Union Oil Co. of California v. Morton
| Decision Date | 24 February 1975 |
| Docket Number | No. 73-1692,73-1692 |
| Citation | 512 F.2d 743 |
| Parties | , 31 A.L.R.Fed. 601, 5 Envtl. L. Rep. 20,218 UNION OIL COMPANY OF CALIFORNIA et al., Plaintiffs-Appellants, v. The Honorable Rogers C. B. MORTON, Secretary of the Interior of the United States of America, et al., Defendants-Appellees. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Before BROWNING, CARTER and CHOY, Circuit Judges.
Four major oil companies brought this action to set aside an order of the Secretary of the Interior denying them permission to construct a drilling platform in the Santa Barbara Channel which they allege is necessary for full exercise of their rights under a federal oil and gas lease. The companies also seek to enjoin the Secretary from further interference with enjoyment of their lease rights. The district court held that the Secretary's order was within his statutory authority and was not arbitrary, capricious, or an abuse of discretion, and dismissed the complaint. We vacate the decision of the district court and remand for further proceedings.
In February 1968, the four companies (hereinafter "Union") paid over $61 million for oil and gas rights on tract OSC-P 0241. The leased tract lies on the continental shelf in the Santa Barbara Channel, beyond the jurisdiction of the State of California. The Interior Department granted the lease under the authority of the Outer Continental Shelf Lands Act, 43 U.S.C. § 1331 et seq.
The lease gives Union the right to erect floating drilling platforms, subject to the provisions of the Act and to "reasonable regulations" not inconsistent with the lease issued by the Secretary. Two platforms, A and B, were installed, each supporting many productive wells. In September 1968, Union sought permission to install a third platform, C. The Secretary approved the application, and the Army Corps of Engineers issued the necessary permit. In January 1969, before platform C was installed, a blowout occurred on one of the wells on platform A. The blowout caused the disastrous Santa Barbara oil spill which killed birds and marine organisms, damaged beaches and seafront properties, and restricted fishing and recreational activities in the area.
On February 7, 1969, the Secretary ordered all activities on this and certain other leases suspended pending further environmental studies. After these studies were completed, the Secretary announced on September 20, 1971, that Union would not be allowed to install platform C, because operation of that platform would be "incompatible with the concept of the Federal Sanctuary (which the Secretary had proposed to Congress)." He stated that all operations would remain suspended on certain other Channel leases, pending action by Congress cancelling the leases. See Gulf Oil Corp. v. Morton, 493 F.2d 141 (9th Cir. 1973).
The Department formally notified the companies the following month that the Secretary "has determined that the installation of Platform 'C' would be inconsistent with protection of the environment of the Santa Barbara Channel and has directed (the Regional Supervisor) to withdraw the approval of September 16, 1968." This suit resulted. On November 3, 1972, just prior to trial, the Secretary issued a statement further clarifying the environmental concerns contributing to his decision. (see page 752 infra.)
We upheld the Secretary's suspension of the leases pending congressional action in Gulf Oil, supra. Because Congress had not acted within a reasonable time to cancel the leases in question, however, we declared the suspension invalid after October 18, 1972. 493 F.2d at 149. This appeal is limited to the validity of the order withdrawing permission for Union to install platform C.
The Outer Continental Shelf Act authorizes the Secretary to issue oil and gas leases on the outer continental shelf to the highest bidder. 43 U.S.C. § 1337(a). A lease issued under this Act, like a mineral lease granted under the Mineral Leasing Act of 1920, 30 U.S.C. § 181 et seq., does not convey title in the land, nor does it convey an unencumbered estate in the oil and gas. See Boesche v. Udall, 373 U.S. 472, 478, 83 S.Ct. 1373, 10 L.Ed.2d 491 (1963); McKenna v. Wallis, 344 F.2d 432, 440-41 (5th Cir. 1965), vacated, 384 U.S. 63, 86 S.Ct. 1301, 16 L.Ed.2d 369 (1966). The lease does convey a property interest enforceable against the Government, of course, but it is an interest lacking many of the attributes of private property. Oil and gas deposits beneath the continental shelf are precious resources belonging to the entire nation. Congress, although encouraging the extraction of these resources by private companies, provided safeguards to insure that their exploitation should inure to the benefit of all. These safeguards are not limited to those provided by covenants in the lease; Congress also authorized the Secretary to maintain extensive, continuing regulation of the oil companies' day to day drilling operations.
Careful study of the Act confirms that Congress intended to exercise both proprietary powers of a landowner and the police powers of a legislature in regulating leases of publicly owned resources. Cf. Forbes v. United States, 125 F.2d 404, 408 (9th Cir. 1942). The Secretary, to whom Congress has delegated these powers, may prescribe at any time those rules which he finds necessary for the conservation of natural resources. 43 U.S.C. § 1334(a)(1). Exercising its legislative power, Congress has provided criminal penalties for knowing violation of these rules. 43 U.S.C. § 1334(a)(2). In addition, those rules in effect at the time a lease is executed are incorporated statutorily into the terms of the lease. 43 U.S.C. § 1334(a)(2). The Secretary like a private property owner, may obtain cancellation of the lease if the lessee breaches such a rule. 43 U.S.C. § 1334(b)(1). 1 Violation of rules issued after the lease has been executed does not enable the Secretary to cancel the lease, however. The property rights of the lessee are determined only by those rules in effect when the lease is executed. See generally Christopher, The Outer Continental Shelf Lands Act: Key to a New Frontier, 6 Stan.L.Rev. 23, 43-47 (1953).
The Secretary's authority to issue conservation regulations binding previously executed leases is clearly expressed in the Act, 43 U.S.C. § 1334(a)(1):
The Secretary, shall administer the provisions of this subchapter relating to the leasing of the outer Continental Shelf, and shall prescribe such rules and regulations as may be necessary to carry out such provisions. The Secretary may at any time prescribe and amend such rules and regulations as he determines to be necessary and proper in order to provide for the prevention of waste and conservation of the natural resources of the outer Continental Shelf, and the protection of correlative rights therein and, notwithstanding any other provisions herein, such rules and regulations shall apply to all operations conducted under a lease issued or maintained under the provisions of this subchapter.... Without limiting the generality of the foregoing provisions of this section, the rules and regulations prescribed by the Secretary thereunder may provide ... in the interest of conservation, for ... suspension of operations or production....
The lease with Union, however, provided that it was entered into)
under, pursuant, and subject to the terms and provisions of the (Act), and to all lawful and reasonable regulations of the (Secretary) when not inconsistent with any express and specific provisions herein, which are made a part hereof ....
The Secretary granted Union "the right to construct or erect ... all artificial islands, platforms, fixed or floating structures ... necessary or convenient to the full enjoyment of the rights granted by this lease ...." Union urges that any regulation issued after execution of the lease which denies Union the right to erect platform C is inconsistent with this express provision of the lease and therefore is a breach of the lease agreement. We disagree.
Terms of the lease inconsistent with the statute are invalid. The Secretary can alienate interests in land belonging to the United States only within the limits authorized by law. United States v. California, 332 U.S. 19, 40, 67 S.Ct. 1658, 91 L.Ed. 1889 (1947); Mammoth Oil Co. v. United States, 275 U.S. 13, 35, 48 S.Ct. 1, 72 L.Ed. 137 (1927); Utah Power & Light Co. v. United States, 243 U.S. 389, 409, 37 S.Ct. 387, 61 L.Ed. 791 (1917); Beaver v. United States, 350 F.2d 4, 7-8 (9th Cir. 1965), cert. denied, 383 U.S. 937, 86 S.Ct. 1067, 15 L.Ed.2d 854 (1966); Reese v. Virgin Islands, 277 F.2d 329, 332-33 (3rd Cir. 1960). Cf. Federal Crop Ins. Corp. v. Merrill, 332 U.S. 380, 384, 68 S.Ct. 1, 92 L.Ed. 10 (1947); Housing Corp. of America v. United States, 468 F.2d 922, 925, 199 Ct.Cl. 705 (1972). 2 Congress empowered the Secretary to lease gas and oil rights with the qualification that he would retain the power to amend existing rules and regulations whenever he deems it necessary for the conservation of natural resources.
Union proposes an interpretation of the lease which, if accepted, would require us to find certain of its provisions invalid because inconsistent with the Act. If possible, however, we will construe terms of a Government lease so that they conform to the statute. See 3 Corbin, Contracts § 532 at 4 (1960); 1 McBride & Wachtel,...
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