recent turn of events.

On September 16, 2024, NMFS filed a motion to alter or amend the judgment, which included declarations by NMFS, BSEE, and BOEM, and requested that vacatur of the 2020 BiOp be delayed until May 2025.

Just a few days later, on September 12, 2024, The American Petroleum Institute (API), EnerGeo Alliance, National Ocean Industries Association (NOIA), and Chevron U.S.A. Inc. also appealed the court’s decision. In a press release, API states:

“By vacating the biological opinion without allowing enough time for NMFS to issue a revised opinion, this court decision threatens to significantly slow down or halt all permits for routine, daily operations. This leaves current and future energy production at risk and undermines worker safety and environmental protection efforts.”

What are the legal and regulatory implications of the court ruling?

The U.S. District Court for the District of Maryland’s rule to vacate the NMFS’ BiOp in the Gulf of Mexico may halt new and existing oil and gas production and activity in the region.

While NMFS has until Dec. 20, 2024, to issue a new opinion, NMFS has already stated that it does not anticipate completing a new BiOp until May 2025.

The original intention of the BiOp was to serve as the Endangered Species Act consultation for most oil and gas operations in the Gulf of Mexico, with only a limited number of measures requiring additional review by federal agencies. However, without a BiOp in hand, aligning with the Endangered Species Act becomes an extremely intensive process.  In the interim period where a BiOp is not in place, hundreds – if not thousands – of permits and projects would need to undergo individual and intensive environmental reviews.

There is further concern for future Gulf lease sales. Specifically, the sole scheduled Gulf lease sale for 2025 could be delayed or blocked while NMFS works on a new BiOp. This delay would be especially significant given the administration’s five-year offshore leasing program includes only three Gulf lease sales, scheduled for 2025, 2027, and 2029.

The potential fallout from this court ruling: Risking U.S. energy security & the Gulf Coast economy

Offshore oil production in the Gulf is a significant driver of US oil production. The U.S. Energy Information Administration (EIA) reports that federal offshore oil production in the Gulf of Mexico accounts for 14 percent of total U.S. crude oil production, and federal offshore natural gas production in the Gulf accounts for 5 percent of total U.S. natural gas production. Moreover, the Gulf of Mexico is the nation’s primary source of offshore oil and natural gas production, accounting for 97 percent of all oil and natural gas production in offshore waters.

By impeding energy production in the Gulf of Mexico, American energy security is on the line. In March 2024, the United States produced more crude oil than any nation at any time, for the past six years in a row. To maintain the American stronghold and dominance of crude oil production, the United States will need offshore production.

The National Ocean Industries Association (NOIA) President Erik Milito best summarized the importance of offshore production in the Gulf of Mexico:

“The Gulf of Mexico produces a massive amount of energy with a remarkably small footprint, and its continued success is critical for our energy security, national security, and energy affordability.”

The Gulf of Mexico is a leader in lower-carbon energy production. One 2022 report from McKinsey found that the Gulf of Mexico releases less than half of the emissions per barrel compared with other major basins. A similar finding can be found in a study focusing on global oil production emissions, commissioned by NOIA. The study revealed that the greenhouse gas intensity of U.S. oil production, particularly in the U.S. Gulf of Mexico, is “significantly lower compared to most other regions around the world.” The study stated that:

“The U.S. Gulf of Mexico has a carbon intensity 46 percent lower than the global average outside of the U.S. and Canada, outperforming other nations like Russia, China, Brazil, Iran, Iraq, and Nigeria.” [emphasis added]

These production figures become particularly vital when looking at the continued growing US demand for oil. Demand for gasoline alone rose to 9.40 million bpd – the highest it has been since August 2019. Oil produced in the Gulf is also essential to the many refineries along the Gulf’s shores, providing vital feedstock. Restricting the supply of domestically produced energy could significantly drive up energy prices and create an opening for countries like Russia and Iran to establish a geopolitical advantage.

As Sen. Bill Cassidy (R-LA) put it, this court decision delivers “death by a thousand cuts”, crippling Gulf of Mexico offshore energy production and potentially devastating the Gulf shore communities that rely on the industry.

Energy production in the Gulf of Mexico supports thousands of jobs; offshore oil and natural gas development alone creates 412,000 jobs. These direct jobs are meaningful and well-paying, having an average wage of $69,650 a year – almost 30 percent higher than the national average salary.

As NOIA’s 2020 economic impact study on the Gulf of Mexico development explains:

“In 2019, the Gulf of Mexico oil and natural gas industry contributed an estimated $28.7 billion of to the U.S. economy. The industry is projected to contribute an average of $31.3 billion of GDP per year across the forecast period [2020-2040].”

Energy production in the Gulf generates $364 million in state & local revenues, leading to $6.1 billion in federal revenue, that eventually contributes to funding conservation efforts, notably the Land and Water Conservation Fund (LWCF) – a bipartisan initiative to safeguard natural areas, water resources and cultural heritage through the creation and preservation of national parks like the Grand Canyon and the Great Smoky Mountains.

What They Are Saying:

Government officials & federal agencies

• Bureau of Ocean Energy Management (BOEM)
  • “… due to the fact that many of the same staff that perform environmental reviews of the oil and gas permit applications also review renewable energy program activities and conduct federal consultations for these programs, project-specific ESA consultations would likely lead to delayed decisions on BOEM’s renewable energy program.” (BOEM Deputy Director, Dr. Walter Cruickshank, 4/19/2024)
• Bill Cassidy (R-LA)
  • “When the courts do these actions. They are against the American worker. They are against the American economy. They’re also, by the way, since U.S. natural gas helps lower global greenhouse gas emissions. They’re against the world environment. And they also say they’re against our allies because our gas supports countries like Germany. It’s overactive courts doing a heck of a lot of damage.” (Sen. Bill Cassidy, 9/3/2024)

