State of La. ex rel. Guste v. U.S., 87-4106

Decision Date25 November 1987
Docket NumberNo. 87-4106,87-4106
Citation832 F.2d 935
PartiesSTATE OF LOUISIANA ex rel. William J. GUSTE, Jr., Attorney General, Plaintiff- Appellant, and Cashco Oil Co., et al., Intervenors-Appellants, v. UNITED STATES of America, et al., Defendants-Appellees.
CourtU.S. Court of Appeals — Fifth Circuit

George W. Hardy, III, Mangham, Hardy, Rolfs, Bailey & Abadie, Lafayette, La., for Cashco Oil Co.

L. Todd Gremillion, Sheila R. Tweed, Dotson, Babcock & Scofield, Houston, Tex., for Seneca Resources Corp.

B.J. Duplantis, Gordon, Arata, McCollam, Stuart & Duplantis, Lafayette, La., for Pelto Oil Co.

William J. Guste, Jr., Atty. Gen., Gary L. Keyser, Asst. Atty. Gen., Mary Ellen Leeper, Baton Rouge, La., for State of La.

D.H. Perkins, Jr., U.S. Atty., Lafayette, La., for USA & Director of the Mineral Mgmt. Serv.

Onebane, Donohoe, Bernard, Torian, Diaz, McNamara & Abell, Lawrence E. Donohoe, Jr., Randall C. Songy, Patrick G. Tracy, Jr., Lafayette, La., for Samedan Oil Corp.

Charles W. Findlay, Land & Natural Resources Div., U.S. Dept. of Justice, Washington, D.C., Robert L. Klarquist, Appellate Section, Jacques B. Gelin, Lawrence W. Moon, Asst. U.S. Atty., Lafayette, La., for Secretary of Interior.

Appeal from the United States District Court for the Western District of Louisiana.

Before REAVLEY, WILLIAMS and HIGGINBOTHAM, Circuit Judges.

REAVLEY, Circuit Judge:

Louisiana sued the United States and a federal lessee operating on the Outer Continental Shelf for violations of the Outer Continental Shelf Lands Act, 43 U.S.C. Sec. 1331 et seq. (1986), and an alleged policy agreement between Louisiana and the United States. The district court entered summary judgment for the United States and its lessee, 656 F.Supp. 1310. We affirm.

Pursuant to a federal lease, the Samedan Oil Corporation ("Samedan") conducts an offshore drilling operation on federal Outer Continental Shelf ("OCS") territory which borders the Louisiana offshore boundary. The leased federal tract is adjacent to state tracts leased by the Cashco Oil Company, the Seneca Resources Corporation and the Pelto Oil Company (collectively referred to as the "state lessees").

The State of Louisiana sued the United States, the Secretary of the Interior (the "Secretary"), the Director of the Minerals Management Service ("MMS") (collectively referred to as the "federal defendants") and Samedan seeking declaratory and injunctive relief in connection with Samedan's "imprudent and wasteful spacing, drilling, completion, and production practices" on its federal lease. Louisiana asserted that a common reservoir of natural gas underlay the federal/Louisiana border with 84% of the reserves located on Louisiana territory and 16% on the federal domain and that Samedan was draining state reserves and engaging in wasteful practices with the permission of the federal defendants.

The state raised three causes of action. First, it alleged that the federal defendants have a duty under 43 U.S.C. Sec. 1337(g) (1986) to enter into a unitization agreement 1 with the Governor of Louisiana and sought a temporary restraining order and preliminary and permanent injunctions limiting Samedan's production. It also sought preliminary and permanent injunctions directing the Secretary to engage in negotiations to achieve unitization with respect to Samedan's lease and a declaratory judgment holding that the Secretary's refusal to unitize violates Sec. 1337(g).

Second, it alleged that the MMS is in violation of a 1975 policy agreement between Louisiana and the MMS and that the MMS is permitting Samedan to operate in violation of this agreement. Louisiana sought the same relief requested in its first cause of action with the exception of the desired declaratory judgment, which differed in that it sought a holding that the MMS was in violation of the policy agreement.

Louisiana's third contention was that Samedan is violating Louisiana's correlative rights by engaging in wasteful production practices and that the federal defendants are in violation of the Outer Continental Shelf Lands Act ("OCSLA"), 43 U.S.C. Sec. 1331 et seq., by permitting these practices. It sought a temporary restraining order and preliminary and permanent injunctions limiting Samedan's production to prevent waste.

The district court granted the state lessees' motion to intervene as plaintiffs and the state lessees adopted the causes of action and relief sought by Louisiana. The court denied Louisiana's motion for a preliminary injunction limiting Samedan's production. The federal defendants and Samedan separately moved for summary judgment and the federal defendants moved to dismiss the section 1337(g) unitization claim under Fed.R.Civ.P. 12(b)(2). The court granted the motions for summary judgment as to all three causes of action and, after relabeling the 12(b)(2) motion to a motion under 12(b)(6), granted that motion as well. 2 This appeal is taken by Louisiana and the state lessees.

We hold that the Secretary has no duty to unitize under section 1337(g)(3) as amended, that the alleged policy agreement did not create legally enforceable rights and that no evidence is presented that Samedan engaged in wasteful practices. We therefore affirm the judgment below.

I. Unitization Under Section 1337(g) as Amended in 1986

Louisiana contends that section 8(g) of the OCSLA, 43 U.S.C. Sec. 1337(g), as amended in 1986, requires the Secretary to engage in good faith negotiations with the Governor of Louisiana to achieve unitization of the federal and state tracts upon which Samedan and the state lessees operate. A brief review of the history of section 8(g) is in order.

In 1953, the Submerged Land Act, 43 U.S.C. Sec. 1301 et seq., was passed giving coastal states the right and power to manage submerged lands adjoining their respective coasts. For most coastal states, including Louisiana, the grant extends seaward for three miles. The enactment of the OCSLA in 1953, 43 U.S.C. Sec. 1331 et seq., authorized the Secretary of the Interior to issue oil, gas and other mineral leases for the submerged lands of the continental shelf, which begins where the states' jurisdiction ends.

While these statutes established jurisdictional boundaries, they did not address the issue of drainage. Because oil and gas reserves can straddle the jurisdictional boundary, it is possible for the lessee of one government to drain the reserves located on the other government's territory. Under the common law rule of capture, which we apply to the OCS, 3 the owner of land has the right to capture oil and gas underlying his property, including that which migrates to his property from another's land.

In 1978, Congress amended the OCSLA, adding a new section 8(g), 43 U.S.C. 1337(g), 4 which specifically addressed the administration of federal OCS lands situated between three and six miles offshore (the "8(g) zone"). Section 8(g) essentially established a scheme whereby revenues obtained by a federal lessee operating in the 8(g) zone would be shared in a fair and equitable manner by the federal government and the coastal state if a determination was made that a common field of oil or gas underlay federal and state territory so as to create a threat of drainage by the federal lessee. 5

Section 8(g)(1) required that the Secretary provide certain information to the Governor of the affected coastal state at the time that nominations were solicited for the leasing of lands in the 8(g) zone. Section 8(g)(2) provided that the Secretary inform the Governor of potential areas to be leased and that they consult to determine whether these areas may contain common fields of oil or gas. If an area potentially containing a common field was selected for development, the Secretary was required to offer the Governor the opportunity to enter an agreement concerning the disposition of revenues generated by the federal lessee to permit a fair and equitable division.

Under 8(g)(3) of the 1978 Act, the Governor had 90 days to determine whether to accept the agreement. If the Governor decided to decline the agreement, the Secretary could proceed with the leasing of the area, and under 8(g)(4), the Secretary was required to deposit bonuses, royalties and other revenues attributable to the lease in a separate treasury account until an agreement was reached or a United States District Court determined a fair and equitable disposition of the revenues.

That plan did not work. The Secretary and the governors of coastal states failed to reach agreement, resulting in a balance of $6.1 billion in special treasury accounts by 1986. H.R.Rep. No. 300, 99th Cong., 2d Sess. 547 (1985), reprinted in 1986 U.S.Code Cong. & Admin.News at 1058. Litigation ensued over the proper allocation of these revenues, but none of these actions were ultimately resolved by the courts. 6 The two sides also failed to agree on the interpretation of Sec. 8(g); the Secretary maintained that the sole purpose of Sec. 8(g) was to compensate for drainage, and the states contended that Sec. 8(g) not only included drainage but also compensation for onshore impacts of OCS development. See State of Texas v. Secretary of the Interior, 580 F.Supp. 1197, 1222 (E.D.Tex.1984).

In 1986, Congress amended the OCSLA to obviate the litigation and disputes and to distribute the impounded revenues in the special Treasury accounts. Comprehensive Omnibus Budget Reconciliation Act of 1985 (Outer Continental Shelf Lands Act Amendments of 1985), Pub.L.No. 99-272, 100 Stat. 82, 147-51 (1986) ("1986 Amendments"). Louisiana received $572 million on October 1, 1986, together with 27 percent of deposited federal royalties derived from OCS lessees through September 30, 1985 with interest, and $84 million to be paid over a fifteen year period. 1986 Amendments Sec. 8004(b)(1). The acceptance of a payment under this section satisfied and released all state claims against the United...

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