Hayes v. Chaparral Energy, LLC

• Decision Date: 05 January 2016
• Docket Number: Case No. 14-CV-495-GKF-PJC
• Parties: DAVID P. HAYES, TRUSTEE FOR THE PAUL B. HAYES FAMILY TRUST, DATED APRIL 30, 2010, Plaintiff, v. CHAPARRAL ENERGY, LLC, and UNITED STATES OF AMERICA; DEPARTMENT OF INTERIOR; BUREAU OF INDIAN AFFAIRS, Defendants.
• Court: U.S. District Court — Northern District of Oklahoma

DAVID P. HAYES, TRUSTEE FOR THE PAUL B. HAYES FAMILY TRUST, DATED APRIL 30, 2010, Plaintiff, v. CHAPARRAL ENERGY, LLC, and UNITED STATES OF AMERICA;DEPARTMENT OF INTERIOR; BUREAU OF INDIAN AFFAIRS, Defendants.

Case No. 14-CV-495-GKF-PJC

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF OKLAHOMA

January 5, 2016

AMENDED OPINION AND ORDER

The National Environmental Policy Act ("NEPA") is a process-oriented statute, requiring federal agencies to consider the environmental impacts of their actions. This case involves a dispute over the government's obligations under NEPA with regard to its approval of an oil and gas lease and two (2) drilling permits in Osage County, Oklahoma.

In 2013, Chaparral Energy, LLC ("Chaparral") entered into an oil and gas lease with the Osage Nation for a portion of the Osage mineral estate underlying plaintiff David P. Hayes's property. Shortly thereafter, the government approved the lease as well as Chaparral's applications for permits to drill on Hayes's property. In turn, Hayes brought this action against defendants the United States of America, the Department of Interior (DOI), the Bureau of Indian Affairs ("BIA") (collectively, "the government"), and Chaparral, alleging that the government's approval of the lease and drilling permits failed to comply with NEPA. In response, the government submits that its approval of lease was exempt from NEPA's procedural requirements and that it had already satisfied those requirements with regard to its approval of the drilling permits.

For the reasons set forth in this Opinion and Order, the court holds that the government failed to comply with NEPA prior to its approval of Chaparral's lease and drilling permits. The court, therefore, declares these documents void.

I. BACKGROUND

A. Statutory Framework

"In 1872, Congress established a reservation for the Osage Nation in present day Oklahoma." Osage Nation v. Irby, 597 F.3d 1117, 1120 (10th Cir. 2010) (citing Act of June 5, 1872, ch. 310, 17 Stat. 228). In 1904 and 1905, large quantities of oil and gas were discovered on the reservation. See Cohen's Handbook of Federal Indian Law § 4.07[1][d][ii], at 311 (Neal Jessup et al., eds., 2005). To manage the Osages' newfound wealth, Congress enacted the Osage Allotment Act which placed the mineral estate underlying Osage lands in trust and directed the Secretary of the Interior to collect and distribute royalty income to tribal members on a quarterly, pro rata basis. See Act of June 28, 1906, Pub. L. No. 59-321, § 4, 34 Stat. 539 ("1906 Act"). The government's trusteeship over the Osage mineral estate was originally set to last twenty-five years, see 1906 Act §§ 3, 4, but has since been extended "in perpetuity," see Pub. L. No. 95-496, § 2(a), 92 Stat. 1660 (1978).

Under the Act, the Osage Nation may lease portions of the mineral estate for exploration and development "with the approval of the Secretary of the Interior, and under such rules and regulations as he may prescribe." 1906 Act § 3. The Secretary has delegated this authority to the Superintendent of the Osage Agency. See 25 C.F.R §§ 226.4, 226.5(b). Pursuant to departmental regulations, "[n]o operations are permitted upon any tract of land until a leasecovering such tract is approved by the Superintendent." Id. § 226.34(a). Further, to commence drilling, a lessee must obtain additional approval from the Superintendent, in the form of a permit to drill. See id. § 226.34(b); [see also Dkt. #77-5, pp. 40-41].

The Superintendent's approval of leases and drilling permits on Indian lands constitutes federal action subject to NEPA. See Davis v. Morton, 469 F.2d 593, 596-97 (10th Cir. 1972); see also Manygoats v. Kleppe, 558 F.2d 556, 557 (10th Cir. 1977). NEPA "requires federal agencies ... to analyze environmental consequences before initiating actions that potentially affect the environment." Utah Envtl. Cong. v. Bosworth, 443 F.3d 732, 735-36 (10th Cir. 2006). Unlike other environmental statutes, however, NEPA does not mandate any particular substantive outcome. See Hillsdale Envtl. Loss Prevention, Inc. v. U.S. Army Corps of Engineers, 702 F.3d 1156, 1166 (10th Cir. 2012). Rather, the Act merely "imposes procedural, information-gathering requirements on an agency," id., so as "to ensure that the agency will only reach a decision on a proposed action after carefully considering [its] environmental impacts," Forest Guardians v. U.S. Fish & Wildlife Serv., 611 F.3d 692, 717 (10th Cir. 2010).

NEPA achieves this end by requiring federal agencies to prepare an environmental impact statement ("EIS") before taking any "major Federal actions significantly affecting the quality of the human environment." 42 U.S.C. § 4332(C)(ii). "An EIS is a detailed document that identifies the potential impacts a proposal may have on the environment." Citizens' Comm. to Save Our Canyons v. U.S. Forest Serv., 297 F.3d 1012, 1022 (10th Cir. 2002). If an agency is uncertain whether an EIS is required, it may elect to prepare a less detailed environmental assessment ("EA"). See Monsanto Co. v. Geertson Seed Farms, 561 U.S. 139, 145 (2010). "An EA allows the agency to consider environmental concerns, while reserving agency resources to prepare full EIS's for appropriate cases." Park Cty. Res. Council, Inc. v. U.S. Dep't of Agric.,817 F.2d 609, 621 (10th Cir. 1987) (internal quotation marks omitted), overruled on other grounds by Vill. of Los Ranchos De Albuquerque v. Marsh, 956 F.2d 970 (10th Cir. 1992). "If after preparing [an] EA, the agency concludes that a proposed action will not significantly affect the environment, the agency may issue a finding of no significant impact (FONSI) and need not prepare a full EIS." McKeen v. U.S. Forest Serv., 615 F.3d 1244, 1248 n.3 (10th Cir. 2010) (internal quotation marks omitted). Finally, "[i]n certain narrow instances,...an agency is not required to prepare either an [EA] or an [EIS]. This occurs when the proposed action falls within a categorical exclusion, i.e., those actions predetermined [by the agency] not to 'individually or cumulatively have a significant effect on the human environment.'" Utah Envtl. Cong., 443 F.3d at 736 (quoting 40 C.F.R. § 1508.4).

"The Council on Environmental Quality (CEQ) is tasked with interpreting NEPA and establishing regulations governing agencies' responsibilities under the statute." Sierra Club, Inc. v. Bostick, 787 F.3d 1043, 1063 (10th Cir. 2015) (McHugh J., concurring); accord Dep't of Transp. v. Pub. Citizen, 541 U.S. 752, 757 (2004). CEQ regulations require federal agencies to adopt further regulations or procedures identifying specific actions which either normally require an EIS or are categorically excluded. See 40 C.F.R. § 1501.4(a). If a proposed action does not fall within either category, the agency then must prepare an EA unless it elects to prepare an EIS. See id. § 1501.4(b).

B. 1979 Environmental Assessment

In 1978, this court entered an agreed judgment, ordering the Secretary of the Interior and the Superintendent of the Osage Agency to prepare an EA

of the effect on the environment of oil and gas operations under oil mining leases, gas mining leases, oil and gas mining leases, drilling permits, authorizations to use water and other such documents approved or used by the Secretary relating to oil and gas operations on the lands in Osage County, Oklahoma....

Judgment and Order at 2, Bell v. Andrus, No. 77-C-159-C (N.D. Okla. May 4, 1978), available at [Dkt. #63-1, p. 11]. In 1979, the agency issued an EA "describe[ing] and evalut[ing] all aspects of the oil and gas leasing program in Osage County" under the BIA. [Dkt. #77-2, p.11]. The EA provided, among other things, a detailed explanation of the leasing program, a description of the County's existing and likely future environmental conditions, and an evaluation of the actual or potential environmental impacts of the leasing program. [See id.]

The assessment also described drilling techniques and practices within the County. It noted that the typical well then drilled in the County was between 2,000 and 2,500 feet deep, used a 4.5 to 5.5 inch casing, and involved a drilling site occupying approximately half an acre. [Id. at 20; Dkt. #77-3, p. 46]. The assessment also briefly discussed the then-recent development of certain secondary production techniques, commonly referred to as "hydraulic fracturing" or "fracking":

During the early stages of the production in the County, and extending through World War II, wells were operated by natural flow or pumping for as long as they produced enough to make a profit. When production declined to an uneconomic level a well was abandoned. As general production decreased through the area, secondary production techniques came into use. These methods stimulate recovery of oil by using some of the wells to re-inject fluids into the reservoir formations in order to move or displace oil toward other wells. The brine which is unavoidably produced with oil is frequently used as the re-injected fluid. Acid treatment or mechanical fracturing of the rock around wells also can be used to restore or maintain production by increasing the permeability so that oil can flow more easily into the well.

At present, two groups in the county (Phillips Petroleum Company, and Kewanee Petroleum—now owned by Gulf Oil) are experimenting with chemical treatment of the re-injected fluid in order to enhance its ability to mobilize remaining oil within the reservoir formation and to move oil more effectively to a producing well. These tertiary recovery techniques are expensive and are only in the experimental stage in several parts of the country[.] If oil prices remain high or increase further, they may become economically feasible methods for oil recovery.

[Dkt. #77-2, p. 20].

The EA ultimately concluded that the leasing program would not have a significant impact on the human environment. In arriving at this conclusion, the assessment discussed the physical,...