Strata Prod. Co. v. Jewell, No. Civ. 13-205 JCH-GBW

CourtUnited States District Courts. 10th Circuit. District of New Mexico
Decision Date11 August 2014
Docket NumberNo. Civ. 13-205 JCH-GBW
PartiesSTRATA PRODUCTION COMPANY, a New Mexico corporation; and MANZANO, LLC, a New Mexico limited liability company, Plaintiffs, v. SALLY JEWELL, in her official capacity as Secretary of the United States Department of the Interior; UNITED STATES DEPARTMENT OF THE INTERIOR; UNITED STATES BUREAU OF LAND MANAGEMENT, a bureau within the Department of the Interior; and JESSE JUEN, in his official capacity as State Director of the New Mexico State Office of the Bureau of Land Management, Defendants.

STRATA PRODUCTION COMPANY, a New Mexico corporation;
and MANZANO, LLC, a New Mexico limited liability company, Plaintiffs,
v.
SALLY JEWELL, in her official capacity as Secretary of the United States Department
of the Interior; UNITED STATES DEPARTMENT OF THE INTERIOR;
UNITED STATES BUREAU OF LAND MANAGEMENT,
a bureau within the Department of the Interior; and JESSE JUEN,
in his official capacity as State Director of the New Mexico State Office
of the Bureau of Land Management, Defendants.

No. Civ. 13-205 JCH-GBW

UNITED STATES DISTRICT COURT DISTRICT OF NEW MEXICO

August 11, 2014


MEMORANDUM OPINION AND ORDER

On October 31, 2013, Defendants Sally Jewell, the United States Department of the Interior, the Bureau of Land Management, and Jesse Juen ("Defendants") filed a Motion to Dismiss (ECF No. 29). The Court, having considered the motion, pleadings, briefs, evidence, and law, concludes that the motion to dismiss should be granted in part and denied in part as described herein.

I. INTRODUCTION

An area near Carlsbad in southeastern New Mexico contains large deposits of oil, gas, and potash, which are potassium-bearing salts primarily used for fertilizer. Notice of Availability of the BLM's Responses to Public Comments and of the BLM's Environmental Assessment on the Proposed Order of the Secretary on Oil, Gas, and Potash Leasing and

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Development Within the Designated Potash Area of Eddy and Lea Counties, NM ("Notice"), 77 Fed. Reg. 71822, 71823 (Dec. 4, 2012). The oil and gas in the area are located in formations below the potash deposits, creating a challenge to produce potash and oil and gas at the same time in the same area. Id.

On December 3, 2012, Ken Salazar, the former Secretary of the United States Department of the Interior ("Interior"), signed Secretarial Order No. 3324 ("2012 Order") to provide "procedures and guidelines for more orderly co-development of oil, gas, and potash deposits owned by the United States within the Designated Potash Area" of Eddy and Lea Counties, New Mexico, (hereinafter "Secretarial Area") "through safe, concurrent operations." Am. Compl., Ex. A ("2012 Order") 1, 12, ECF No. 13-1. The 2012 Order revised and superseded the Secretarial Order dated October 28, 1986 ("1986 Order"), as corrected on August 26, 1987. 2012 Order 1, ECF No. 13-1.

Plaintiff Strata Production Company ("Strata") is an independent explorer and developer of oil and gas resources in New Mexico and is a federal lessee and operator on approximately 7,640 acres located within the Secretarial Area. Am. Compl. ¶ 11, ECF No. 13. Similarly, Plaintiff Manzano, LLC, ("Manzano") is an independent explorer and developer of oil and gas resources in New Mexico and is a federal lessee and operator on approximately 5,160 acres located within the Secretarial Area. Id. ¶ 12.

Plaintiffs challenge the legality of the 2012 Order, arguing that, in issuing the 2012 Order, the Interior and Bureau of Land Management ("BLM") failed to comply with their statutory obligations under the Federal Land Policy and Management Act ("FLPMA"), 43 U.S.C. § 1701, et seq.; the Mineral Leasing Act ("MLA"), 30 U.S.C. § 181, et seq.; the National Environmental Policy Act ("NEPA"), 42 U.S.C. § 4321, et seq.; the Regulatory Flexibility Act

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("RFA"), 5 U.S.C. §§ 601-612; the Sunshine Act, 5 U.S.C. § 552b; and the Federal Advisory Committee Act ("FACA"), 5 U.S.C. app. § 2. Id. ¶¶ 1, 3, 8. Plaintiffs assert that the 2012 Order negatively affects valid existing oil and gas leases, unlawfully cedes to the potash industry BLM's statutory duties under the FLPMA and MLA to manage the Secretarial Area and regulate valid existing oil and gas leases, and grants a disproportionate amount of power to the potash lessees who may veto certain oil and gas development within the Secretarial Area. Id. ¶¶ 5-6, 58-60.

II. FACTUAL BACKGROUND

A. 1986 Order

The 1986 Order established a policy of protecting correlative rights of oil and gas and potash lessees and operators. Id. ¶¶ 64-65. To promote concurrent oil and gas development, the 1986 Order imposed a stipulation upon potash leases that mining operations cannot "unreasonably interfere with orderly development and production under any oil and gas lease issued for the same lands." Id. ¶ 67 (quoting 1986 Order, § III.C.). The 1986 Order also contained stipulations for oil and gas leases to prevent "undue waste of potash deposits or constitute a hazard to or unduly interfere with mining operations being conducted for the extraction of potash." Id. ¶ 68 (quoting 1986 Order, Section III.B.).

B. Proposed 2012 Order

In early 2011, BLM formed the Joint Industry Technical Committee ("JITC") to provide advice to BLM on technical issues related to the 1986 Order. Id. ¶ 70. The JITC included 10 oil and gas companies and two potash producers. Id. ¶ 71. In January 2012, former Secretary of Interior Kenneth L. Salazar ("former Secretary") re-directed the purpose of the JITC to consult on a new order ("Proposed 2012 Order") to replace the 1986 Order. Id. ¶ 72. BLM, however,

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did not invite additional operators within the Secretarial Area to participate on the re-directed JITC, and expressly denied Plaintiff Strata the opportunity to participate. Id. ¶ 74. BLM did not provide notice to the public of the JITC meetings, or afford the public, including small oil and gas operators, the opportunity to participate in the JITC or otherwise develop the Proposed 2012 Order. Id. ¶¶ 75-77. The JITC regularly met at BLM's office in Carlsbad and included senior BLM personnel, the meetings of which were not open to the public. Id. ¶ 78.

The JITC drafted a "Consensus Document" in response to the former Secretary's directive, which sought to (a) preserve the Secretary's 1986 Order; (b) preserve the legal precedent interpreting the 1986 Order; and (c) provide a mandate that BLM approve Drilling Islands and Development Areas in areas with commercial potash to allow for effective development of valid existing oil and gas leases. Id. ¶ 79. In April 2012, the JITC provided the Consensus Document to the former Secretary. Id. ¶ 80.

In June 2012, BLM issued an Environmental Assessment ("2012 EA") on the proposed revisions of the 1986 Order. See id. ¶ 110. BLM did not provide a draft 2012 EA to the public for comment, did not analyze any proposed alternatives in the EA, and did not analyze the economic impact upon small businesses in the 2012 EA. See id. ¶¶ 115-121.

On July 13, 2012, the Proposed 2012 Order was published in the Federal Register and made available for public comment. Id. ¶¶ 81-82. BLM did not hold any public meetings on the Proposed 2012 Order, did not conduct any analysis under NEPA in drafting the Proposed 2012 Order, did not issue an initial or final draft regulatory flexibility analysis discussing impacts of the 2012 Order on small businesses, and did not coordinate with state or local governments in developing the Proposed 2012 Order. See id. ¶¶ 83-85, 106-108.

C. The 2012 Order

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The former Secretary signed the 2012 Order on December 3, 2012, without first issuing a Decision Record or Finding of No Significant Impact ("FONSI") for the 2012 EA. See id. ¶ 111; 2012 Order 12, ECF No. 13-1. On December 4, 2012, BLM published the 2012 Order in the Federal Register. Am. Compl. ¶ 87, ECF No. 13. The 2012 Order applies to all existing oil and gas leases in the Secretarial Area "in conformity with lease stipulations and Federal law." 2012 Order § 7(a), ECF No. 13-1. The 2012 Order expressly states that it "will not affect the current status of lands with respect to their being withdrawn from or open to entry or leasing." Id. § 5. The 2012 Order directs BLM to develop guidelines consistent with the Order for establishing Development Areas and Drilling Islands. Id. § 7(e).1

The 2012 Order contains guidelines for the issuance of oil and gas leases, requiring applicants, as a condition to the issuance of a lease, to execute a stipulation as follows:

(1) Drilling for oil and gas shall be permitted only in the event that the lessee establishes to the satisfaction of the Authorized Officer, BLM, that such drilling will not interfere with the mining and recovery of potash deposits, or the interest of the United States will best be served by permitting such drilling.

(2) No wells shall be drilled for oil or gas at a location which, in the opinion of the Authorized Officer, would result in undue waste of potash deposits or constitute a hazard to or unduly interfere with mining operations being conducted for the extraction of potash deposits.

(3) When the Authorized Officer determines that unitization is necessary for orderly oil and gas development and proper protection of potash deposits, no well shall be drilled for oil or gas except pursuant to a unit plan approved by the Authorized Officer.

Id. § 6(a)(1)-(3).2 BLM must impose the same stipulations for the issuance of oil and gas leases

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as a condition to granting any discretionary reinstatement or renewal of any existing lease. See id. § 6(b).

The 2012 Order also provides guidance for how BLM processes Applications for Permits to Drill ("Drilling Applications" or "APDs") within the Secretarial Area. See id. § 6(e). Of relevance here, the 2012 Order states:

It is the policy of the Department
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