Woods Petroleum Corp. v. Department of Interior

Citation47 F.3d 1032
Decision Date09 February 1995
Docket NumberNo. 92-6053,92-6053
PartiesWOODS PETROLEUM CORPORATION; Raytex Resources Incorporated; Midcon Central Exploration Company; Mustang Production Company, Plaintiffs-Appellants, v. DEPARTMENT OF INTERIOR; Bureau of Indian Affairs; Timothy Nibs; Wisdom A. Nibs, Jr.; Reginald R. Nibs; Ronald Leroy Nibs; Elaine Shirley Nibs Mayes; D'Ann Nibs; Lowell Nibs; Theodore Raymond Nibs; Wisdom Nibs, Sr.; Brenda Tonips Nibs; Michael Nibs; Leroy Stoneroad; Victor Stoneroad; Solomon Stoneroad; Eleanor Joy Stoneroad; Joe Hicks; Anna B. Twins Spottedwolf; Patrick B. Spottedwolf; Lucian M. Twins; Joyce M. Twins; Minita Twins Runningwater; Wesley Robert Twins; Lucinda Amelia Sweetwater; Mariam Mann Twins; McClain H. Twins, Jr.; Marion M. Twins; Michael Wayne Twins; Tomlinson Properties, Inc., Defendants-Appellees.
CourtUnited States Courts of Appeals. United States Court of Appeals (10th Circuit)

Donald L. Kahl of Hall, Estill, Hardwick, Gable, Golden & Nelson, P.C., Tulsa, OK (Orval E. Jones, with him on the brief), for plaintiffs-appellants.

David C. Shilton, U.S. Dept. of Justice, Washington, DC (Lois J. Schiffer and Roger Clegg, Acting Asst. Attys. Gen., Gerald S. Fish, Dirk Snel and Robert L. Klarquist, U.S. Dept. of Justice, and Timothy D. Leonard, U.S. Atty. and M. Kent Anderson, Asst. U.S. Atty., Oklahoma City, OK, with him on the brief), for defendants-appellees U.S. Dept. of Interior and Bureau of Indian Affairs.

Steven L. Barghols and Jay C. Jimerson of Mock, Schwabe, Waldo, Elder, Reeves & Bryant, Oklahoma City, OK, on the brief, for defendant-appellee Tomlinson Properties, Inc.

Amos E. Black, III of Black & Zynda, Anadarko, OK, on the brief, for defendants-appellees Anna Twins Spottedwolf, Eleanor Stoneroad, Victor Stoneroad, and Leroy Stoneroad.

Before SEYMOUR, Chief Judge, LOGAN, MOORE, ANDERSON, TACHA, BALDOCK, BRORBY, EBEL, KELLY, and HENRY, Circuit Judges.

ON REHEARING EN BANC

EBEL, Circuit Judge.

We granted the request for rehearing en banc in this case to clarify the Secretary of the Interior's authority under 25 U.S.C. Sec. 396 to disapprove a proposed oil and gas communization agreement that includes Indian-owned mineral interests. Woods Petroleum Corporation and other oil companies ("Woods Petroleum") commenced this action to challenge the Secretary's order rejecting a proposed agreement to communize Indian and non-Indian mineral interests for oil and gas production in the Anadarko region of Oklahoma. The district court upheld the Secretary's order. A panel of this court reversed and remanded with instructions to reverse the Secretary's order and to approve the proposed communization agreement. Woods Petroleum Corp. v. United States Dep't of Interior, 18 F.3d 854 (10th Cir.1994). The United States Department of the Interior, Tomlinson Properties, Inc., and certain of the Indian lessors petitioned for rehearing en banc on the grounds that our panel decision clashed with earlier Tenth Circuit authority.

