Miller Exploration Company v. Rocky Mountain Regional Director, 37 IBIA 114 (2002)

• Court: Interior Board of Indian Appeals

Order Vacating Decision and Remanding Case Docket No. IBIA 01-39-A January 25, 2002

This is an appeal from a September 14, 2000, decision of the Rocky Mountain Regional Director, Bureau of Indian Affairs (Regional Director; BIA), cancelling an Oil and Gas Exploration and Development Agreement (Agreement) between Miller Exploration Company (Miller) and the Blackfeet Tribe (Tribe). For the reasons discussed below, the Board vacates the Regional Director's decision and remands this matter for such further action as may be necessary following the completion of arbitration.

The Agreement was entered into under authority of the Indian Mineral Development Act (IMDA), 25 U.S.C. §§ 2101-2108, on February 19, 1999, and approved by the Regional Director on February 26, 1999. It is identified in BIA records as Contract No. IMDA 99 14-20-0251-7498.

Article 5 of the Agreement required Miller to pay $1,000,000 upon approval of the Agreement by BIA, $525,000 on or before the second anniversary date of the Agreement, and $525,000 on or before the third anniversary date of the Agreement. Article 6 required Miller to drill at least two wells during each of the first five years of the Agreement.

Miller paid $1,000,000 on or before May 28, 1999. However, because of difficulties in negotiating with K2 America Corporation (which held another IMDA agreement with the Tribe, as well as an agreement with Miller), Miller concluded that it would be unable to fulfill its first-year drilling obligation. Miller states in this appeal that it had reached that conclusion by August 1999, when it first sought an extension from the Tribe under Article 22 of the

Agreement, FORCE MAJEURE. 1/ Miller further states that the Chairman of the Tribal Land

Board responded at that time that the request was "too early."

On January 5, 2000, representatives of Miller and the Tribe met to discuss the extension request. In a January 14, 2000, letter to the Tribe, Miller requested an extension until October 1, 2000, and explained what it planned to do during the extension period. It stated that it would need a partner and noted that it had not yet resolved its differences with K2 America Corporation.

The Tribal Land Board Chairman responded on February 7, 2000, requesting that Miller provide a full explanation of what it had done until then to fulfill its obligations under the Agreement. He stated that, once the information had been received, he would present Miller's request for extension to the Tribal Land Board and the Blackfeet Tribal Business Council (BTBC). Miller responded on February 18, 2000.

On March 2, 2000, the Tribal Land Board Chairman wrote to Miller, paraphrasing a provision in Article 6 of the Agreement and stating:

This will be final notification that [Miller] has five (5) business days to comply with [the Agreement]. After the fifth working day if [Miller] fails to comply with the terms of [the Agreement, Miller] will immediately surrender and relinquish all Subject Lands outside of the spacing units established for any producing or capable of producing wells that were drilled and completed prior to the failure of [Miller] to timely comply with the well obligations.

1/ Article 22 provides:

"FORCE MAJEURE. If [Miller] is prevented from, or delayed in commencing, continuing or resuming operations, or complying with its express or implied obligations hereunder, by circumstances that are not reasonably within [Miller's] control, this Exploration and development Agreement shall not terminate or be forfeited and [Miller] shall not be liable in damages so long as such circumstances continue. These circumstances include, but are not limited to the following: earthquake, storm, flood or other act of God, fire, war, rebellion, insurrection, riots, strikes or failure of carriers to transport or furnish facilities for transportation, or orders, rules, or regulations of any federal, state or governmental agency, including the Blackfeet Tribe. * * * If [Miller] is prevented from, or delayed in commencing, continuing or resuming operations, or complying with its expressed or implied obligations hereunder for any other reason than referenced above, the Tribe and [Miller] agree to negotiate in good faith for an extension of time, not to exceed one (1) year, to allow [Miller] to meet its drilling obligations. [Miller] shall not make requests for any unreasonable extensions of time and the Tribe shall not unreasonably withhold its consent for an extension. Provided however, that valuable consideration shall be paid to the Tribe for any extension of time which is granted pursuant to this paragraph."

Miller responded on March 10, 2000, expressing shock and dismay at the Tribe's action and referring to the provision in Article 22 under which the Tribe is precluded from unreasonably withholding its consent to an extension. Miller continued:

[The Tribe's] unreasonable withholding of its consent for an extension of the drilling deadline has been a material breach of its obligations under [the Agreement] and has excused [Miller] from further performance of its obligations. Your letter dated March 2, 2000 is a repudiation of [the Agreement].

In response to your repudiation of [the Agreement, Miller] rescinds [the Agreement] and demands immediate return of the $1,000,000 paid to date, plus damages yet to be calculated. If you concur, please advise us. Otherwise, we understand that [Article] 12 of [the Agreement] requires us to negotiate this controversy before commencing arbitration. Please contact us to begin the negotiations.

Miller's Mar. 10, 2000, Letter at 2.

On March 21, 2000, the Regional Director wrote to Miller, citing 25 C.F.R. § 225.36, 2/ stating that Miller had failed to comply with the drilling and payment requirements of the Agreement, and further stating: "You are hereby notified you have 30 days from receipt of this letter to provide written notice as to why you have not complied with the agreement."

2/ 25 C.F.R. § 225.36 provides in part:

"(a) If the Secretary determines that an operator has failed to comply with the regulations in this part; other applicable laws or regulations; the terms of the minerals agreement; the requirements of an approved exploration, drilling or mining plan; Secretarial orders; or the orders of the Authorized Officer, the Director's Representative, or the [Minerals Management Service] Official, the Secretary may:

"(1) Serve a notice of noncompliance; or "(2) Serve a notice of proposed cancellation. "(b) The notice of noncompliance shall specify in what respect the operator has failed to comply with the requirements referenced in paragraph (a), and shall specify what actions, if any, must be taken to correct the noncompliance.

"(c) The notice of proposed cancellation shall set forth the reasons why cancellation is proposed.

* * * * * * * * "(e) The operator shall have thirty (30) days (or such longer time as specified in the notice) from the date that the Bureau of Indian Affairs notice of proposed cancellation or noncompliance is served to respond, in writing, to the Superintendent or [Regional]...