Michigan Oil Co. v. Natural Resources Com'n

• Decision Date: 01 March 1979
• Docket Number: No. 59088,No. 5,59088,5
• Citation: 276 N.W.2d 141,406 Mich. 1
• Parties: MICHIGAN OIL COMPANY, a Michigan Corporation, Petitioner-Appellant, v. NATURAL RESOURCES COMMISSION and Supervisor of Wells, Defendants-Appellees, and Pigeon River Country Association, Intervenor-Appellee. Calendar406 Mich. 1, 276 N.W.2d 141, 9 Envtl. L. Rep. 20,625
• Court: Michigan Supreme Court

Page 141

276 N.W.2d 141

MICHIGAN OIL COMPANY, a Michigan Corporation, Petitioner-Appellant, v. NATURAL RESOURCES COMMISSION and Supervisor of Wells,

Defendants-Appellees,

and

Pigeon River Country Association, Intervenor-Appellee.

No. 59088.

Calendar No. 5.

406 Mich. 1, 276 N.W.2d 141, 9 Envtl. L. Rep. 20,625

Supreme Court of Michigan.

Argued May 3, 1978.

Decided March 1, 1979.

Honigman Miller Schwartz & Cohn, Detroit, for petitioner-appellant Michigan Oil Co.; Jason L. Honigman and John Sklar, Detroit, and Lynch, Gallagher & Lynch, Mt. Pleasant, of counsel.

Frank J. Kelley, Atty. Gen., Robert A. Derengoski, Sol. Gen., Stewart H. Freeman, Thomas F. Schimpf, Asst. Attys. Gen., Lansing, for defendants-appellees.

Berkey, Erickson, Rentrop & Martin, Gary R. Rentrop and Samuel K. Hodgdon, Bloomfield Hills, for intervenor-appellee; Philip Soper, Ann Arbor, of counsel.

MOODY, Judge.

The issue before the Court is whether the Natural Resources Commission (NRC) properly denied Michigan Oil's permit application for oil and gas drilling on a 40-acre site of state-owned land known as Corwith 1-22 in July of 1972. Beyond this apparently simple question are broad policy considerations; therefore, it is necessary to fully understand the factual setting of the instant case before addressing the legal issues set forth.

BACKGROUND

Corwith 1-22, the 40-acre site involved in the instant controversy, is located in the Pigeon River Country State Forest (hereinafter the Pigeon River Forest or Forest) which consists of 92,872 acres of rolling The Forest is also the home of the largest remaining elk herd east of the Mississippi River. In fact, Section 22, containing Corwith 1-22, is in the heart of a 25-square-mile area of semi-wilderness which is the favored habitat of the elk harem.

hills, deep swamps, high forests, lakes and streams. Located in Otsego and Cheboygan Counties, the Pigeon River Forest is one of the largest remaining tracts of publicly owned, wild, undeveloped land in the lower peninsula. Two of the state's highest quality trout streams, the Pigeon and Black Rivers, flow through the Forest. The [406 MICH 17] Pigeon River Forest provides one of the few remaining favorable habitats in the lower peninsula for wildlife, including bear, bobcat, beaver, woodcock, osprey, eagle, and many other birds and animals.

Another natural resource, oil, one which provides great opportunity for profit, has also been found in the Forest. Thus, in 1968, when the Department of Natural Resources (DNR) sold oil and gas leases covering more than one-half million acres of state-owned land in the northern lower peninsula, it is not surprising that more than 10% Or 57,669 of those acres were located in the Pigeon River Forest. As a consequence, more than one-half of this special Forest was leased for gas and oil development. Prior to the sale of the leases, no environmental assessment was made of the property to be leased. In fact, the regional office of the DNR was given only nine days to review the almost 600,000 acres prior to the proposed sale. The DNR received $1,122,788 from the 1968 auction of oil and gas leases, or an average of $2.06 an acre.

The first permit to drill on state-owned land in the Pigeon River Forest, pursuant to a 1968 lease, was issued in May of 1970. On September 16, 1970, after only two drilling permits had been issued, Governor William G. Milliken urged the NRC to establish a moratorium on the issuance of drilling permits for state land because of his "great concern about potential environmental intrusion and encroachment from oil and gas drilling in this important scenic forest area". During this moratorium the NRC instructed the DNR to launch field studies to pinpoint areas of special wildlife significance and unusual natural value, in an effort to develop a comprehensive management plan for the Pigeon River Forest. Until a comprehensive plan could be developed, permit applications were reviewed on an individual basis to determine whether drilling would destroy natural resources. Subsequent to the moratorium, drilling permits were granted for state-owned land only in areas already damaged by oil development. During and subsequent to the moratorium, permits were issued for drilling on private land. Nevertheless, no drilling permit was issued within the 25-square-mile area surrounding Corwith 1-22, the proposed drilling site involved in the present controversy.

Corwith 1-22

State of Michigan Oil and Gas Lease No. 9656, covering 1,760 acres of Corwith Township including the 160 acres comprising the southeast 1/4 of Section 22 was purchased by Pan American Petroleum Corporation. In December of 1968, Pan American assigned an undivided 50% Interest in this lease to Northern Michigan Exploration Company and Amoco Production Company. In April of 1971, Northern Michigan Exploration and Amoco applied for a permit to drill a well on the southwest 1/4 of the southeast 1/4 of Section 22 of Corwith Township, a 40-acre site. On October 11, 1971, the Supervisor of Wells denied the application on the grounds that oil and gas drilling on the site would cause "serious and unnecessary damage" to various wildlife in the area, the swamp in the area would be affected, and the drilling would cause a "serious intrusion into a nearly solid block of semi-wilderness area of state lands". The denial specifically stated that No site in the 40 acres was acceptable. No appeal was made from this permit denial.

With full knowledge of this denial, because of his membership on the Oil and Gas Advisory Board of the Supervisor of Wells, Vance W. Orr, Vice President of McClure Oil Company and President of Michigan Oil

Company, accepted on behalf of McClure Oil an assignment of the lease rights to this 40-acre site in Section 22 of Corwith Township. "For and in consideration of the sum of One Dollar ($1.00) * * * and other valuable considerations," Northern Michigan Exploration and Amoco assigned to McClure Oil Company their interest in Lease No. 9656 covering the 40-acre site in Section 22. Four months later, in May of 1972, McClure Oil entered into a contract with its wholly-owned subsidiary, Michigan Oil Company. Under the terms of the contract, Michigan Oil would receive assignment of the leasehold interest, if Michigan Oil could obtain a drilling permit and then drill a commercial producing well on the 40-acre site referred to as Corwith 1-22.

The Drilling Permit

Within two weeks of the contract agreement, Michigan Oil filed the second application for a permit to drill a well on Corwith 1-22. This second application was also denied by the Supervisor of Wells, in a letter dated July 21, 1972. In addition to noting the earlier denial of Northern Michigan Exploration and Amoco's application to drill on the same 40-acre site, the letter to Michigan Oil stated:

"Oil and gas operations at the above site cannot be conducted without causing or threatening to cause serious damage to animal life and molesting or spoiling state-owned lands. * * *

"This area was originally leased on October 1, 1968. Due to our increased awareness of quality environment, and increased success in oil and gas exploration, I firmly believe this area would not have been offered for lease today.

"(T)he Natural Resources Commission has asked that we set up a forest management plan to preserve the special quality environment now present.

"Such a plan would establish a broad management policy for the area, identifying kinds of management programs and uses to be permitted. It would involve zoning of areas, each differing in intensity or type of use to be permitted. Preparation of this plan is under way at the present time and should be completed within six months, including time for public hearings. For this reason it is appropriate that the present application be denied. You may also expect me to direct denial of all other applications for drilling permits in the area under study, pending drafting of and action on the management plan.

"With reference to the present application I make the following specific points.

"The proposed drilling site is located in a 40-acre tract within a township about 93 percent state owned and hence almost entirely in a wild state. Similar conditions prevail in the townships to the north and south. This surrounding area is primitive in nature, largely wooded, with minimal development. The roads are narrow, winding, and highly scenic. The proposed site is near the center of the Michigan elk range. The area has substantial populations of game white-tailed deer, ruffed grouse, and woodcock, and relict populations of wildlife requiring extensive little-disturbed, wild areas such as black bears, bobcats, bald eagles, pileated woodpeckers, and ravens. All of the latter are scarce or very local in occurrence in the Lower Peninsula.

"Development for oil or gas has not yet reached this secluded area." (Emphasis added.)

With nothing to lose and everything to gain, Michigan Oil, the potential assignee of McClure Oil's leasehold interest, appealed the denial of its permit application to the NRC. The NRC appointed a hearing examiner to conduct the administrative hearing. The Pigeon River Country Association intervened under the Michigan Environmental Protection Act (MEPA), M.C.L. § 691.1205(1); M.S.A. § 14.528(205)(1). The hearing examiner ruled, however, that the intervention was untimely and that the environmental protection act could not be raised. The examiner further ruled that the parties were limited to issues raised by the initial parties in their pretrial statements.

The hearing examiner filed a written report, adopting almost verbatim Michigan Oil's proposed findings of fact and conclusions of law, recommending that the drilling permit be issued. The NRC, after reviewing the record, the briefs and the proposed findings of fact, rejected the recommendations of the hearing examiner and upheld the denial of Michigan Oil's application for a...