Southland Royalty Co. v. Federal Energy Adm'n

• Citation: 512 F. Supp. 436
• Decision Date: 11 August 1980
• Docket Number: Civ. A. No. 4-77-179K.
• Parties: SOUTHLAND ROYALTY COMPANY, Plaintiff, v. FEDERAL ENERGY ADMINISTRATION and John F. O'Leary, Administrator, Federal Energy Administration, Defendants.
• Court: U.S. District Court — Northern District of Texas

512 F. Supp. 436

SOUTHLAND ROYALTY COMPANY, Plaintiff, v. FEDERAL ENERGY ADMINISTRATION and John F. O'Leary, Administrator, Federal Energy Administration, Defendants.

Civ. A. No. 4-77-179K.

United States District Court, N. D. Texas, Fort Worth Division.

August 11, 1980.

Vinson & Elkins, Henry S. May, Jr., Houston, Tex., for plaintiff.

Arthur Lowran, Regulatory Litigation Div., Washington, D. C., Kenneth J. Mighell, U. S. Atty., William L. Johnson, Jr., Asst. U. S. Atty., Fort Worth, Tex., for defendants.

MEMORANDUM OPINION

BELEW, District Judge.

This is an action for a declaratory judgment and for injunctive relief to declare illegal and to enjoin and set aside certain actions of the defendants on the grounds that defendants' actions are unauthorized by and are in violation of the Emergency Petroleum Allocation Act of 1973 (EPAA), as amended, 15 U.S.C. §§ 751 et seq.; the Federal Energy Administration Act (FEAA), as amended, 15 U.S.C. §§ 761 et seq.; The Energy Conservation and Production Act (ECPA), Pub.L.No. 94-385, 90 Stat. 1125, The Administrative Procedure Act (APA), as amended, 5 U.S.C. §§ 551 et seq.; the regulations of defendants; and various substantive and procedural rights of plaintiff.

Both Southland and the FEA have moved for summary judgment as to the validity of subpart III(E) of Ruling 1977-2 issued by the FEA on January 19, 1977. As there is no genuine issue of material facts, it is proper to decide this case by summary judgment. See Sweet v. Childs, 507 F.2d 675, 680 (5th Cir. 1975), Dozier v. United States, 473 F.2d 866 (5th Cir. 1973).

Because of Ruling 1977-2 Plaintiffs allege Defendants are attempting to illegally restrict the scope of the statutory exemptions from Federal price controls of crude oil production from stripper well properties.

JURISDICTION

Jurisdiction is founded on the following statutes: (a) The EPAA, 15 U.S.C. § 751, § 754(a)(1), as amended; (b) the FEAA, as amended, 15 U.S.C. § 761 et seq.; (c) the Economic Stabilization Act of 1970, 12 U.S.C. § 1904 note; (d) the EPCA 42 U.S.C. §§ 6201 et seq. and § 6393(b); and (e) the provisions of 28 U.S.C. §§ 1331, 1346, 1361, 2201 and 2202.

FEA Reg. § 205.154 provides that there is no administrative appeal of rulings issued by the FEA, and, therefore, the Plaintiff has no administrative remedy against Defendants' alleged unlawful acts and interpretation of the regulations.

The Parties

Plaintiff Southland is a corporation engaged in the production of crude oil. Part of such production comes from marginal wells. These wells are known as stripper wells or stripper properties.

The defendants are the Department of Energy¹ (DOE) and its secretary James R. Schlesinger, who is Administrator of the FEA and in that capacity has been delegated the powers and duties conferred upon the President and the FEA by the EPAA, the FEAA and the EPCA.

STATUTES AND REGULATIONS

The Origin Of The "Property" Concept: The Economic Stabilization Act of 1970

Federal price control over domestic crude oil stemmed from the Stabilization Act of 1970, Pub.L.No. 91-379, 84 Stat. 796, and amendments thereto. Pursuant to the Act's broad authorization to stabilize prices, the Cost of Living Council (CLC) on August 19, 1973, issued the Phase IV Petroleum Price Regulations which regulated the prices of the first sales of all domestic crude oil.² CLC identified a "property" as the basic producing unit subject to price regulation and defined the term as coextensive with the boundaries of the land that the producer owned or leased and from which he produced crude oil:

"Property" is the right which arises from a lease or from a fee interest to produce domestic crude petroleum.

38 Fed.Reg. 22, 538 (August 22, 1973); 6 C.F.R. § 150.354 (1973).

To implement the price controls, CLC required that the producer calculate a "base production control level" (BPCL) for each property, the BPCL equalling the amount of crude oil produced and sold from the property in the base year 1972. 38 Fed. Reg. at 22,538; 6 C.F.R. § 150.354(b) (1973).

