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Does the Bureau of Land Management have the discretion to preserve wilderness values even on lands that lie outside designated wilderness and wilderness study areas?

That question is under debate in yet another expensive lawsuit Utah is litigating against the federal government.

Joined by Uintah County and the Utah Association of Counties, the state alleges the BLM has imposed "de facto wilderness management" on unprotected land that agency inventories describe as having "wilderness characteristics."

Such a policy has unlawfully foreclosed oil and gas leasing and rights-of-way applications on lands that should be open but are proposed for protection under the long-shot America's Red Rocks Wilderness Act, according to attorney Constance Brooks, who argued Uintah County's case Friday before U.S. District Judge Dee Benson.

Uintah and other counties have been excluded from key management decisions, she said.

"If you change management criteria," Brooks argued, "you have to amend the [land use] plan and that's when you have to consult with local government. Something is out of whack here."

Environmentalists say the state's position poses ramifications that extend far beyond the Red Rocks proposals.

"If the state and counties prevail in this case, Interior can manage all the uses on public land except for wilderness," said Steve Bloch, legal director for Southern Utah Wilderness Alliance. "That means BLM would be forced to open up some of the most remarkable lands in the West to extractive development."

At issue are leasing reforms the Obama administration adopted after a 2009 decision to rescind dozens of oil and gas leases sold in the waning months of the George W. Bush administration. These were among the leases Utah climate activist Tim DeChristopher monkey-wrenched with phony bids.

Then-Interior Secretary Ken Salazar concluded his predecessor had offered numerous leases near Utah national parks without adequate review and issued orders to better vet the parcels that industry "nominates" for energy development.

On Friday, federal lawyers, along with environmental groups that have intervened in the dispute, asked the court to dismiss the state's suit, arguing Utah has failed to state an actionable injury arising from these policies. This is because the BLM has made no final agency decision to not lease the lands in question, but is using its legal discretion to "defer" a decision while it reviews them for their conservation values, argued Assistant U.S. Attorney Sara Porsia and Heidi McIntosh of Earthjustice.

Regardless, oil and gas production is up in Utah since 2008 and the BLM has authorized some of the disputed rights of way applications and is conducting reviews of the rest. Lawyers also said industry often fails to bid on parcels offered or fails to drill leases it does acquire.

Benson, who is also the judge who sentenced DeChristopher to prison for two years, took the matter under advisement after Friday's hearing. A ruling for the state would simply keep the suit alive.

At stake is industry's access to about a third of the land covered in the 9 million-acre Red Rocks bill, according to Assistant Utah Attorney General Harry Souvall. These are lands not currently under wilderness study and are available to oil and gas leasing under the BLM's various resource management plans. To support the case that the BLM's new leasing rules hurt local governments financially, Souvall claimed oil and gas production on Utah's federal lands and related revenues are drying up.

The state's half share of royalties from oil and gas production declined from $173 million in 2009 to $120 million in 2012, for example. But this drop came in the face of steady production levels and is attributable to a drop in natural gas prices due to a market glut, responded federal lawyers.

Souvall also said the one-time "bonus" payments industry paid for federal leases in Utah dropped from $40 million to $10 million between 2006 and 2010. But Porsia said picking these years creates a false picture of decline, when in fact these payments fluctuate widely from year to year. For example, such payments netted $6.4 million in 2005 and $40.3 million in 2012.