Marathon Oil Co. v. Andrus

• Decision Date: 26 June 1978
• Docket Number: C77-237-K and C77-238-K.,C77-210-K,No. C77-166-K,C77-166-K
• Citation: 452 F. Supp. 548
• Parties: MARATHON OIL COMPANY, Amoco Production Company, Atlantic Richfield Company, and Continental Oil Company, Plaintiffs, Mobil Oil Corporation, Chevron U.S.A., Inc., Union Oil Company of California, and Tenneco Oil Company, Intervenors, v. Cecil D. ANDRUS, Secretary of the Interior, et al., Defendants.
• Court: U.S. District Court — District of Wyoming

452 F. Supp. 548

MARATHON OIL COMPANY, Amoco Production Company, Atlantic Richfield Company, and Continental Oil Company, Plaintiffs Mobil Oil Corporation, Chevron U.S.A., Inc., Union Oil Company of California, and Tenneco Oil Company, Intervenors, v. Cecil D. ANDRUS, Secretary of the Interior, et al., Defendants.

Nos. C77-166-K, C77-210-K, C77-237-K and C77-238-K.

United States District Court, D. Wyoming.

June 26, 1978.

William H. Brown and Claude W. Martin, Casper, Wyo., for plaintiffs and intervenors; H. Blair Klein and David O. Cordell of Marathon Oil Co., Casper, Wyo., Floyd E. Radloff of Continental Oil Co., Houston, Tex., V. C. McClintock and Frank H. Houck of Amoco Production Co., A. T. Smith of Continental Oil Co., Denver, Colo., Albert D. Hoppe and James R. Coffee of Atlantic Richfield Co., Dallas, Tex., William Balkovatz and Delbert E. Winn, of Chevron, U.S.A., Inc., Denver, Colo., Dee H. Richardson of Union Oil Co. of California, Midland, Tex., Millard F. Carr of Tenneco Oil Co., Robert L. Kubik of Mobil Oil Corp., Denver, Colo., Donald E. Peterson of Pillsbury, Madison & Sutro, San Francisco, Cal., and John W. Coughlin of Moran, Reidy and Voorhees, Denver, Colo., of counsel.

Gerald S. Fish, Atty., U. S. Dept. of Justice, Washington, D. C., and Charles E. Graves. U. S. Atty., Cheyenne, Wyo., for defendants.

MEMORANDUM OPINION

KERR, District Judge.

These consolidated actions were brought by Plaintiffs and Intervenors seeking judicial review of adverse decisions of the Secretary of the Interior.

In each case, the jurisdiction of this Court is invoked under 28 U.S.C. § 1331(a); the Administrative Procedure Act, 5 U.S.C. §§ 701-706; the Federal Declaratory Judgment Act, 28 U.S.C. § 2201 et seq.; and the Federal Mandamus Statute, 28 U.S.C. § 1361 et seq.

They are properly brought in this judicial district under 28 U.S.C. § 1391(e).

The actions stem from the issuance of a Notice by the Secretary dated November 15, 1974 and effective December 1, 1974, the material portions thereof being as follows:

Royalty Payment on Oil and Gas Lost NTL-4

"Effective December 1, 1974, royalty or other compensation will be due on the value of all oil and gas which is produced pursuant to or for the benefit of all onshore Federal oil and gas leases except that gas production specifically exempted by section 3 of this Notice. Onshore Federal leases subject to this Notice are those which are now in effect and those subsequently issued pursuant to the Mineral Leasing Act of February 25, 1920, as amended and supplemented (30 U.S.C. 181-263) (except those previously issued pursuant to sections 18 or 19 thereof), the Mineral Leasing Act for Acquired Lands of August 7, 1947 (30 U.S.C. 351-359), and the implied authority of the Executive Branch as defined in the Attorney General's Opinion of April 2, 1941 (Vol. 40 Op.Atty.Gen. 41).

Oil production subject to royalty shall include (1) that oil which is produced and sold either on a lease basis or that which is allocated to a lease under the terms of an approved communitization or unitization agreement; (2) that oil which is used on a lease, communitized tract, or unitized area for production purposes; (3) that oil which is lost in well tests, spills, blowouts, and fires which occur on a lease, communitized tract, or unitized area; and (4) that oil which is unavoidably or otherwise lost on a lease, communitized tract, or unitized area." (Emphasis added.)

"Gas production subject to royalty shall include (1) that gas (both dry and casing-head) which is produced and sold either on a lease basis or that which is allocated to a lease under the terms of an approved communitization or unitization agreement; (2) that gas which is vented or flared in well tests (drill-stem, completion, or production) on a lease, communitized tract, or unitized area; and, (3) that gas which is otherwise vented or flared on a lease, communitized tract, or unitized area with the prior written authorization of the Area Oil and Gas Supervisor (Supervisor)."

The Administrative Procedure Act provides in part:

"The reviewing Court shall — * * * (2) hold unlawful and set aside agency action, findings, and conclusions found to be —

(A) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law."

These actions arise under the Mineral Leasing Act of 1920, as amended, 41 Stat. 437, 30 U.S.C. § 181 et seq., and the Mineral Leasing Act for Acquired Lands, 30 U.S.C. § 351 et seq.

They draw into question the validity of the above Notice relating to the manner of determining oil and gas production subject to royalty payable on Federal Onshore Oil and Gas Leases. They contend the aforesaid Notice is a reversal of the interpretation by the Secretary of Interior that had been uniformly and consistently understood and applied by both the government and the lessees for a period of more than fifty years.

More particularly, they involve the propriety, legality and correctness of the Secretary's decision that royalty is payable to the United States on oil and gas which is unavoidably lost or used in the lease, or production operations under permits or leases issued under the Mineral Leasing Act and the Mineral Leasing Act for Acquired Lands, supra.

The material facts are not in dispute. Most of the facts, if not all, alleged in the complaint in each case are admitted by the defendants in their answers to the complaints.

The plaintiffs and intervenors are lessees, working interest owners or operators of many federal onshore oil and gas leases administered by the United States Department of the Interior. Many of their leases are committed to federal units. As lessees, plaintiffs and intervenors pay royalties to the United States. The powers of the Secretary are established and limited by the Mineral Leasing Act of February 25, 1920, as amended, and Regulations lawfully adopted pursuant thereto. These actions seek interpretation and construction of the phrase in the Mineral Leasing Act, as amended by the Act of August 8, 1946, 30 U.S.C. § 181 et seq., which requires the payment of percentage royalties in the "amount or value of the production removed or sold from the lease." (Emphasis added.) The Act of February 25, 1920, as amended by the Act of August 8, 1946 provides in part:

"Sec. 17. All lands subject to disposition under this Act which are known or believed to contain oil or gas deposits may be leased by the Secretary of the Interior. When the lands to be leased are within any known geological structure of a producing oil or gas field, they shall be leased to the highest responsible, qualified bidder by competitive bidding under general regulations, in units of not exceeding six hundred and forty acres, which shall be as nearly compact in form as possible, upon the payment by the lessee of such bonus as may be accepted by the Secretary and of such royalty as may be fixed in the lease which shall be not less than 12½ per centum in amount or value of the production removed or sold from the lease. When the lands to be leased are not within any known geological structure of a producing oil or gas field, the person first making application for the lease who is qualified to hold a lease under this Act shall be entitled to a lease of such lands without competitive bidding. Such leases shall be conditioned upon the payment by the lessee of a royalty of 12½ per centum in amount or value of the production removed or sold from the lease. Leases issued under this section shall be for a primary term of five years and shall continue so long thereafter as oil or gas is produced in paying quantities." (Emphasis added.)

The current Federal Form of Lease Agreements provides:

"Section 2. The lessee agrees:

* * * * * *

(d) Rentals and royalties — (1) To pay rentals and royalties in amount or value of production removed or sold from the leased lands as follows:

* * * * * *

Royalty on production. To pay the lessor 12½ percent royalty on the production removed or sold from the leased lands computed in accordance with the Oil and Gas Operating Regulations, 30 CFR Pt. 221."

The legislative history discloses that the purpose of the August 8, 1946 amendment to the Mineral Leasing Act was to encourage and stimulate the discovery of new petroleum reserves and the development of known petroleum reserves. Until the issuance of said NTL-4 Notices, the practice of the United States Department of the Interior has been to further this purpose of the Mineral Leasing Act.

Singular as it may appear, the Mineral Leasing Act has been amended seventeen times since its original enactment, and it has been amended seven times since the August 8, 1946 amendment which altered the language of Section 17 of the Mineral Leasing Act to read "production removed or sold from the lease," and since August 8, 1946, Section 17, supra, has remained intact with respect to the language "production removed or sold from the lease."

Judge Phillips held in Salt Lake County v. Utah Copper Co., 93 F.2d 127, 131 (10th Cir. 1937), cert. denied 303 U.S. 652, 58 S.Ct. 750, 82 L.Ed. 1112:

"The re-enactment of a statute without amendment in the face of a consistent administrative construction is persuasive evidence of legislative recognition and approval of such

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