In re Platinum Oil Props., LLC, 11-09-10832 JA

• Decision Date: 26 November 2013
• Docket Number: No. 11-09-10832 JA,11-09-10832 JA
• Parties: In re: PLATINUM OIL PROPERTIES, LLC, Debtor.
• Court: U.S. Bankruptcy Court — District of New Mexico

In re: PLATINUM OIL PROPERTIES, LLC, Debtor.

No. 11-09-10832 JA

UNITED STATES BANKRUPTCY COURT DISTRICT OF NEW MEXICO

Date entered on docket: November 26, 2013

MEMORANDUM OPINION

THIS MATTER is before the Court following a two-day evidentiary hearing on the issue of whether Platinum Oil Properties, LLC ("Platinum") owns the operating rights relating to Oil and Gas Lease Nos. 71 and 363 (together, the "Oil and Gas Leases") located on tribal land of the Jicarilla Apache Nation ("JAN"). Central to the determination of the issue is the application of 25 C.F.R. § 211.53, promulgated by the Department of the Interior pursuant to the Indian Mineral Leasing Act of 1938, 25 U.S.C. §§ 396(a)-396(g) ("IMLA"), and whether the purported transfer to Platinum of operating rights under the Oil and Gas Leases is subject to approval of the Secretary of the Department of the Interior (the "Secretary"). The Secretary has not approved the transfer of operating rights under the Oil and Gas Leases to Platinum. The JAN contends that the Secretary's approval of a transfer or assignment of operating rights under an oil and gas lease is required, both under the terms of the Oil and Gas Leases themselves, and pursuant to 25 C.F.R. §211.53. The JAN also asserts that its approval of the transfer of operating rights under the Oil and Gas Leases is required. Platinum counters that the Secretary's approval of the transfer of operating rights is not required for two reasons: first, because operating rights are non-record title interests relating to oil and gas leases; and second, because agreements designating operators include the transfer of operating rights. Platinum contends further that the JAN's approval of a transfer of operating rights under the Oil and Gas Leases is not required.¹

After considering counsel's arguments and the evidence presented at the final hearing, and the applicable law, and being otherwise sufficiently informed, the Court finds that, under 25 C.F.R. § 211.53, an assignment of operating rights in an oil and gas lease on Indian land requires the Secretary's approval. Because Platinum has not obtained the Secretary's approval of a transfer to Platinum of operating rights under the Oil and Gas Leases, the purported transfer is ineffective.

PROCEDURAL HISTORY

Platinum filed a voluntary petition under Chapter 11 of the Bankruptcy Code on March 2, 2009. On March 6, 2009, Platinum filed a motion requesting "entry of an order authorizing the assumption of Jicarilla 'Oil and Gas Mining Lease - Tribal Indian Lands,' Contract No 71. Dated March 14, 1951 ("Lease 71") and Jicarilla 'Oil and Gas Mining Lease - Tribal Indian Lands,' Contract No. 363, dated April 18, 1966 ("Lease 363")." See Docket No. 10. Platinum bases its interest in the Oil and Gas Leases, in part, on a confirmation order entered in In re Golden Oil Company, Case No. 03-36974-82-11 (Bankr.S.D.Tex. 2003) (the "Golden OilBankruptcy"). JAN objected to Platinum's motion to assume. See Docket No. 18.² The JAN also filed a complaint for declaratory judgment initiating Adversary Proceeding No. 09-1087 J. Adversary Proceeding No. 09-1087 J includes a request for declaratory relief determining that Platinum does not hold any interest in the operating rights and working interests under the Oil and Gas Leases. The JAN also filed a motion to dismiss Platinum's bankruptcy case, asserting in part that Platinum holds no interest in the Oil and Gas Leases that could form the basis for reorganizing. See Docket Nos. 43 and 225.

The Department of the Interior ("DOI") filed a motion to withdraw the reference of the bankruptcy case, asserting that, because the question of whether Platinum owns the operating rights in question requires application of federal non-bankruptcy law, including the IMLA and the regulations promulgated under the IMLA, the matter should be heard by the United States District Court. See Docket No. 111. The JAN joined in the DOI's motion to withdraw the reference. See Docket No. 134. BP America and Platinum each objected to the motion to withdraw the reference. The United States District Court denied the DOI's motion to withdraw the reference. See United States District Court Case No. 09-CV-922 (Docket No. 18).

Platinum filed a plan and disclosure statement in this bankruptcy case on June 30, 2009. See Docket No. 56. The plan contemplated restarting the wells under the Oil and Gas Leases. Id. After a status conference held in the bankruptcy case on August 31, 2009, the Court determined it should first determine, as a threshold matter, the issues relating to what rights, if any, Platinum has in or under the Oil and Gas Leases. See Docket No. 115. Platinum and the JAN filed cross-motions for summary judgment with supporting briefs on these threshold issues. See Docket Nos. 193 and 195 (Platinum's motion and brief in support of summary judgment);Docket Nos. 103 and 104 (JAN brief in support of summary judgment).³ After hearing oral argument on the cross-motions for summary judgment, the Court directed the parties to file supplemental briefs. See Docket No. 220. The DOI filed an advisory brief regarding the interplay between the IMLA and the Bankruptcy Code. See Docket No. 223. Platinum asserted that it needed no approval by the Secretary of a transfer of operating rights in the Oil and Gas Leases, or had satisfied any approval requirement, by virtue of the confirmed plan in the Golden Oil Bankruptcy. The JAN countered that a confirmed chapter 11 plan cannot supersede the requirements under the IMLA or its own laws, and argued that a transfer of any interest in the Oil and Gas Leases to Platinum requires the approval of the Secretary and of the JAN, and that neither had given such approval.

On August 12, 2011 the Court entered a Memorandum Opinion and order denying the cross-motions for summary judgment. See Docket Nos. 258 and 259. As part of its Memorandum Opinion, the Court made fifty-two findings of fact. See Docket No. 258. The Court determined that the confirmed plan in the Golden Oil Bankruptcy bound the JAN and the DOI to its terms, but that because the plan provided for a transfer of the operating rights in question to McKay-Lotspeich-Group ("MLG"), not Platinum, the confirmed plan did not obviate the need for Platinum to obtain approval by the Secretary or JAN to a transfer of the operating rights if such approvals are required. See Memorandum Opinion, Docket No. 258, pp. 15 - 19, 29 and 35. In reaching this determination, the Court did not decide whether the Secretary's approval of a transfer of operating rights is required; rather, the Court determined that, if a transfer of operating rights requires the Secretary's approval, the confirmed plan in the Golden Oil Bankruptcy satisfied that requirement with respect to a transfer to MLG, but not as toPlatinum. The Court also did not consider whether a transfer of operating rights requires approval by the JAN.

The Court found in its Memorandum Opinion that the record then before it was insufficient to determine the following issues: 1) whether 25 C.F.R. § 211.53 requires the Secretary's approval of a transfer of operating rights, or, if it does, whether the Indian mineral owner, by enactment of legislation after a lease becomes effective, may require its consent to the transfer when the operative lease does not expressly require such consent; or 2) whether the JAN is bound by any admission that Platinum is the owner of the operating rights and working interests under the Oil and Gas Leases. Memorandum Opinion - Docket No. 258, p. 36. Thus, the threshold issues remained unresolved.⁴ On request of the JAN, the Court entered an order pursuant to Fed.R.Civ.P. 56(g), and Fed.R.Bankr.P. 9014 establishing the fifty-two facts contained in the Court's Memorandum Opinion for purposes of the Court's final adjudication of the threshold issues. See Docket No. 292. The JAN filed a second motion to dismiss on December 30, 2011. See Docket No. 275. Following the preliminary hearing on the motion to dismiss, the Court set a final hearing on April 10, 2012 on the "threshold issues" as set forth in its Memorandum Opinion entered August 12, 2011. See Docket No. 281.

The parties then attempted to settle their dispute. At the parties' request, the Court continued the final hearing on the threshold issues for over a year. After the parties' settlement efforts failed, the Court held a final evidentiary hearing on May 22 and 23, 2013 on the thresholdissue of whether Platinum owns the operating rights relating to the Oil and Gas Leases (the "Threshold Issue").⁵

FACTS

The fifty-two findings of fact contained in the Court's Memorandum Opinion entered August 12, 2011 have been deemed established for purposes of adjudicating whether Platinum owns the operating rights relating to the Oil and Gas Leases. The fifty-two findings are attached hereto as Appendix A and are incorporated herein by reference. In addition to those fifty-two findings of fact, the Court makes the following findings of fact:

1. The Oil and Gas Leases each include the following provisions:

[T]he lessee . . . agrees:

To abide by and conform to any and all regulations of the Secretary of the Interior now or hereafter in force relative to such leases:⁶Provided, That no regulation hereafter approved shall affect a change in rate of royalty or annual rental herein specified without the written consent of the parties to this lease.

Not to assign this lease or any interest therein by an operating agreement or otherwise nor to sublet any portion of the leased premises before restrictions are removed, except with the approval of the Secretary of the Interior. If this lease is divided by the assignment of an entire interest in any part of it, each part shall be considered a separate lease under all the terms and conditions of the original lease.

See Lease 363, paragraphs (g) and (h) - Platinum Exhibit 25; and Lease 71, paragraphs (g) and (h) - Platinum Exhibit 26.

2. The Oil and

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