The property's BPCL was the cornerstone of the Phase IV price regulations. A producer was required to compare the current volume of production from a property to its BPCL for the corresponding month in 1972. Current production volumes exceeding the BPCL could be sold at unregulated prices,³ while volumes falling below the BPCL were subject to a ceiling price. This so-called "two tier" price control system was thus designed to stabilize petroleum prices, yet give the producer financial incentive to increase production beyond 1972 levels.

The Stripper Well Exemption

The stripper well exemption followed quickly on the heels of the CLC crude oil price regulations. Faced with an energy shortage made immediately serious by the October, 1973 Arab oil embargo, Congress enacted strong measures to increase the domestic crude supply. In Section 406 of the Trans-Alaska Pipeline Authorization Act (TAPAA), enacted on November 16, 1973, Congress freed from Phase IV price controls crude oil recovered from marginally-productive wells known as "stripper wells."

The first sale of crude oil and natural gas liquids produced from any lease whose average daily production of such substances for the preceding calendar month does not exceed ten barrels per well shall not be subject to price restraints established pursuant to the Economic Stabilization Act of 1970, as amended, or to any allocation program for fuels or petroleum established pursuant to that Act or to any federal law for the allocation of fuels or petroleum.

Pub.L.No. 93-153, § 406, 87 Stat. 576 (1973).

As of January 1, 1973, there were 350,000 stripper wells in the United States. An individual stripper well was of limited significance, producing an average of only 3.6 barrels of crude oil per day. Together, however, they accounted for 70 percent of all oil wells and 12-15 percent of all domestic crude production in the United States. S.Conf.Rep.No. 1119, 94th Cong.2d Sess. 51, § 8 reprinted in 1976 U.S.Code Cong. & Ad.News 2027, 2034. Congress recognized the marginal nature of these wells and feared that federal price controls would force their premature shutdown for purely economic reasons. TAPAA's Conference Report stated:

The purpose of exempting small stripper wells — wells whose average daily production does not exceed ten barrels per well — from the price restraints of the Economic Stabilization Act (now in Phase IV) and from any system of mandatory fuel allocation is to insure that direct or indirect price ceilings do not have the effect of resulting in any loss of domestic crude oil production from the premature shutdown of stripper wells for economic reasons.

* * * * * *

Many stripper wells are of only marginal economic value. When the costs of their operation exceed the value of their production, they are shut-in, and a known and developed crude oil reserve is lost to U.S. production. Removing Phase IV price restraints from these marginal stripper wells ... will encourage owners and operators of stripper wells to maintain production and to keep these wells in operation for longer periods of time than would be possible if the value of their crude oil production were determined under Phase IV price ceilings. This increased incentive will, it is anticipated, permit stripper well operators to make new investments in the eligible wells and improve the gathering and other facilities for moving this oil to market.

Conf.Rep.No.624, 93d Cong., 1st Sess., reprinted in 1973 U.S.Code Cong. & Ad. News 2417, 2523, 2531-32.

Congressional intent was thus two-fold. The increased value of stripper well crude oil would encourage producers: (1) to sustain production from their stripper wells for a period longer than would be economically feasible under existing price regulations; and, (2) to increase their production through workovers and enhanced recovery techniques.

CLC borrowed from existing price regulations in implementing the statutory stripper well exemption. Expressly incorporating the Phase IV "property" definition, CLC defined "stripper well lease" as:

A "property" whose average daily production of crude petroleum and petroleum condensates, including natural gas liquids, per well did not exceed ten barrels per day during the preceding calendar month.

38 Fed.Reg. 32,494-95 (November 26, 1973), 6 C.F.R. § 150.54(s) (1974).

Thus, CLC defined "stripper well lease" by use of a term, i. e., "property," defined elsewhere in the regulatory scheme. Any subsequent alteration in the "property" definition central to the two tier pricing system would necessarily affect the stripper well's exemption application.

The Emergency Petroleum Allocation Act of 1973

On November 27, 1973, eleven days following TAPAA's enactment, Congress enacted the Emergency Petroleum Allocation Act of 1973 (EPAA), Pub.L.No. 93-159, 87 Stat. 627 (now codified at 15 U.S.C. § 751 et seq. (1976).⁴ The EPAA supplanted TAPAA's counterpart stripper well exemption with Section 4(e)(2)(A):

The regulation promulgated under subsection (a) of this section shall not apply to the first sale of crude oil produced in the United States from any lease whose average daily production of crude oil for the preceding calendar year does not exceed ten barrels per well.

Thus, EPAA carried forward the stripper exemption, but amended the qualification period from one based on production during the preceding calendar month to production during the preceding calendar year. CLC immediately implemented the congressional amendment with regulations retroactively effective to the date of EPAA's enactment. CLC's new regulations defined stripper well lease as a "property."

... whose average daily production of crude petroleum and petroleum condensates, including natural gas liquids, per well did not exceed 10 barrels per day during the preceding calendar year.

38 Fed.Reg. 34,465 (December 14, 1973); 6 C.F.R. § 150.54(s)(2) (1974). CLC left...