SANTA FE INTERN. CORP. v. Watt
| Decision Date | 17 July 1984 |
| Docket Number | Civ. A. No. 83-347 MMS. |
| Citation | 591 F. Supp. 929 |
| Parties | SANTA FE INTERNATIONAL CORPORATION, et al., Plaintiffs, v. James G. WATT, Secretary of the Interior, et al., Defendants. |
| Court | U.S. District Court — District of Delaware |
Andrew B. Kirkpatrick, Jr., and Martin P. Tully, Morris, Nichols, Arsht & Tunnell, Wilmington, Del., for plaintiffs; William T. Coleman, Jr., Richard C. Warmer, Carl R. Schenker, Jr., Christopher W. Savage, Susan S. Richardson, Donald L. Morgan, J. Eugene Marans and Jonathan J. Rusch, Cleary, Gottlieb, Steen & Hamilton, Washington, D.C., of counsel.
Joseph J. Farnan, Jr., U.S. Atty., and Richard J. McMahon, Asst. U.S. Atty., Dept. of Justice, Wilmington, Del., F. Henry Habicht, II, Roger J. Marzulla and Lawrence W. Puckett, Dept. of Justice, Washington, D.C., for defendants.
Former Secretary of the Interior James G. Watt issued a decision on March 10, 1983, barring Kuwaiti citizens and corporations from acquiring interests in oil and gas leases on public lands under the Mineral Lands Leasing Act of 1920, 30 U.S.C. §§ 181 et seq. (1982) (the "MLLA"). See "Decision on the Status of Kuwait Under the Mineral Lands Leasing Act of 1920 (30 U.S.C. § 181 et seq)," Docket Item ("Dkt.") 6A at 157 (). The present action challenges that decision.1
Section 1 of the MLLA, 30 U.S.C. § 181, provides that mineral rights on federally owned lands2 may be leased only to United States citizens or corporations. It nonetheless allows aliens to own stock interests in U.S. corporations which hold mineral leases if certain conditions are met. Pursuant to the "alien qualification" proviso of section 1:
Citizens of another country, the laws, customs, or regulations of which deny similar or like privileges to citizens or corporations of this country, shall not by stock ownership, stock holding, or stock control, own any interest in any lease acquired under the provisions of this chapter.
Secretary Watt's decision classified Kuwait as a "nonreciprocal" nation under this alien qualification provision, thereby preventing corporations with Kuwaiti stock ownership from holding federal mineral leases.
The plaintiff corporations in this case (referred to jointly as "Santa Fe"), all U.S. corporations, are ultimately owned by Kuwait Petroleum Corporation ("KPC"), a Kuwaiti corporation.3 KPC in turn is owned by the sovereign nation of Kuwait. Santa Fe, according to its complaint, currently holds 275 oil and gas leases on 252,950 net acres of government land worth approximately $14 million dollars.4 It has pending 95 applications for MLLA oil and gas leases covering 219,500 net acres.5 Under the Secretary's March 10 Decision Santa Fe no longer qualifies to hold MLLA leases,6 although the Decision left open the possibility that Santa Fe's existing leases could remain intact. See Press Conference of James G. Watt, March 10, 1983, Dkt. 6A at 169, 173-74, 177.
Santa Fe attacks the Secretary's Decision on two grounds. In count one Santa Fe contends that as a matter of law, based on undisputed facts, Secretary Watt's Decision was arbitrary, capricious, an abuse of discretion and contrary to law. In count two Santa Fe raises numerous procedural and due process challenges to the method by which the Secretary reached his Decision. Santa Fe has moved for summary judgment (or, in the alternative, for a preliminary injunction) on count one. The parties agree that count one raises no issues of material fact. The government has filed a cross motion for summary judgment on both counts one and two. The Court reaches a decision on count one only because the Secretary's Decision will be remanded for reconsideration of Kuwait's reciprocity status.
As explained below, Secretary Watt disqualified Kuwait because Kuwait discriminated "in effect" against United States citizens. Secretary Watt did not (and under Department of Interior precedent could not) disqualify Kuwait simply because Kuwait had nationalized its oil and gas industry. Rather, Secretary Watt relied on a coincidental difference in treatment between U.S. and Japanese citizens: he decided that Kuwait discriminated against U.S. interests when it nationalized its petroleum industry in the 1970's by acquiring all concessions held by U.S. corporations while leaving intact a Japanese concession in an offshore region administered jointly by Kuwait and Saudi Arabia. Secretary Watt did not, however, conduct an inquiry into whether Kuwait allowed the Japanese interest to remain in private hands for legitimate, objective reasons unrelated to Japanese or American citizenship. His analysis was therefore erroneous. The MLLA, the Court holds, allows disqualification of a foreign nation only if that country discriminates against U.S. citizens because of their citizenship. A mere difference in treatment will not suffice.
Certain background discussion will be helpful in understanding the Court's review of the March 10 Decision. In this section, the opinion will first survey the historical development of Kuwait's petroleum industry. Next, it will outline the Department of Interior's ("DOI") procedure for applying the alien qualification provision and will describe how those procedures were implemented in relation to Kuwait. It will then summarize the agency's decisions (both the March 10 Decision and an earlier decision on December 29, 1982) regarding Kuwait's status under the MLLA. With this background completed, the opinion will in the next section analyze Secretary Watt's interpretation of the alien qualification provision in light of congressional intent and agency precedent.
The history of Kuwait's petroleum industry is typical of that experienced by other less developed countries. Western oil companies participated heavily in the early development of Kuwait's hydrocarbon production but, in more recent years, their proprietary interests have given way to increased state ownership.
Before Kuwait began a nationalization campaign in the 1970's, United States corporations, as well as other foreign corporations, actively developed Kuwait's petroleum resources. Over time, Kuwait granted a total of five different concessions to foreign interests:7
1) In 1934 Kuwait granted a concession for onshore mineral rights to Kuwait Oil Company ("KOC"), a corporation owned 50 percent by the American-owned Gulf Oil Corporation and 50 percent by British Petroleum.8
2) In 1948 and 1949 the American Independent Oil Company ("Aminoil"), a corporation wholly owned by American interests, was granted a concession for onshore petroleum rights.
3) In 1958 Kuwait granted an offshore concession to the Japanese-owned Arabian Oil Company ("Arabian Oil") in the "Divided Zone." The Divided Zone is a disputed territory claimed by both Kuwait and Saudi Arabia. Kuwait and Saudi Arabia share an undivided interest in oil production in the offshore portion of the Divided Zone and both have granted concessions to Arabian Oil. Arabian Oil is the sole continental shelf operator in the Divided Zone.
4) In 1961 Kuwait granted an offshore concession to Kuwait Shell Petroleum Development Company ("Shell"), a British-and-Dutch-owned subsidiary of Royal Dutch Shell.
5) In 1967 Kuwait granted an onshore concession jointly to Kuwait National Petroleum Company ("KNPC") (owned, in 1967, 60 percent by the Government of Kuwait and 40 percent by private Kuwaiti investors) and Hispanoil (a Spanish state-controlled oil company).
During the 1970's Kuwait nationalized most of its petroleum production industry. Beginning in 1974 the government acquired 60 percent of the British-and-U.S.-owned KOC, and, in 1976, Kuwait acquired the remaining 40 percent.
In 1975 the Government of Kuwait acquired the private Kuwaiti interests in KNPC, leaving Hispanoil as the sole non-governmental holder of that concession. The KNPC-Hispanoil concession eventually proved a failure. No commercial quantities of oil were ever produced, and in 1976 it suspended operations and relinquished its concession.9
The U.S.-owned Aminoil concession was nationalized in 1977 and, by agreement between the company and the Government of Kuwait, the issue of compensation proceeded to an international arbitration tribunal. In 1982 the tribunal awarded Aminoil almost $180 million.10
The Shell concession, like the KNPC-Hispanoil concession, never produced commercial quantities of oil. Shell drilled three unsuccessful test wells in 1962 and 1963, but discontinued drilling because of uncertainty regarding Kuwait's territorial rights in the area of Shell's exploration. With those rights still undetermined, Shell relinquished its concession in 1979.
In 1980 Kuwait established the Kuwait Petroleum Corporation, an entity wholly owned by the government of Kuwait, and assigned to KPC all government-owned shares of companies involved in the hydro-carbon industry.11
Only one concession remains (at least partially) in private foreign hands — the Arabian Oil concession in the offshore area of the Divided Zone. In 1960 Kuwait and Saudi Arabia each acquired a 10 percent interest in Arabian oil. In 1974 Kuwait, and later Saudi Arabia, acquired an additional 50 percent interest in Arabian Oil. Thus, as it now stands, Japanese interests retain a 40 percent share of the Arabian Oil concession in both the Kuwaiti and Saudi Arabian undivided shares of the Divided Zone's continental shelf sector. Kuwait contends that for practical business reasons it would be unable to nationalize the remaining Japanese holding in the Divided Zone.12
According to the uncontested factual analysis contained in Secretary Watt's March 10 Decision, Kuwait's gradual elimination of foreign interests resulted not from any requirements of Kuwaiti law but from the discretionary decisions of Kuwaiti officials. No written law or policy prohibits foreign corporations from...
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