MARALEX RESOURCES, INC., a Colorado corporation; ALEXIS M. O‘HARE; MARY C. O‘HARE v. DAVID BARNHARDT, in his official capacity as Acting Secretary of the United States Department of the Interior; THE UNITED STATES DEPARTMENT OF INTERIOR; THE UNITED STATES OF AMERICA
No. 17-1421
United States Court of Appeals for the Tenth Circuit
January 18, 2019
UNITED STATES COURT OF APPEALS FOR THE TENTH CIRCUIT
FILED United States Court of Appeals Tenth Circuit January 18, 2019 Elisabeth A. Shumaker Clerk of Court
Appeal from the United States District Court for the District of Colorado (D.C. No. 1:15-CV-01893-CMA)
William E. Zimsky, Abadie & Schill, PC, Durango, