Amoco Production Co. v. Hodel
| Decision Date | 05 February 1986 |
| Docket Number | Civ. A. No. 84-0916 "L". |
| Citation | 627 F. Supp. 1375 |
| Parties | AMOCO PRODUCTION COMPANY v. Donald P. HODEL, et al. |
| Court | U.S. District Court — Western District of Louisiana |
Liskow & Lewis by Gene W. Lafitte, George J. Domas, Deborah B. Price and Anne E. Tate, New Orleans, La., for plaintiff.
U.S. Dept. of Justice, Leslie K. Dellon, Federal Programs Branch, Civil Div., Dennis G. Linder, Stephen E. Hart, Washington, D.C., Joseph S. Cage, Jr. by Lawrence W. Moon, Jr., Lafayette, La., for defendants.
Milling, Benson, Woodward, Hillyer, Pierson & Miller by Charles D. Marshall, Jr. and David N. Schell, Jr., New Orleans, La., amicus curiae.
MEMORANDUM RULING
This matter arises out of a dispute between Amoco Production Company and the federal government over the amount of additional royalties, interest and penalties Amoco owes, if any, for its lease of government-owned natural gas tracts on the Outer Continental Shelf (OCS) offshore Louisiana. Amoco brought this action requesting a declaratory judgment and injunctive relief. Both parties now move for summary judgment.
Amoco is the co-lessee of federal lease OCS-G 2866, granted in 1974 under the Outer Continental Shelf Lands Act. Amoco, as lessee, is required to pay the government a "royalty of 16 2/3 percent in amount or value of production saved, removed, or sold" from the leased area. For all times pertinent to this suit, Amoco's share of production from Lease OCS-G 2866 has been sold pursuant to two warranty contracts: one with Florida Gas Transmission Company and a second with Florida Power and Light Co. (FPL). The gas sold under the former contract is immaterial to this action.
The FPL contract was executed in 1965, almost a decade before Amoco acquired Lease OCS-G 2866 from the government. As a warranty contract, Amoco's agreement with FPL did not specify the source or origins of the quantity of gas that Amoco was obligated to deliver. At some point after it acquired Lease OCS-G 2866 from the government, Amoco began to use production from it to satisfy its obligations under the FPL contract.
On February 1, 1977, the U.S. Geological Service issued a value determination letter which established the royalty valuation from Amoco's production of gas from Lease OCS-G 2866. This value determination was made pursuant to 30 C.F.R. 650.64, and Amoco concedes that since it did not appeal that ruling, it was bound by it until it was superseded.
In July 1982, following an audit, the Royalty Compliance Office of the Minerals Management Service (MMS) ordered Amoco to pay additional royalties owed from Lease OCS-G 2866 in the amount of $10,424,298.62, for the period of January 1977 through December 1979. In September 1982 the Royalty Compliance Office assessed $3,920,015.52 in interest against Amoco.
Amoco paid both the additional royalties and the late payment assessment of interest, and appealed those rulings of the Royalty Compliance Office to the Director of the MMS. In an order dated April 4, 1983, the Director upheld both rulings.
Amoco then appealed to the Department of Interior Board of Land Appeals ("IBLA"). This body, on December 19, 1983, affirmed the Director's decision.
Amoco has since brought this action seeking declaratory and injunctive relief, requesting among other things:
As noted earlier Amoco concedes that since it failed to appeal the MMS February 1977 valuation it is barred from challenging that ruling while it was effective. Amoco argues, though, that this ruling was later superseded by another valuation ruling by the MMS, and later by the Natural Gas Policy Act of 1978 (NPGA).
Amoco argues that it does not owe the additional royalties and interest for the period of July 1, 1978, through December 31, 1979, on the grounds that the February 1, 1977, valuation was superseded by a second in June 1978. This later valuation, Amoco contends, was consistent with the royalties it paid under the FPL contract price.
On June 1, 1978, Amoco was issued Notice to Lessee 78-2 ("NTL 78-2") by the same office which had issued the February 1977 valuation. It is uncontested that Lease OCS-G 2866 is within the scope of the notice. However, after a challenge by Amoco and by others, NTL 78-2 was declared invalid on procedural grounds on January 15, 1979. Since NTL 78-2 was invalid, there is no need for this Court to examine the question of what the effect of NTL 78-2 might have been had it been valid. Since it was invalid it could not have superseded the February 1977 valuation determination.
The NGPA was enacted into law on December 1, 1978. Amoco argues that § 3315 of the NGPA established price ceilings on its sale of gas from Lease OCS-G 2866 to FPL, and that as a consequence the government is precluded from recovering royalties based upon a value that exceeds the government-imposed price.
15 U.S.C. § 3315, provides in pertinent part:
The government argues that since Amoco's contract with FPL was a warranty contract, that is, Amoco was not obligated to provide its required quantity of gas to FPL from any particular source, that the gas in Lease OCS-G 2866 was not "subject to" an existing contract as contemplated by § 3315(b)(1)(A). Amoco responds by arguing that the gas was "sold under" the existing contract within the meaning of § 3315(a).
On the date in question—November 9, 1978—the gas from Lease OCS-G 2866 was sold to FPL under an existing contract. That contract governed the terms and conditions of the sale of the gas. That such contract was a warrant contract, this court thinks, is immaterial. Furthermore, the OCS-G 2866 gas was subject to the FPL contract on the date in question— again, November 9, 1978. Contra, LL & E v. Texaco, 478 So.2d 926 (4th Cir.1985). That Amoco was not obligated to subject the OCS-G 2866 gas to the FPL contract on that date is immaterial since Amoco did subject that gas to the FPL contract by selling it under those terms. Amoco having so opted, the gas in Lease OCS-G was bought within the scope of § 3315, and remains so under any successor contract. Accordingly, this court holds that the price ceilings of § 3315 applied to the gas produced from Lease OCS-G 2866.
This conclusion is supported by the Fifth Circuit's admonition that statutory meaning is to be derived not from reading of a single sentence or section, but from the provisions of the whole law, its object and policy. ZeMurray Foundation v. United States, 687 F.2d 97, 102 (5th Cir.1982). The government has not suggested any reason—nor do I think it could—why Congress would have intended to distinguish between warrant contracts and other contracts for purposes of the price ceilings of § 3315. Congress's intent seems clear— the price ceilings of § 3315 apply to gas sold under existing contracts—or successor contracts—not dedicated to interstate commerce. I believe I adhere to that intent in this holding.
Amoco now argues that since after December 1, 1978 (the effective date of the NGPA) it could not exceed the price ceilings of § 3315 for the gas it sold to FPL, the government is precluded from exacting royalty based on a value greater than those price ceilings. The government responds by arguing that the NGPA is simply immaterial to the government's royalty valuations.
Under the Outer Continental Shelf Lands Act of 1953, 43 U.S.C. §§ 1331, et seq., the Secretary of the Interior is authorized to grant leases for the recovery of minerals from the subsoil and seabed of the OCS. Id. at § 1337. The Secretary is required to conduct leasing activities "to assure receipt of fair market value for the lands leased and the rights conveyed" by the government. Id. at § 1344(a)(4). Under the lease, Amoco agreed that the Secretary could establish minimum values for purposes of computing royalties, and that the Secretary could make such a determination only after due notice had been given to Amoco.
Amoco made such a request in January 1977, and the Department made a determination within a month on the basis of 30 C.F.R. 250.64 (). The regulation then provided:
The value of production, for the purpose of computing royalty, shall be the estimated reasonable value of the product as determined by the supervisor, due consideration being given to the highest price paid for a part or for a majority of production of like quality in the same field or area, to the price received by the lessee, to posted prices applies only to oil, and to other relevant matters. Under no circumstances shall the value or production of any of said substances for the purposes of computing royalty be deemed to be less than the gross proceeds accruing to the lessee from the sale thereof or less than the value computed on such reasonable unit value as shall have been determined by the...
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