Trade associations

• Independent Petroleum Association of America (IPAA)
  • “Independent oil and natural gas producers operating in the Gulf of Mexico adhere to the highest environmental and safety standards as they produce vital energy for Americans. If production in the area were to stop, the United States’ energy security and supply would be severely impacted, along with the livelihoods of all those who work in the offshore oil and natural gas industry and in gulf state communities. IPAA urges quick action to ensure continued offshore oil and natural gas production in the Gulf of Mexico.” (Chief Operating Officer, Dan Naatz, 9/10/2024)
• American Petroleum Institute (API), EnerGeo Alliance, the National Ocean Industries Association (NOIA), and Chevron
  • “American oil and natural gas production in the Gulf of Mexico is a driving force of energy security here in the U.S. and around the world, supports hundreds of thousands of jobs and generates billions for state and local revenue. If this ruling is left uncontested, a critical source of current and future U.S. energy supply could be in jeopardy at a time of persistent inflation and geopolitical instability.” (9/12/2024)
• Kosmos Energy Gulf of Mexico
  • “If, as the Court has ordered, the BiOp and ITS are vacated as of December 20, 2024, and a new BiOp and ITS are not completed until August 2025, then my understanding is that Kosmos’ permit applications would almost certainly not be granted until sometime after the new Bi Op and ITS were issued. That would irreparably harm Kosmos because of delayed drilling and completion activities in the GOM; economic losses to the company; risks to workers and public health and safety; loss of oil and gas production; negative consequences associated with any cancellation or breach of contracts with other parties…” (Vice President and Assistant Secretary, Tom Young, 9/10/2024)
• Oceaneering International Inc.
  • “The halt of our operations, resulting from cancelled contracts or any other decisions necessitated by a “gap” in ESA coverage, would have significant adverse ramifications for Oceaneering, including but not limited to, incurring significant economic losses, breaching contracts and damaging relationships with long-time operators and suppliers, the elimination of jobs, creating financial and logistical challenges of stopping and resuming operations, and dealing with similar related effects to all onshore operations. The full financial impact of these consequences is difficult to predict with precision. What is certain is that the financial impact will be very substantial and will negatively affect Oceaneering and its employees. Those financial impacts will not be recoupable.” (Senior Vice President, Christopher J. Dyer, 9/10/2024)
• Hornbeck Offshore Services
  • “The harm to Hornbeck Offshore is irreparable… First, the advantages of being a Jones Act qualified vessel are lost once the vessel is competing internationally… Hornbeck Offshore would not have constructed vessels in a U.S. shipyard if it believed that the vessel is slated to operate in international waters only. Because a vessel has a useful life of approximately twenty years, each day that a Hornbeck Offshore Jones Act vessel is forced to operate internationally due to a gap in ESA coverage is a day that it has lost its ability to assert its Jones Act advantage for that vessel… 72 percent of global deep-water operations are located in the United States and Mexican Gulf of Mexico, Brazil and other South American waters. In most of these jurisdictions, Hornbeck Offshore will be forced to relinquish its U.S. flag in order to compete effectively. Under U.S. law, such a reflagging permanently bars the vessel from regaining its Jones Act trading privileges in the United States. The loss of Jones Act pedigree on account of being forced to seek work abroad cannot be recovered, and is irreparable.” (Executive Vice President, General Counsel, and Secretary, Samuel Giberga, 9/10/2024)
• Energy Workforce & Technology Council
  • “The recent decision to vacate the BiOp poses a potentially grave threat to America’s energy security and economic prosperity. […] This misguided ruling could shut down oil and gas operations across the Gulf of Mexico and jeopardize hundreds of thousands of jobs and billions in economic activity.” [emphasis added]
  • “Abruptly halting these operations would have devastating consequences for energy prices, national security, and American families already struggling with inflation. We urge immediate action to prevent any interruption of Gulf energy operations.” [emphasis added] (President, Tim Tarpley, 9/10/2024)
• US Oil and Gas Association
  • “If allowed to go into effect, this decision is about to cause massive price shocks across all sectors of our economy and every business, small and large, from manufacturing and agriculture to transportation and technology, will feel it.”
  • “National security and our balance of trade are about to be impacted. Worst of all – within weeks, millions of low- and moderate-income families will find themselves pushed back into energy poverty. Immediate action must be taken to overturn this ruling.” (President, Tim Stewart, 9/10/2024)
• National Ocean Industries Association
  • “The potential for this ruling to cause disruptive economic consequences for the United States and energy markets as a whole cannot be understated.”
  • “Any disruption due to vacatur of the 2020 Biological Opinion could not only impact hundreds of thousands of energy workers in the region but would potentially increase energy insecurity by jeopardizing oil production coming from the Gulf of Mexico, which is responsible for nearly 15% of total U.S. crude production. Immediate action is now required to avert a potentially devastating coverage gap for offshore oil and gas operations in the U.S. Gulf of Mexico.” (President, Erik Milito, 9/10/2024)
• Western Energy Alliance
  • “Western Energy Alliance, which represents the Rocky Mountain West, stands in solidarity with our sister associations and companies in the Gulf of Mexico.”
  • “We have likewise seen how judges far removed from production areas have underappreciated the local economic and social impacts of their rulings in other states. Further, the ruling went far beyond what even the environmental plaintiffs thought was reasonable. We hope the appellate court will appreciate the cascading impacts and the long timelines for corrective action.” (President, Kathleen Sgamma, 9/10/2024)
• International Association of Drilling Contractors
  • “The arbitrary December 2024 deadline is woefully inadequate for developing a sustainable solution. It’s imperative that Congress and the Administration provide the National Marine Fisheries Service with sufficient time and resources to conduct a thorough, science-based review. Rushing this process risks compromising both environmental protections and energy security”. (President, Jason McFarland, 9/10/2024)

The court’s decisions was misguided, and puts American energy and communities at risk.  

The recent U.S. district court ruling to vacate the National Marine Fisheries Service’s 2020 Biological Opinion has significant implications for energy production in the Gulf of Mexico. The decision has raised concerns about the future of offshore oil and gas development, which is critical for U.S. energy security and the Gulf Coast economy. With the potential delay of new permits and the suspension of future lease sales, the ruling threatens to disrupt an industry that supports hundreds of thousands of jobs, contributes billions to the U.S. economy, and plays a crucial role in meeting growing energy demands. The outcome of this legal battle, including NMFS’s efforts to issue a revised BiOp, will be pivotal in determining the future of offshore energy production in the region and its broader impact on the national economy and environmental conservation efforts.

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