Intervenors v. Mosaic Potash Carlsbad Inc.

• Decision Date: 19 April 2010
• Docket Number: Nos. 28,746, 28,747.,s. 28,746, 28,747.
• Parties: BASS ENTERPRISES PRODUCTION COMPANY, Respondent-Appellant, and The Patsy Mills Baker GST Trust, The Patsy Mills Baker 2005 GST Trust, The Jimmy Mills GST Trust, The Jimmy Mills 2005 GST Trust, The Brett Everett Longley Trust, and The William Joseph Longley Trust, Intervenors-Appellants, v. MOSAIC POTASH CARLSBAD INC., Intervenor-Petitioner. Devon Energy Production Company, L.P., Respondent-Appellant, v. Mosaic Potash Carlsbad Inc., Intervenor-Petitioner.
• Court: Court of Appeals of New Mexico

148 N.M. 516

238 P.3d 885

2010 NMCA 065

BASS ENTERPRISES PRODUCTION COMPANY, Respondent-Appellant,

and

The Patsy Mills Baker GST Trust, The Patsy Mills Baker 2005 GST Trust, The Jimmy Mills GST Trust, The Jimmy Mills 2005 GST Trust, The Brett Everett Longley Trust, and The William Joseph Longley Trust, Intervenors-Appellants,

v.MOSAIC POTASH CARLSBAD INC., Intervenor-Petitioner.

Devon Energy Production Company, L.P., Respondent-Appellant,

v.Mosaic Potash Carlsbad Inc., Intervenor-Petitioner.

Nos. 28,746, 28,747.

Court of Appeals of New Mexico.

April 19, 2010.

Certiorari Denied, June 21, 2010, No. 32,407.

Certiorari Denied, June 21, 2010, No. 32,408.

COPYRIGHT MATERIAL OMITTED.

COPYRIGHT MATERIAL OMITTED.

Holland & Hart, LLP, William F. Carr, Michael H. Feldewert, Larry J. Montano, Ocean Munds-Dry, Jacqueline Davis, Kristina Elena Martinez, Santa Fe, NM, for Appellants Bass Enterprises Production Company and Devon Energy Production Company, L.P.

Hinkle, Hensley, Shanor & Martin, L.L.P., Andrew J. Cloutier, Roswell, NM, for Appellants Patsy Mills Baker GST Trust, et al.

Comeau, Maldegen, Templeman & Indall, LLP, Joseph E. Manges, Santa Fe, NM, Kemp Smith LLP, Charles C. High, Jr., Clara B. Burns, El Paso, TX, for Appellee Mosaic Potash Carlsbad Inc.

Modrall, Sperling, Roehl, Harris & Sisk, P.A., Larry P. Ausherman, Adam H. Greenwood, Albuquerque, NM, for Intervenor-Petitioner Intrepid Potash-New Mexico LLC.

OPINION

ROBLES, Judge.

{1} The issue before us in this appeal is whether the New Mexico Oil Conservation Commission (OCC) properly denied two Applications for Permits to Drill (APDs) oil and gas wells in Eddy County, New Mexico. The APDs were filed by Bass Enterprises Production Company (Bass) and Devon Energy Production Company, L.P. (Devon) (collectively, Applicants) and were opposed by Mosaic Potash Carlsbad Inc. (Mosaic). Applicants appealed the OCC's orders to the district court, who ultimately reversed the orders, holding that they were not supported by substantial evidence, were not in accordance with law, and were arbitrary and capricious. Mosaic petitioned this Court for a writ of certiorari in each case, which we granted. We have consolidated the two cases and, after reviewing the record, amicus briefs, and the arguments of the parties, we conclude that there was substantial evidence to support the OCC's orders, they were in accordance with the law, and they were not arbitrary or capricious. Accordingly, we reverse the district court and remand with instructions to affirm the original orders of the OCC denying the APDs.

I. BACKGROUND

{2} The OCC was created by NMSA 1978, Section 70-2-4 (1987) of the Oil and Gas Act (Act). Marbob Energy Corp. v. N.M. Oil Conservation Comm'n, 2009-NMSC-013, ¶ 2, 146 N.M. 24, 206 P.3d 135. Under the Act, the OCC is charged with preventing the waste of potash resources and oil and gas and, in this regard, it is given specific powers and jurisdiction to regulate the drilling of oil and gas under certain circumstances. Pursuant to this power, on April 21, 1988, the OCC adopted Order No. R-111-P, in which it defined a geographical area called the “Potash Area” and established rules pertaining to potash, oil, and gas development within that area. Order No. R-111-P(B). This area was to be “coterminous” with the “Known Potash Leasing Area” (KPLA), which is defined by the Bureau of Land Management (BLM). See Oil, Gas & Potash Leasing & Dev. Within the Designated Potash Area of Eddy & Lea Counties, N.M., 51 Fed.Reg. 39425-01 (Oct. 28, 1986) (defining the KPLA and resigning to cooperation with the OCC in implementation of OCC's rules and regulations and specifically acknowledging Order No. R-111-P as amended).

{3} The OCC noted in Order No. R-111-P (3) that there had previously been confusion regarding boundaries of potash leasing areas, and the oil and gas industry and the potash industry had demonstrated a “lack of tolerance” in areas where both industries had interests. It determined that a system was needed to prevent overlapping extraction of resources because oil and gas production could release methane into a potash mine, which would endanger the lives of miners and would make further mining uneconomic because expensive safety upgrades would be required in order for the mines to remain compliant under the Mine Safety and Health Administration (MSHA) of the United States Department of Labor. Order No. R-111-P(13).

{4} Further, Order No. R-111-P was based off of an agreed compromise by both industries that created a process for prohibiting oil and gas drilling in areas where doing so would waste potash, and a copy of that agreement was attached to Order No. R-111-P as an exhibit. Order No. R-111-P (4)-(12); Exhibit B. Under the agreement, “potash operators relinquish[ ] lower grade marginal or uneconomic ore deposits in order to more fully protect their higher grade ore deposits[,] and the oil/gas operators receiv[e] such lands containing sub-economic ore deposits as prospective drill[ ]sites.” Order No. R-111-P (9). The OCC found that “in the interest of preventing waste of potash [the OCC] should deny any application to drill in commercial potash areas as recommended in the work committee report, unless a clear demonstration is made that commercial potash will not be wasted unduly as a result of the drilling of the well.” Order No. R-111-P(20) (emphasis added).

{5} Under Order No. R-111-P(G), a potash lessee is allowed to file a designation of an area constituting its Life of Mine Reserves (LMR) with the BLM for federal lands and with the State Land Office (SLO) for state lands. An LMR designation represents acknowledged deposits of potash within the potash area that are “reasonably believed ... to contain potash ore in sufficient thickness and grade to be mineable using current day mining methods.” Order No. R-111-P(G)(a). The designation is subject to approval by officers of the BLM and SLO. Id. An oil and gas operator, proposing to drill on state or fee lands within the KPLA, is required to give notice to all potash lessees of lands within one mile of the proposed drill site. Order No. R-111-P(G)(2). Order No. R-111-P(G)(3) provides that applications to drill on state or fee lands within a potash LMR, or within a buffer zone of one-quarter mile for shallow wells, or one-half mile for deep wells surrounding an LMR, “may be approved only by mutual agreement of lessor and lessees of both potash and oil and gas interests.” Id.

{6} In Eddy County, there are tracts of fee land that are within the potash area. See generally Order No. R-111-P. Applicants' APDs pertain to land located in this checkerboard area.

{7} In the case of Bass, the land in question was on a forty-acre tract of fee land owned by Stacy Mills and others. In Devon's case, the land was also a forty-acre tract owned by Kenneth Smith and his family. The APDs were filed with the OCD as required by statute and order of the OCC. See generally NMSA 1978, §§ 70-2-1 to -38; Order No. R-111-P. Bass sought the approval for a well, known as the James Ranch Unit Well No. 93, proposed on the Mills' parcel. Devon sought approval for two wells, both on the Smiths' parcel located in the potash area of Eddy County. The APDs were opposed by Mosaic, who had an LMR in Section 7, not including the forty-acre tract owned by the Mills family, and LMRs in Sections 23 and 24, not including the forty-acre tract owned by the Smith family. The APDs were ultimately approved by the OCD.

{8} Pursuant to Section 70-2-13, Mosaic timely applied to have the matters reheard de novo before the OCC, and the APDs were consolidated and heard together, at which time, all parties were permitted to call witnesses, present exhibits, and cross-examine witnesses. Subsequently, the OCC issued Order No. R-12402-A in the Bass case, and Order No. R-12403-A in the Devon case, both of which denied Applicants' APDs. Applicants filed motions for rehearing with the OCC, which were deemed denied when they were not acted upon within ten days. See NMSA 1978, § 70-2-25(A) (1999). Applicants appealed the OCC's orders to district court pursuant to Section 70-2-25(B) and NMSA 1978, Section 39-3-1.1 (1999). Mosaic petitioned the district court to intervene as an interested party and to join the OCC in defense of the OCC's orders, and the district court granted the motion. Oral arguments on both cases were heard together. The district court issued separate memorandum decisions concluding that, in both cases, the OCC's orders lacked substantial evidence, were arbitrary and capricious, were not in accordance with the law, and were therefore invalid and void. The OCC has decided not to participate in this appeal, and we have allowed briefing by the Mills family as intervenors.

II. DISCUSSION

{9} “[J]udicial review of administrative action ... requires a determination whether the administrative decision is arbitrary, unlawful, unreasonable, capricious, or not based on substantial evidence.” Regents of Univ. of N.M. v. Hughes, 114 N.M. 304, 309, 838 P.2d 458, 463 (1992). “This Court applies the same statutorily defined standard of review as the district court.” Miller v. Santa Fe Bd. of County Comm'rs, 2008-NMCA-124, ¶ 16, 144 N.M. 841, 192 P.3d 1218 (alteration omitted) (internal quotation marks and citation omitted). Accordingly, we review the OCC's orders in concert with the record.

A. Accordance with the Law

{10} On appeal, Applicants argue that (1) the OCC incorrectly placed the burden on them; (2) the OCC's decision represented a departure from the prior decisions; and (3) the OCC had a duty to balance the competing interests of oil, gas, and potash operators. We address each issue in turn.

{11} A ruling that is not in accordance with the law should be reversed “if the agency unreasonably or unlawfully misinterprets or misapplies the law.” Archuleta v. Santa Fe Police Dep't ex rel. City of Santa Fe, 2005-NMSC-006, ¶ 18, 137 N.M. 161, 108 P.3d...