Maralex Res., Inc. v. Barnhardt
Opinion
*1192 Plaintiffs Maralex Resources, Inc. (Maralex), Alexis O'Hare and Mary C. O'Hare (the O'Hares) filed this action against the Secretary of the Department of the Interior (Secretary), the Department of the Interior, and the United States seeking review of a decision of the Interior Board of Land Appeals (IBLA) upholding four Notices of Incidents of Noncompliance that were issued by the Bureau of Land Management's (BLM's) Tres Rios Field Office to Maralex for failing to allow a BLM representative to access certain oil and gas lease sites operated by Maralex on land owned by the O'Hares. The district court affirmed the IBLA's decision. Plaintiffs now appeal.
Exercising jurisdiction pursuant to
I
The Parcel and its component Tracts
At issue in this case is a 320-acre parcel of land (the Parcel) that is located in the S1/2 of Section 35, Township 34 South, Range 7 West in La Plata County in southwestern Colorado. The Parcel, which is comprised of 240 acres of private surface/mineral estate and 80 acres of Indian surface/mineral estate, lies over the Ignacio Blanco gas field and the Fruitland coal formation.
The O'Hares own the surface and mineral estate in a 120-acre tract of land in the SW1/4SE1/4 and E1/2SW1/4 of the Parcel (the O'Hare Tract). The Southern Ute Indian Tribe (Tribe) holds the surface and mineral estate in the W1/2SW1/4 of the Parcel (the Tribe Tract). The remainder of the Parcel (the Remainder Tract)-the N1/2SE1/4 and SE1/4SE1/4-is privately-owned by the O'Hare family, J. Elmer and Wanda Lee Kenner, and Irma Rowse.
The leases of the Tracts
On June 6, 1974, the Tribe, acting pursuant to the Indian Mineral Leasing Act of 1938, 25 U.S.C. §§ 396a - 396g (2012), issued to Sun Oil Company an Indian oil and gas lease, Mining Lease Contract No. MOO-C-1420-1531, for its mineral estate in the Tribe Tract. Amoco Production Company (Amoco) later took over as the lessee.
On April 28, 1995, the O'Hares issued to Maralex 1 a private oil and gas lease for *1193 the O'Hare Tract. SG Interests III, Ltd. (SG III) later joined Maralex as co-lessee.
The O'Hares, Kenners, and Rowse issued three private oil and gas leases covering the Remainder Tract. SG III and Maralex became the lessees of those leases.
The Communitization Agreement
In 1996, all of the parties (SG III, Maralex, the Tribe, the O'Hares, Kenners, and Rowse) "communitized" their coal and gas interests in the Parcel under the terms of a written agreement. More specifically, in a written Communitization Agreement (CA) dated May 1, 1996, the parties agreed to develop and operate the Parcel "as an entirety, with the understanding and agreement ... that all Communitized Substances produced therefrom [would] be allocated among the leaseholds comprising said area in the proportion that the acreage interest of each leasehold bears to the entire acreage interest committed to [the CA]." Aplt. App. at 3. The CA further stated, in pertinent part, that "[t]he royalties payable on Communitized Substances allocated to the individual leases comprising the [Tract] ... shall be determined and paid on the basis prescribed in each of the individual leases."
Two other provisions of the CA are relevant to this case. First, the CA stated: "This agreement shall be subject to all applicable Federal and State laws or executive orders, rules and regulations ...."
The CA was approved by the Tribe and the Bureau of Indian Affairs (BIA) effective May 1, 1996.
The wells operating under the CA
There are four wells associated with the CA and arising from the underlying leases, all of which are operated by Maralex. The four wells are physically situated in two areas on the O'Hares' private surface estate in the O'Hare Tract. Each such area is enclosed by a fence and a locked gate. All four of the wells are producing "both fee and Tribal minerals" from the Fruitland coal formation.
BLM's attempt to inspect the wells
On February 11, 2013, Gabriel Trujillo, a Petroleum Engineering Technician employed by the BLM, sent an email to Maralex stating that he planned to inspect the four wells. On February 12, 2013, Christi Reid, a Maralex employee, responded by email, noted that the wells were situated "on Mickey O'Hare's property," and stated that she envisioned "problems with him granting access" to Trujillo.
On February 22, 2013, Trujillo drove to the Parcel in an attempt to examine the *1194 wells. Upon arrival, Trujillo found that there was a locked gate that prevented him from examining the wells. That same day, Trujillo spoke by phone with Mickey O'Hare. O'Hare informed Trujillo that he had no right to inspect the wells because O'Hare owned both the surface and mineral rights.
BLM's issuance of INCs to Maralex
On February 26, 2013, Trujillo completed four official BLM forms entitled "Notice of Incidents of Noncompliance" (INC).
Maralex's administrative appeal of the INCs
On March 27, 2013, a law firm representing Maralex and the O'Hares sent a letter to BLM appealing the four INCs. The letter asserted that the BLM had misinterpreted its authority to inspect oil and gas wells located on private land. More specifically, the letter asserted that the BLM "ha[d] limited authority to inspect facilities on Fee Tracts" and that the applicable regulations "only allow[ed] annual inspections" of such wells.
On April 10, 2013, the BLM notified Maralex's counsel that it was treating the March 27, 2013 letter "as a request for State Director's review (SDR) ... under 43 CFR 3165.3."
On July 9, 2013, the BLM's Deputy State Director, Energy, Lands, and Minerals, Colorado State Office, sent a letter to Maralex's counsel responding to each point raised by Maralex's counsel. The letter disagreed that the applicable regulations allowed only for "annual inspections for fee tracts in a CA."
Section 101(b) of the Federal Oil and Gas Royalty Management Act of 1982 (FOGRMA) provides that, " Authorized and properly identified representatives of the Secretary may without advance notice, enter upon, travel across and inspect lease sites on Federal or Indian lands and may obtain from the operator immediate access to secured facilities on such lease sites, for the purpose of making any inspection or investigation *1195 for determining whether there is compliance with the requirements of the minearal [sic] leasing laws and this Act."
Upon review, the four INCs covering denied access to the subject wells were properly issued and are upheld. The stay of enforcement action granted in our April 10, 2013, letter to Maralex is hereby lifted.
Maralex must provide the BLM Tres Rios Field Office access without advance notice as required by the INCs and the regulations. If Maralex chooses not to provide access as required, Maralex will be subject to assessments pursuant to 43 CFR 3163.1. In addition further non-compliance shall result in proposed civil penalties pursuant to 43 CFR 3163.2(e)(1).
On August 20, 2013, Maralex's counsel sent the BLM a notice of appeal of the July 9, 2013 decision.
On July 10, 2015, the IBLA issued a written decision affirming the BLM's July 9, 2013 decision. In doing so, the IBLA did not address whether plaintiffs were required to provide the BLM with a key or allow the BLM to install its own locks on Maralex's gates, nor did the IBLA address plaintiffs' constitutional arguments.
The district court proceedings
On September 1, 2015, Maralex and the O'Hares initiated these proceedings by filing a complaint in federal district court against the Secretary, the Department of the Interior, and the United States. The complaint sought reversal of the IBLA's decision, as well as declaratory relief.
On October 19, 2017, the district court issued an order affirming the IBLA's determination. Plaintiffs now appeal.
II
Plaintiffs raise two issues on appeal: (1) whether they waived their argument that the BLM lacked authority to require them to provide the BLM with keys to the locked gates on the O'Hares' private property or, alternatively, to allow the BLM to place its own locks on those gates; and (2) whether the BLM has statutory or regulatory authority to require plaintiffs to provide *1196 the BLM with keys to locked gates on privately-owned lands or, alternatively, to allow the BLM to place its own locks on such gates. 2 As discussed in more detail below, whether plaintiffs waived their argument is a close question, but assuming they did, we nevertheless exercise discretion to address the underlying issue. We in turn conclude that BLM lacked authority to impose the "key or lock" requirement.
Did plaintiffs waive their argument that the BLM lacked authority to require them to provide keys to their locked gates or to allow the BLM to place its own locks on those gates?
