Texaco, Inc. v. Department of Energy, Civ. A. No. 79-323.

• Decision Date: 06 May 1980
• Docket Number: Civ. A. No. 79-323.
• Citation: 490 F. Supp. 874
• Court: U.S. District Court — District of Delaware
• Parties: TEXACO, INC., Plaintiff, and State of Louisiana and Louisiana Land & Exploration Company, Intervening Plaintiffs, v. DEPARTMENT OF ENERGY and Charles W. Duncan, Jr., Secretary of Energy, Defendants.

490 F. Supp. 874

TEXACO, INC., Plaintiff and State of Louisiana and Louisiana Land & Exploration Company, Intervening Plaintiffs, v. DEPARTMENT OF ENERGY and Charles W. Duncan, Jr., Secretary of Energy, Defendants.

Civ. A. No. 79-323.

United States District Court, D. Delaware.

May 6, 1980.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

James M. Tunnell, Jr., Andrew B. Kirkpatrick, Jr., William O. LaMotte, III, and Richard D. Allen of Morris, Nichols, Arsht & Tunnell, Wilmington, Del., Stephen H. Bard, White Plains, N. Y., for plaintiff.

David A. Anderson, of Potter, Anderson & Corroon, Wilmington, Del., James R. Patton, Jr., Allan A. Tuttle and George M. Borababy of Patton, Boggs & Blow, Washington, D. C., for intervening plaintiff State of Louisiana.

Charles F. Richards, Jr., and Stephen E. Herrmann of Richards, Layton & Finger, Wilmington, Del., John R. Cope, Thomas D. Manford, III, Roger L. Reynolds, and Daryl J. Hudson, III of Bracewell & Patterson, Washington, D. C., J. Henry Phillips, III of Milling, Benson, Woodward, Hillyer, Pierson & Miller, New Orleans, La., for intervening plaintiff Louisiana Land & Exploration Co.

James W. Garvin, Jr., U. S. Atty., John X. Denney, Jr., Asst. U. S. Atty., Wilmington, Del., Alice Daniel, Asst. Atty. Gen., John P. McKenna, Nancy C. Crisman and Christopher M. Was, Dept. of Energy, Washington, D. C., for defendants.

OPINION

STAPLETON, District Judge:

In this action initiated by Texaco, Inc. ("Texaco") and in which the State of Louisiana ("Louisiana") and the Louisiana Land and Exploration Company ("LL&E") have intervened, plaintiff and plaintiff-intervenors ("plaintiffs") seek declaratory relief as to the meaning and validity of certain regulations and rulings of the Department of Energy ("DOE")¹ and injunctive relief as to a currently pending DOE administrative compliance proceeding in which Texaco is charged with exceeding by more than $748,000,000² authorized prices for domestically produced crude oil. Specifically, plaintiffs seek a determination that multiple producing reservoirs operated by Texaco in Louisiana and recognized by the Louisiana Office of Conservation ("LOC") as separate properties may be treated as separate properties under DOE regulations even though they may be located on a single premises. Defendants have moved to dismiss the complaint on the grounds that the plaintiffs have failed to exhaust their administrative remedies and that the issues raised are not ripe for judicial review. For the reasons set forth below, I conclude that Texaco's and LL&E's complaints must be dismissed and that resolution of the DOE's motion to dismiss Louisiana's complaint should be deferred. Before addressing the DOE's motions, however, I shall sketch the regulatory and factual landscape against which this controversy has arisen.³

I. BACKGROUND.

A. PARTIES.

Texaco is a Delaware corporation engaged in the business of discovering, producing, refining, and marketing crude oil and petroleum products. LL&E is a working and/or royalty interest owner in many of the oil and gas properties operated by Texaco which are involved in this litigation. Louisiana has an interest in the outcome of this litigation both as a sovereign and as a landowner. In the former capacity, it receives a severance tax based on the price at which oil and gas produced within the State are first sold or transferred; in the latter, it leases its lands to producers and receives a royalty based on the price at which oil and gas are first sold or transferred. Approximately eighty-nine percent of the dollar amount involved in the DOE compliance action represents production from Texaco's Louisiana properties.

The DOE and its Secretary are responsible, inter alia, for administering a price control program for domestic crude oil.

B. APPLICABLE REGULATIONS.

Since August, 1973, domestic crude oil production has been subject to a two-tier system of federal price controls. 38 Fed. Reg. 22536 (Aug. 22, 1973); 10 C.F.R. Part 212.⁴ With qualifications not relevant to the present dispute, under the controls, production designated as "old oil" has been subject to lower price ceilings while the price of production qualifying as "new oil" has been subject to higher ceilings. The determination of whether oil is "old" or "new" is made by reference to historical and current levels of production on a "property", as that term is defined in the DOE's regulations. As the DOE has long recognized, in light of its role in the determination of whether oil is "old" or "new", "the property concept is clearly the most fundamental aspect of the two-tier pricing mechanism." 41 Fed.Reg. 4931, 4938 (Feb. 3, 1976).

"Property" was originally defined in the DOE's regulations as "the right which arises from a lease or fee interest to produce domestic crude oil." 38 Fed.Reg. 22536, 22538 (Aug. 2, 1973). The DOE remained silent as to the proper interpretation and application of the original property definition until the promulgation, in September, 1975, of Ruling 1975-15, "addressed to those cases where, due to . . . a change or restructuring of the right to produce crude oil since 1972, an interpretation of the definition of `property' is required for proper application of the price rules. . . ." 40 Fed.Reg. 40832 (Sept. 4, 1975). Ruling 1975-15 dealt, inter alia, with "Production From More Than One Reservoir on a Single Property", and stated the following:

Because the property concept is based upon the right to produce crude oil, whether arising from a lease or from a fee interest, the existence of two or more separate and distinct reservoirs will not in itself create two or more separate "properties". Therefore . . . where a producer holds a single right to produce crude oil from two or more reservoirs, together the two or more reservoirs constitute a single property; where there are separate and distinct rights to produce crude oil from each reservoir, each reservoir accordingly represents a different property.

Id. at 40833 (emphasis added).

The DOE addressed the property concept on several occasions during the year following promulgation of Ruling 1975-15. See 41 Fed.Reg. 1564 (Jan. 8, 1976); 41 Fed. Reg. 4931 (Feb. 3, 1976); 41 Fed.Reg. 16179 (Apr. 16, 1976); 41 Fed.Reg. 36172 (Aug. 26, 1976). "The most complex and apparently controversial issue", 41 Fed.Reg. 36172, 36177 (Aug. 26, 1976), which continued to confront the agency was whether discrete producing reservoirs located on a single premises should, for that reason alone, be treated as separate properties. In January of 1976, the DOE proposed for comment a new property definition which "would define as the property, the right to produce crude oil from a reservoir, whether arising from a lease or from a fee interest. The amended definition, if adopted, would recognize the existence of separate properties on one lease, where the lease encompasses separate and distinct producing reservoirs." 41 Fed.Reg. 1564, 1571 (Jan. 8, 1976) (emphasis added). The DOE again addressed, albeit indirectly, whether such reservoirs should be treated as multiple properties in a proposed rulemaking issued in April. 41 Fed.Reg. 16179, 16180 (Apr. 16, 1976). In a discussion of state-recognized productive units the DOE stated generally that "the right to produce crude oil may be described in the first instance by a lease or fee interest, but is subject to the possible further modification if some other producing entity has been recognized by the applicable state authority, which describes a different right to produce." Id. The DOE then specifically addressed productive units recognized by Louisiana, stating:

For example, in Louisiana, where unitization may be compelled by the Commissioner of Conservation, the recognition by the state of producing entities is generally based upon factors other than merely surface boundaries. Such productive entities are called "units", although the term does not always denote the combination of separate lease or fee interests into the type of "unitization" described in Ruling 1975-15. It may, instead indicate the recognition of the geological limits of a producing reservoir which lies entirely within the surface boundaries of a single lease. Such units may be formed in Louisiana as a result of a formal proceeding, and they then become separate producing entities recognized by the state. The balance of production from the non-unitized portion of the lease is then also recognized by the state as a producing entity. Accordingly, in Louisiana each state-recognized unit may therefore appropriately describe a property, with each lease upon which is reported non-unitized production also appropriately describing a separate property.

Id. (emphasis added). However, the agency ultimately declined to adopt the regulatory changes proposed in January and April. See 41 Fed.Reg. 4931 (Feb. 3, 1976); 41 Fed.Reg. 36172 (Aug. 26, 1976).

Until the DOE issued "Clarifications to Mandatory Petroleum Price Regulations Applicable to Domestic Crude Oil" on August 20, 1976, 41 Fed.Reg. 36172 (Aug. 26, 1976), then, the regulatory definition of property promulgated in 1973 remained substantially unchanged,⁵ and Ruling 1975-15 represented the only interpretation of that definition adopted by the DOE. In the August 20 notice, the DOE adopted a prospective amendment of the property definition, effective September 1, 1976. The amended definition provided as follows:

"Property" means the right to produce domestic crude oil, which arises from a lease or from a fee interest. A producer may treat as a separate property each separate and distinct producing reservoir subject to the same right to produce crude oil, provided that such reservoir is recognized by the appropriate governmental regulatory authority as a producing formation that is separate and distinct from, and not in communication with, any other producing formation.

Id. at 31684. The DOE explained the addition of a...