Regulators explore back doors to ban drilling

Texas attorney general Ken Paxton has accused federal regulators of "weaponizing environmental law" to indirectly curtail oil and gas activities in key production areas. In a new lawsuit, Paxton is suing the US Fish and Wildlife Service for wrongfully designating the West Texas dunes sagebrush lizard under the Endangered Species Act (ESA), which is set to create significant obstacles for energy companies, even without explicitly banning drilling. 

The US Fish and Wildlife Service's justification for the lizard's endangered status cites "loss of habitat associated with oil and gas development" as a primary threat. While the strategic intent will be born out by court, it would follow a trend of regulators creatively applying rules to complicate or de facto ban new drilling activity. The approach is particularly potent as it shifts the burden of proof onto the industry and state, requiring them to demonstrate that their activities do not harm the protected species, or its habitat, or face fines up to $50,000 and potential criminal penalties.

The legal constraints associated with the listing go beyond merely avoiding the physical space occupied by the lizard. Under the ESA, activities like habitat fragmentation or alterations—whether through road construction or soil disruption—can be considered a "taking" of an endangered species if they impair essential behavioral patterns necessary for the lizard’s survival​.

The Service has clearly indicated that infrastructure traditionally integral to energy production, such as roads and pipelines, would likely constitute violations under the ESA, particularly because restoration of the lizard’s habitat—shinnery oak dunelands—has been deemed "not currently feasible" by federal regulators, resulting in any loss being classified as potentially permanent.

This decision could potentially limit, or prohibit, energy production leases in affected areas, directly impacting the industry's operations in the Permian Basin. Such a maneuver could also set a precedent that could be replicated in other oil and gas producing regions, using local flora or fauna as proxies to control industrial activity. 

The broader implications extend to the economic viability of energy extraction across the Permian Basin. Horizontal drilling has been touted as a potential workaround to minimize disruption to the lizard’s habitat, allowing operators to access reserves without disturbing the surface directly above critical areas​. However, this approach is significantly costlier and may not always be practical given the geographic and economic conditions of the Basin. 

The lawsuit filed by Texas challenges not only the scientific basis of the listing but also the agency's consideration of existing conservation efforts, suggesting a disconnect between federal regulations and industry-led environmental initiatives. As this legal battle unfolds, it will likely shape the future regulatory landscape for the energy sector, potentially forcing companies to navigate an increasingly complex web of environmental restrictions that indirectly, but significantly, impact their core operations.