As noted, plaintiffs first argue that the district court erred in concluding that they waived their argument that the BLM lacked authority to require them to provide the BLM with keys to locked gates or to allow the BLM to place its own locks on those gates. The district court concluded that plaintiffs "did not present to the IBLA this particular argument that the BLM's corrective action exceeded its authority." Aplt. App. at 207-08. The district court in turn concluded "that Plaintiffs waived this argument for purposes of this appeal and [it] decline[d] to consider it."
To resolve this issue, we begin by turning to the record. Plaintiffs, in their initial appeal of the INCs, "claim[ed] that BLM ha[d] no statutory authority or legitimate justification giving the BLM unbridled discretion to search the subject well facilities in order to ensure site security and proper measurement" and that, consequently, "the BLM's request for a key to any gates to conduct inspections [wa]s in violation of Maralex's constitutionally guaranteed protection against unreasonable searches under the Fourth Amendment." Aplt. App. at 90.
In their appeal to the IBLA from the State Director's decision denying their initial appeal, plaintiffs argued, in pertinent part, that "there [wa]s no statutory authority nor ... any legitimate justification for giving the BLM unbridled discretion to search the facilities at issue at any time and without notice," and that, consequently, "BLM's request for a key to any gates to conduct unannounced inspections [wa]s violative of Maralex's constitutionally guaranteed protection against unreasonable searches under the Fourth Amendment."
In our view, it is a close question whether plaintiffs presented their argument to *1197 the IBLA that BLM exceeded its statutory and regulatory authority by requiring a key or lock in the INCs. On the one hand, plaintiffs clearly argued, as part of their Fourth Amendment challenge, that the BLM lacked both statutory and regulatory authority to impose the key/lock requirement. On the other hand, plaintiffs expressly asserted before the IBLA that it lacked authority to address their Fourth Amendment challenge and they asked the IBLA not to consider it.
Even assuming, however, that plaintiffs failed to properly present to the IBLA their argument that the key/lock requirement exceeded the BLM's statutory and regulatory authority, we nevertheless choose to exercise our discretion to address that issue.
3
See
U.S. Nat'l Bank of Oregon v. Indep. Ins. Agents of Am., Inc.
,
In this case, the issue of the BLM's statutory and regulatory authority has been fully briefed and argued in this court by both sides. Further, the factual record is essentially undisputed and, thus, we are presented with only a question of law. Lastly, and perhaps most importantly, the BLM has indicated its intention to enforce the key/lock requirement at the conclusion of this litigation. On October 22, 2018, we issued an order to show cause directing the parties to address, in pertinent part, the question of whether the BLM was continuing to require Maralex to provide the BLM with a key to the lock on the O'Hares' gate or to allow the BLM to place its own lock on the gate. On December 18, 2018, defendants responded that, indeed, "BLM continues to require Maralex to either provide the agency with a key to the lock on the O'Hares' gate or allow BLM to place its own lock on the gate." Aple. Resp. to Order to Show Cause at 2. Defendants asserted that, "[i]n the absence of compliance with the [key/lock requirement] in the INCs, Mr. O'Hare may refuse BLM access to the wells at any time, as he did in February 2013 (which led to BLM's issuance of the INCs)." Id. at 3. Thus, despite the fact that the INCs were issued nearly six years ago, it is clear that the BLM intends to enforce the key/lock requirement once this litigation ends. For this reason, we conclude that the interests of justice are best served if we address the merits of plaintiffs' argument that BLM
*1198 lacks statutory and regulatory authority to impose the key/lock requirement.
Does the BLM have authority to require a landowner or operator to provide the BLM with keys to the landowner's locked gates or allow the BLM to place its own locks on the landowner's gates?
We now turn to the merits of plaintiffs' argument. Plaintiffs assert that, even assuming some statutory or regulatory authority exists for the BLM to conduct inspections on fee lands without advanced notice, "there are limits to such inspections." Aplt. Br. at 40. Plaintiffs point to the language of
Defendants argue, in response, that "the INCs' corrective action requiring Plaintiffs to provide BLM with key or lock access is permissible under the statute and the regulations." Aple. Br. at 39. In particular, defendants assert that "FOGRMA and its implementing regulations provide that any person who fails to allow authorized inspections is liable for penalties, which may not be applied if the liable person takes the prescribed corrective action within the required timeframe."
a) Standard of review
Although this is an appeal from the district court's decision, we accord no particular deference to that decision. Instead, we conduct our own independent review of the agency's decision.
Exxon Mobil Corp. v. Norton
,
When reviewing an agency's interpretation of a statute it administers, we first determine whether Congress has directly spoken to the precise issue.
See
Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc.
,
b) Analysis
We begin our analysis by briefly examining the overall statutory and regulatory scheme for inspections of oil and gas lease sites that implicate Indian mineral interests. In § 1702 of FOGRMA, Congress set forth the following definitions that are relevant to understanding the substantive provisions of the Act:
(1) "Federal land" means all land and interests in land owned by the United States which are subject to the mineral leasing laws, including mineral resources or mineral estates reserved to the United States in the conveyance of a surface or nonmineral estate;
...
(3) "Indian lands" means any lands or interest in lands of an Indian tribe or an Indian allottee held in trust by the United States or which is subject to Federal restriction against alienation or which is administered by the United States pursuant to section 14(g) of Public Law 92-203 [43 USC § 1613 (g) ], as amended, including mineral resources and mineral estates reserved to an Indian tribe or an Indian allottee in the conveyance of a surface or nonmineral estate, except that such term does not include any lands subject to the provisions of section 3 of the Act of June 28, 1906 (34 Stat. 539 ) [unclassified];
...
(5) "lease" means any contract, profit-share arrangement, joint venture, or other agreement issued or approved by the United States under a mineral leasing *1200 law that authorizes exploration for, extraction of, or removal of oil or gas;
(6) "lease site" means any lands or submerged lands, including the surface of a severed mineral estate, on which exploration for, or extraction or removal of, oil or gas is authorized pursuant to a lease;
...
In our view, the plain language of the statutory definition of "lease" includes communitization agreements approved by the United States, such as the one at issue in this case. More specifically, a communitization agreement is a "contract" or "other agreement" that, depending upon the circumstances, has been "approved by the United States under a mineral leasing law," i.e., federal law governing mineral rights on Indian and trust land, "that authorizes exploration for, extraction of, or removal of oil or gas." 5 Thus, the statutory definition of "lease site" necessarily includes any lands, including privately-owned lands, on which exploration for and extraction of oil and gas is occurring pursuant to a communitization agreement.
Section 1718 of FOGRMA, entitled "Inspection," provides in pertinent part as follows:
(b) Inspection of lease sites for compliance with mineral leasing laws and 30 USCS §§ 1701 et seq . Authorized and properly identified representatives of the Secretary may without advance notice, enter upon, travel across and inspect lease sites on Federal or Indian lands and may obtain from the operator immediate access to secured facilities on such lease sites, for the purpose of making any inspection or investigation for determining whether there is compliance with the requirements of the mineral leasing laws and this Act. The Secretary shall develop guidelines setting forth the coverage and the frequency of such inspections.
Defendants concede that "Congress did not expressly address the application of Section 1718(b) inspection authority to fee lands committed to communitization agreements." Aple. Br. at 15. But, defendants argue, "[g]iven that ambiguity, BLM reasonably exercised its delegated rulemaking authority to include the inspection of fee lands that, like the O'Hares', are subject to a communitization agreement that was approved
*1201
by the Department and involves Indian lands where the affected tribe shares in the production and royalties of the oil and gas operation."
Defendants' arguments hinge on the threshold question of whether § 1718(b) is ambiguous or not. A statute is "ambiguous if it is reasonably susceptible to more than one interpretation or capable of being understood in two or more possible senses or ways."
Nat'l Credit Union Admin. Bd. v. Nomura Home Equity Loan, Inc.
,
To be sure, § 1718(b) is silent with respect to inspections of lease sites on fee lands, but that silence does not render the statute ambiguous.
See
Spring Creek Expl. & Prod. Co. v. Hess Bakken Inv., II, LLC
,
For these reasons then, we conclude that § 1718(b) does not afford the BLM with authority to inspect lease sites on privately-owned lands. Thus, we must look elsewhere to determine whether any authority exists for the BLM's proposed inspections of the wells in this case.
The Secretary has issued regulations implementing the various statutory directives outlined by Congress in FOGRMA. To begin with,
The regulations in this part and 43 CFR part 3170, including subparts 3173, 3174, and 3175, relating to site security, measurement of oil and gas, reporting of production and operations, and assessments or penalties for non-compliance with such requirements, are applicable to all wells and facilities on State or privately owned lands committed to a unit or communitization agreement, which include Federal or Indian lease interests , notwithstanding any provision of a unit or communitization agreement to the contrary.
In turn,
(a) The authorized officer shall establish procedures to ensure that each Federal and Indian lease site which is producing or is expected to produce significant quantities of oil or gas in any year or which has a history of noncompliance with applicable provisions of law or regulations, lease terms, orders or directives shall be inspected at least once annually. Similarly, each lease site on non-Federal or non-Indian lands subject to a formal agreement such as a unit or *1202 communitization agreement which has been approved by the Department of the Interior and in which the United States or the Indian lessors share in production shall be inspected annually whenever any of the foregoing criteria are applicable.
(b) In accomplishing the inspections, the authorized officer may utilize Bureau personnel, may enter into cooperative agreements with States or Indian Tribes, may delegate the inspection authority to any State, or may contract with any non-Federal Government entities. Any cooperative agreement, delegation or contractual arrangement shall not be effective without concurrence of the Secretary and shall include applicable provisions of the Federal Oil and Gas Royalty Management Act.
Lastly,
(a) The operating rights owner or operator, as appropriate, shall comply with applicable laws and regulations; with the lease terms, Onshore Oil and Gas Orders, NTL's; and with other orders and instructions of the authorized officer. These include, but are not limited to, conducting all operations in a manner which ensures the proper handling, measurement, disposition, and site security of leasehold production; which protects other natural resources and environmental quality; which protects life and property; and which results in maximum ultimate economic recovery of oil and gas with minimum waste and with minimum adverse effect on ultimate recovery of other mineral resources.
(b) The operator shall permit properly identified authorized representatives to enter upon, travel across and inspect lease sites and records normally kept on the lease pertinent thereto without advance notice. Inspections normally will be conducted during those hours when responsible persons are expected to be present at the operation being inspected. Such permission shall include access to secured facilities on such lease sites for the purpose of making any inspection or investigation for determining whether there is compliance with the mineral leasing laws, the regulations in this part, and any applicable orders, notices or directives.
(c) For the purpose of making any inspection or investigation, the Secretary or his authorized representative shall have the same right to enter upon or travel across any lease site as the operator has acquired by purchase, condemnation or otherwise.
The regulatory provisions thus provide for an inspection framework that applies to federal, Indian, and certain privately-owned lands, but that, not surprisingly, provides the BLM with greater inspection authority over federal and Indian lands than privately-owned lands. With respect to lease sites on federal and Indian land that are "producing or ... expected to produce significant quantities of oil or gas in a year or which ha[ve] a history of noncompliance with applicable provisions
*1203
of law or regulations," BLM representatives must inspect such lease sites "at least once annually."
Thus, at least for purposes of this case, the key difference between lease sites on federal/Indian lands and lease sites on privately-owned land subject to a communitization agreement is how BLM representatives may access them. For lease sites on federal/Indian lands, BLM representatives have the right to enter those sites by themselves without first seeking permission from the operating rights owner or operator. In contrast, for lease sites on privately-owned lands, BLM representatives may not independently enter the sites, but instead must seek entry (but do not have to give advance notice) from the operating rights owner or operator and the operating rights owner or operator, as noted, is obligated to allow such entry.
As for how often BLM representatives may inspect the wells, the regulations contain no limitation. Indeed, the only reference to frequency of inspections is contained in § 3161.3(a), which, as noted, requires lease sites meeting certain requirements to be inspected at least once annually. Section 3161.3(a) does not, however, impose any upper limit on the number of inspections. In other words, as both the State Director and the IBLA concluded in their respective decisions, "[t]he [regulatory] wording 'inspected annually' is a minimum standard not a maximum limitation." Aplt. App. at 90;
see
In sum, the BLM had authority to inspect the wells at issue. The question remains, however, whether BLM had authority to require Maralex to provide BLM with "a key to access the location or" allow *1204 BLM to install its own locks. Aplt. App. at 24).
We agree with plaintiffs that the BLM lacks authority to require an operator or landowner to provide the BLM with a key to the landowner's locked gates or to allow the BLM to place its own locks on the landowner's locked gates. But we arrive at this conclusion in a different manner than suggested by plaintiffs. Although plaintiffs base many of their arguments on the language of § 1718(b), that statutory subsection, as discussed above, does not apply at all to lease sites on privately-owned lands. Instead, the parameters of inspections of lease sites on privately-owned lands are outlined in two regulations:
Defendants, for their part, cite in their appellate brief to the statutory and regulatory provisions authorizing the BLM to take "corrective action." Aple. Br. at 39 (citing
III
We REVERSE and REMAND to the district court with directions to enter judgment in favor of plaintiffs on their claim that the BLM lacks authority to require plaintiffs to provide the BLM with a key to access the wells at issue or to allow BLM to install its own locks.
According to the record on appeal, Mary O'Hare is the president of Maralex. Aplt. App. at 8.
Until recently, plaintiffs asserted three additional issues on appeal, including Fourth and Fifth Amendment challenges to the inspection protocol advocated by the BLM. At oral argument, however, plaintiffs abandoned those issues. Consequently, we do not address them.
We are not aware of, nor has the BLM cited to, any authority holding that preservation of the issue before the IBLA is a jurisdictional prerequisite.
See
Air Courier Conference of Am. v. Am. Postal Workers Union AFL-CIO
,
At the first step of the
Chevron
analysis, "we must giv[e] all undefined terms their ordinary meaning.' "
Nat'l Credit Union Admin. Bd. v. Nomura Home Equity Loan, Inc.
,
Neither the IBLA nor the BLM have expressly adopted this broad definition of "lease." Instead, the IBLA interpreted the identically-worded regulatory definition of the term "lease site" to include more than "Federal or Indian lease sites," and also concluded that the identically-worded regulatory definition of the term "lease" was not incorporated into the regulatory phrase "lease site." Aplt. App. at 170, 174. We reject this latter conclusion as inconsistent with the statutory language and normal rules of statutory construction. In particular, "it is a normal rule of statutory construction that identical words used in different parts of the same act are intended to have the same meaning," and we see no evidence that Congress intended for the term "lease," as used in the term "lease site," to carry a different meaning.
Pereira v. Sessions
, --- U.S. ----,
The Secretary's authority to enact the portion of this regulation concerning inspections on privately-owned lands arises both from the general purposes provisions of FOGRMA, § 1701(b)(3)-(5), as well as § 1711(a) and (b). Section 1711(a) directs the Secretary, in part, to "establish a comprehensive inspection ... system," and § 1711(b) directs the Secretary to conduct annual inspections of certain lease sites, without limitation to sites contained on Federal or Indian lands.
It was this regulation that Maralex was cited for violating in the four INCs. Aplt. App. at 168.
In this case, the IBLA expressly found that the wells at issue "are producing or expected to produce significant quantities of oil and gas," thus rendering the wells subject to annual inspection under § 3163.3(a). Aplt. App. at 172.
Reference
- Full Case Name
- MARALEX RESOURCES, INC., a Colorado Corporation; Alexis M. O'Hare; Mary C. O'Hare, Plaintiffs - Appellants, v. David BARNHARDT, in His Official Capacity as Acting Secretary of the United States Department of the Interior; The United States Department of Interior; The United States of America, Defendants - Appellees.
- Cited By
- 4 cases
- Status
- Published