Today, we make explicit that the Secretary acts arbitrarily and abuses his discretion under Sec. 396d when he (1) rejects a proposed communization agreement for the sole purpose of causing the expiration of a valid Indian mineral lease and allowing the Indian lessors to enter into a new, more lucrative, lease, and then (2) approves essentially the identical communization agreement, with the new lessee of the Indian lands simply substituted for the old lessee, and permits the Indian lessors to collect royalties retroactively to the date of first production under the original unit plan. Accordingly, we adhere to our panel decision's reversal of the district court order and we remand with instructions to approve the Woods Petroleum communization agreement.

I. Background

Our panel opinion provides a full recitation of the factual background to this action, Woods Petroleum, 18 F.3d at 855-57, but we review the critical events and rulings to frame our analysis. In February 1977, the Indians named in this action leased their undivided interest in 117.5 net mineral acres in Custer County, Oklahoma to National Cooperative Refinery Association ("National"). The three leases granted National an exclusive right to drill for and extract all oil and gas underlying the land for a primary term of five years and "as much longer thereafter as oil and/or gas is produced in paying quantities." 1 The Concho Agency Superintendent of the Bureau of Indian Affairs ("BIA"), an agency in the United States Department of Interior ("Interior"), approved the leases. Next, the BIA approved National's assignment of its interest in the leases to Woods Petroleum.

On May 18, 1979, the Oklahoma Corporation Commission ("Commission") established a 640-acre drilling and spacing unit that included this Indian land. 2 On December 1, 1981, all working interest owners in the unit area executed a communization agreement, naming Woods Petroleum as the unit operator ("Woods Petroleum communization agreement"). Communization permits the development of several contiguous leaseholds as a single unit, so that "operations conducted anywhere within the unit area are deemed to occur on each lease within the communitized area and production anywhere within the unit is deemed to be produced from each tract within the unit." Kenai Oil & Gas, Inc. v. Dep't of the Interior, 671 F.2d 383, 384 (10th Cir.1982).

Pursuant to the communization agreement--and six weeks prior to the expiration date of the leases--Woods Petroleum commenced drilling the authorized well on a non-Indian tract within the unit on January 5, 1982. On February 17, 1982, also prior to the expiration of the Indian leases, Woods Petroleum submitted the communization agreement to Interior for its approval. An approved communization agreement, in conjunction with the "commence drilling" clause, would extend Woods Petroleum's leases beyond the primary term for as long as there is production in paying quantities.

On April 12, 1982, the Anadarko Area Director of the BIA approved the proposed Woods Petroleum communization agreement over the Indian lessors' objections. The Indian lessors had unsuccessfully argued that communization was not in their economic best interest because the Secretary's disapproval of the agreement would trigger the expiration of the Indians' existing leases and facilitate the execution of more profitable leases.

On September 6, 1983, the Indians filed an administrative appeal to the Assistant Secretary of Interior. 3 Notably, the Indians did not object to any particular provision in the communization agreement. Instead, they simply argued that their mineral interests could easily be released "on a competitive bid basis and with a stroke of a pen a Communization Agreement can be signed by the Area Director joining validly leased Indian Allotments to the spacing Unit."

To evaluate the Indians' appeal, the Deputy Assistant Secretary requested the BIA Area Director to prepare a "best interest assessment." The BIA's "best interest assessment" advised the Assistant Secretary to affirm the Area Director's approval of the Woods Petroleum communization agreement for many reasons. First, the BIA opined that prevailing market conditions could stifle the separate development of the Indian interests under new leases and that the Oklahoma Corporation Commission may not approve independent production, transportation and sale of product. 4 Second, the BIA noted that the Indians would forfeit nearly $400,000 in unit royalties currently held in escrow under the state-approved spacing unit in which production had already occurred. And finally, the BIA presciently anticipated that rejection of the communization agreement could invite protracted litigation.

After receiving the BIA's recommendation, the Assistant Secretary solicited comments from both the Indians and Woods Petroleum. Again, the Indians expressed their desire to be able to release their mineral interests for a bonus exceeding $400,000 and then to "be immediately joined with the 640 acre spacing by a Communization Agreement." Notwithstanding the BIA's recommendation, the Assistant Secretary reversed the BIA Area Director's approval of the Woods Petroleum communization agreement on May 15, 1986. The Assistant Secretary did not challenge the appropriateness of the communization agreement as establishing a proper geological and economic unit. Instead, the Assistant Secretary focused on the underlying Indian leases and concluded that it would be in the Indians' best interest to allow the Woods Petroleum leases to expire so that the Indians could enter into new leases with Defendant-Appellee Tomlinson Properties, Inc. ("Tomlinson"), who was willing to pay the Indians a $400,000 bonus. The Assistant Secretary did not address the BIA's specific rationales in support of communization and thus did not analyze the factors enumerated in the BIA guidelines. Relying exclusively on Tomlinson's bonus offer, the Assistant Secretary disapproved the Woods Petroleum communization agreement and issued an order declaring that the Woods Petroleum leases had expired for failure to drill, produce, or communitize during the primary term.

On the heels of the Assistant Secretary's order, the Indians promptly released their interest in the 117.5 net mineral acre estate to Tomlinson for a $400,000 bonus. The BIA Area Director approved the new leases on May 23, 1986. Pursuant to the Area Director's approval, the Indian interests were reinserted in the 640-acre state spacing unit. Tomlinson next drafted a communization agreement that was, in all material respects, identical to the Woods Petroleum communization agreement ("Tomlinson communization agreement"). Not only did the Tomlinson communization agreement apply to the same spacing unit, but it was postdated to take effect as of September 1, 1982--thereby enabling the Indian lessors to obtain unit revenues retroactive to the time of first production four years earlier from the first unit well drilled on the...

To continue reading

Request your trial
8 cases
  • Rosebud Sioux Tribe v. Gover, Civ. 99-3003.
    • United States
    • United States District Courts. 8th Circuit. United States District Courts. 8th Circuit. District of South Dakota
    • February 3, 2000
    ......Dept. of Interior; and Bruce Babbitt, Secretary of the U.S. Dept. of ...Anthony Rogers, U.S. Department of Justice, Environmental & Natural Resources Div., General ... "deviated from firmly established procedures." Woods Petroleum Corp. v. Department of Interior, 47 F.3d 1032 ......
  • New York v. U.S. Dep't of Commerce
    • United States
    • United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
    • January 15, 2019
    ...at 1096 ; see also, e.g., Woods Petroleum Corp. v. U.S. Dep't of Interior , 18 F.3d 854, 859-60 (10th Cir. 1994), adhered to on reh'g , 47 F.3d 1032 (10th Cir. 1995) ; Parcel 49C Ltd. P'ship v. United States , 31 F.3d 1147, 1150-51 (Fed. Cir. 1994). In James Madison Ltd. , the D.C. Circuit ......
  • McAlpine v. U.S., 96-3094
    • United States
    • United States Courts of Appeals. United States Court of Appeals (10th Circuit)
    • May 7, 1997
    ...... to dismiss his appeal of the Secretary of the Interior's decision denying his application to take his land into ... 1871 annual appropriations act for the Indian Department, 16 U.S. Stat. 544, Ch. 120 (1871). On February 9, 1990, ... See Woods Petroleum Corp. v. Department of the Interior, 47 F.3d 1032 ......
  • Public Lands Council v. US DEPT. OF INTERIOR, 95-CV-165-B.
    • United States
    • United States District Courts. 10th Circuit. District of Wyoming
    • June 12, 1996
    ......v. . UNITED STATES DEPARTMENT OF the INTERIOR SECRETARY, a/k/a Bruce Babbitt, in his official capacity; ... Olenhouse v. Commodity Credit Corp., 42 F.3d 1560, 1580 (10th Cir.1995). Under the APA, this Court must ... Woods Petroleum Corp. v. Department of Interior, 47 F.3d 1032, 1037 (10th ......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT