Woods Petroleum Corp. v. U.S. Dept. of Interior, 92-6053

• Court: United States Courts of Appeals. United States Court of Appeals (10th Circuit)
• Writing for the Court: Before EBEL and McWILLIAMS, Circuit Judges, and OWEN; OWEN
• Citation: 18 F.3d 854
• Parties: WOODS PETROLEUM CORPORATION, Ratex Resources Incorporated, Midcon Central Exploration Company, Mustang Production Company, Plaintiffs-Appellants, v. UNITED STATES DEPARTMENT OF the 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; Vitro 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; Wesley Robert Twins; McClain H. Twins, Jr.; Marion M. Twins, Michael Wayne Twins; Tomlinson Properties, Inc., Defendants-Appellees.
• Docket Number: No. 92-6053,92-6053
• Decision Date: 07 March 1994

Page 854

18 F.3d 854 WOODS PETROLEUM CORPORATION, Ratex Resources Incorporated,
Midcon Central Exploration Company, Mustang
Production Company, Plaintiffs-Appellants,
v.
UNITED STATES DEPARTMENT OF the 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;
Vitro 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; Wesley Robert Twins;
McClain H. Twins, Jr.; Marion M. Twins, Michael Wayne
Twins; Tomlinson Properties, Inc., Defendants-Appellees. No. 92-6053. United States Court of Appeals,
Tenth Circuit. March 7, 1994.

Page 855

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

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

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

Amos E. Black, III, Anadarko, OK, for defendants-appellees Anna Twins Spottedwolf, Eleanor Stoneroad, Victor Stoneroad, and Leroy Stoneroad.

Before EBEL and McWILLIAMS, Circuit Judges, and OWEN, District Judge. ^*

OWEN, District Judge.

On this appeal, we are again called upon to address and resolve the tensions arising from the confluence of a number of legitimate interests: 1) the right of a state to establish drilling units to control the development of its oil resources; 2) the duty of the United States Department of the Interior to protect and maximize the return to Indians from their allotted lands; 3) the contractual rights of oil-producing companies such as plaintiffs, which commit millions of dollars in drilling costs in reliance on provisions in leases executed with both Indian and non-Indian landowners with full knowledge of the Department of the Interior, and 4) the expectations of all lessees of a state-mandated drilling unit to receive approval from the Secretary of the Interior as to Indian leases of a duly-executed communitization agreement allocating proportional revenues from oil production to each tract in the drilling unit regardless of whether or not a producing well is drilled on a particular tract within the unit or not.

Woods Petroleum Corporation and other oil companies (hereafter variously "plaintiffs" and/or "appellants") commenced this action on July 28, 1986 challenging the validity of an administrative order issued by the Assistant Secretary for Indian Affairs in the Department of the Interior (the "Secretary"). The Secretary's order had rejected an agreement to communitize Indian and non-Indian mineral interests for oil and gas drilling and production in a concededly-proper Oklahoma 640-acre drilling and spacing unit. The

Page 856

Woods plaintiffs sought a judgment vacating the Secretary's administrative order and a decree quieting their title in Indian leases that had ostensibly expired for lack of development. Jurisdiction of the District Court was based on 28 U.S.C. Secs. 1331 and 1361. Appellate jurisdiction is conferred by 28 U.S.C. Sec. 1291.

The history of this proceeding is as follows. In 1977, the Concho Agency Superintendent ("Superintendent") of the Bureau of Indian Affairs ("BIA") approved three oil and gas leases from Indian lessors to lessee National Cooperative Refinery Association, covering certain restricted Indian allotments (the Indian leases) totalling 117.5 net mineral acres in Custer County, Oklahoma. Plaintiffs, by assignment, succeeded to National's interest in the said tracts, which are located in Section 17, Township 12 North, Range 17 West, Custer County. On May 18, 1979, the Oklahoma Corporation Commission ¹ (the "Commission") established the 640-acre section constituting Section 17 as a state-ordered drilling and spacing unit.

The said 1977 Indian leases to plaintiffs' assignor granted an exclusive right, for a primary term of five years, to drill for, extract and dispose of all oil and gas underlying the leased tracts. Assuming drilling commenced within the primary term, these leases also granted an exclusive right to a second term continuing for "as much longer thereafter as oil and/or gas is produced in paying quantities" from a well so drilled. The leases also contained a unit operations clause providing that the parties shall abide by "any agreement for the cooperative or unit development of the ... area, affecting the leased lands, ... if and when collectively adopted by a majority operating interest therein and approved by the Secretary of the Interior...."

On December 1, 1981, plaintiff Woods Petroleum executed and circulated among all the working interest owners in Section 17 an agreement voluntarily pooling the Indian interests with the non-Indian interests in the 640-acre communitized area, to become effective as of January 2, 1982. All working interest owners in the unit area executed the agreement. Under a communitization agreement, "drilling 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 considered to be produced from each tract within the unit." Cheyenne-Arapaho Tribes of Oklahoma v. United States, 966 F.2d 583, 585 (10th Cir.1992), cert. denied, --- U.S. ----, 113 S.Ct. 1642, 123 L.Ed.2d 265 (1993), citing Kenai Oil & Gas, Inc. v. Department of Interior, 671 F.2d 383 (10th Cir.1982).

On January 5, 1982, nearly two months prior to the end of the primary term of any Indian lease within the unit, Woods commenced drilling a unit well on a non-Indian tract within the unit. On February 17, 1982, also before the primary terms of the 1977 leases were due to expire, plaintiffs submitted to the Department of the Interior (the "Department") a fully-executed communitization agreement for approval in order to communitize all interests within the unit. The Communitization Agreement was approved by the Anadarko Area Director ("Area Director") on April 12, 1982. ²

On September 6, 1983, the Indian defendants administratively appealed the Area Director's approval of the agreement, arguing that the approval of the Agreement was a breach of the BIA's trust responsibility because the power of the Area Director to approve the...