Hoover & Bracken Energies, Inc. v. U.S. Dept. of Interior, 82-1074
| Decision Date | 28 December 1983 |
| Docket Number | No. 82-1074,82-1074 |
| Citation | 723 F.2d 1488 |
| Parties | HOOVER & BRACKEN ENERGIES, INC., Plaintiff-Appellee, v. UNITED STATES DEPARTMENT OF the INTERIOR, et al., Defendants-Appellants. |
| Court | U.S. Court of Appeals — Tenth Circuit |
C. David Stinson, McAfee & Taft, Oklahoma City, Okl. (Gary W. Catron, McAfee & Taft, Oklahoma City, Okl., with him on the brief), for plaintiff-appellee.
Blake Andrew Watson, Dept. of Justice, Washington, D.C. (Carol E. Dinkins, Asst. Atty. Gen., Washington, D.C., John E. Green, Acting U.S. Atty., Roger Stuart, Asst. U.S. Atty., Oklahoma City, Okl., Edward J. Shawaker and Laura Frossard, Dept. of Justice, Washington, D.C., on the brief), for defendant-appellant Department of the Interior.
Robert A. Hasty, Jr., Houston, Tex. (Thomas G. Johnson, Houston, Tex., with him on the brief), for amicus curiae Shell Oil Co.
Before SETH, Chief Judge, and McWILLIAMS and DOYLE, Circuit Judges.
This is an appeal from a district court order which overruled a decision of the Interior Board of Land Appeals (IBLA). The matter presented is that of royalties which are allegedly owed to the government for the production of natural gas on federal and Indian lands. The appellee herein, also the plaintiff, is a producer of oil and gas and holds interests in several oil and gas leases of federal and Indian lands. These have been communitized with private lands. Leases which were held by Hoover & Bracken require that royalties be paid on a basis of the percentage of the value of the gas produced.
The underlying question is whether these royalties are to be measured based upon what is called the value of the gas produced.
The United States contends that this value includes the severance tax which Oklahoma levies on the land. This amounts to seven percent of the gross value of the production of the natural gas. 1 , 2 There is also a .085 percent excise tax on the gross value. 3 Both taxes are paid by the purchaser. This is in accordance with the statute. The production from federal and non-Indian lands is exempt from payment of the state severance tax under Oklahoma Statute Title 68, Secs. 1008, 1106 (Supp.1981).
Hoover & Bracken entered into contracts for the sale of gas produced on the communitized lands at the maximum price allowed by the Natural Gas Policy Act of 1978, 15 U.S.C. Sec. 3301, et seq. (NGPA). These contracts provide that the purchaser will pay any state severance taxes. This is commonly known as a tax reimbursement.
Hoover & Bracken has been paying royalties to the government on the federal and Indian lands, using a maximum NGPA price as the value of production. The government, however, felt that the value of production used to compute royalties should be higher--the maximum NGPA price for the gas received by Hoover & Bracken plus the amount of severance tax paid by the purchasers on the communitized lands, i.e., the tax reimbursement.
In 1979 the United States Geological Survey notified Hoover & Bracken that the royalties paid were insufficient as they were calculated only from a percentage of the NGPA price and failed to include the amount of tax reimbursements. Hoover & Bracken appealed this decision to the Acting Director of the USGS, and the Acting Deputy Commissioner of the Bureau of Indian Affairs. Its appeal was denied. Hoover & Bracken then appealed it to the Interior Board of Land Appeals. That body upheld the determination that the amount of tax reimbursements be included in the value of production for the purpose of computing royalty payments. Then Hoover & Bracken brought an action in the Western District of Oklahoma, and was successful in obtaining a reversal of the IBLA decision. In other words, the district court ruled for Hoover & Bracken on a motion for summary judgment.
It is apparent that the matter before us is a question of law. See First National Bank in Sioux Falls v. National Bank of South Dakota, 667 F.2d 708 (8th Cir.1981). It is also a policy problem which asks whether the operator shall obtain added profits at the expense of the United States. Although the construction of the statutes and regulations before us is for the courts, it does not follow that the agency interpretation is to be disregarded by a reviewing court. Deference is due the construction of a statute or a regulation of an administrative agency. Udall v. Tallman, 380 U.S. 1, 85 S.Ct. 792, 13 L.Ed.2d 616 (1965). Indeed, when an agency is interpreting its own regulations, the courts have given added deference to the agency's construction. The standard of review for an administrative agency's interpretation of its own regulation is that of a plainly erroneous or inconsistent standard. Devon Corp. v. Federal Energy Regulatory Commission, 662 F.2d 698 (10th Cir.1981), and Morrison and Morrison, Inc. v. Secretary of Labor, 626 F.2d 771 (10th Cir.1980). We consider the decisions below upon the basis mentioned.
First, the IBLA ruling was that the value of production for the purpose of determining the royalties owed on the federal and Indian lands included the price received for the gas by the gas producer plus the amount of state severance tax paid by the purchaser. IBLA relied on its prior decision in Wheless Drilling Co., 13 IBLA 21, 80 I.D. 599 (1973). The facts and issues in Wheless are pretty much the same as those present here. Federal and private lands had there been communitized. State severance taxes were paid only on the non-federal portion. The issue was the amount of royalties owed to the government, as here. The gas producer in Wheless argued that the figure to be used to calculate royalties was the field price set by the Federal Power Commission pursuant to the Natural Gas Act, 15 U.S.C. Sec. 717, et seq. (1970). The government, however, maintained that the figure to be used was the field price plus the amount of tax reimbursement. The IBLA so ruled. It said:
It seems obvious to us that the buyer is thus paying to the seller an amount greater than the established field price for the natural gas it purchases from the # 1 T.L. James well. It follows, therefore, that it is reasonable to compute the Federal royalty of the natural gas taken from this well on a unit value consisting of the field price established by the FPC plus the amount of the severance tax reimbursed by the buyer.
Wheless, 13 IBLA 21, 80 I.D. at 603.
IBLA noted that absent any reimbursements for state severance taxes on production on communitized lands, the FPC ceiling price would be the proper figure to use to compute royalties.
The IBLA, as in Wheless, interpreted 30 C.F.R. 221.47. 4 The IBLA reiterated its interpretation of the term "gross proceeds" as it is contained in 30 C.F.R. Sec. 221.47 as "the established price for the natural gas plus any additional sums paid by the purchaser of the gas to the unit operator as consideration for the purchase of gas from the unit of which the federal lease is a part." The IBLA also found that notwithstanding its decision in Wheless, it would come to the same conclusion here. The Wheless case focused on the definition of gross proceeds in 30 C.F.R. Sec. 221.47. In the case at bar the IBLA proceeded to analyze the question in terms of the definition of "reasonable value" in the same regulation. It held that the value of production was not necessarily synonymous with gross proceeds, which is the amount the producer received for the gas. Indeed, there are suggestions in some of the opinions that value is not necessarily the same as price. Domatti v. Exxon Corporation, 494 F.Supp. 306, 314 (W.D.La.1980), and Agurs v. Amoco Production Co., 480 F.Supp. 737 (W.D.La.1979) ().
The plaintiff-appellee appears to rely on Bowers v. Phillips Petroleum, 692 F.2d 1015 (5th Cir.1982) as being controlling on the question as to whether the value of production may exceed the maximum ceiling price. On the facts presented in that case the value of production could not exceed the NGPA ceiling price. This case is different on its facts and does not address the question of state severance taxes or the specific statutory treatment of state severance tax in relation to the set maximum prices.
It is important to note that the IBLA stated that the clear language of the regulation specified that all relevant matters shown be considered in determining the estimated reasonable value. The value of production is based on the estimated reasonable value. One relevant factor was Sec. 3320(a) of the NGPA which provides:
(a) Allowance for State severance taxes and certain production-related costs.--Except as provided in subsection (b) of this section, a price for the first sale of natural gas shall not be considered to exceed the maximum lawful price applicable to the first sale of such natural gas under this part if such first sale price exceeds the maximum lawful price to the extent necessary to recover--
(1) State severance taxes attributable to the production of such natural gas and borne by the seller, but only to the extent the amount of such taxes does not exceed the limitation of subsection (b) * * *
The IBLA thought that it was relevant to consider the reimbursement of the state severance tax. Although this section of the NGPA specifies that the exception applies when state severance taxes are borne by the seller and Oklahoma requires them to be paid by the purchaser, the IBLA reasoned that in this case, the economic result was the same. The IBLA noted that Hoover & Bracken received the ceiling amount because the actual price to the purchaser was the ceiling amount plus the amount of taxes. Accordingly, the IBLA found that the reasonable value exceeded the gross proceeds.
The IBLA also cited a policy reason. It considered to whom the benefit of the federal government's sovereign...
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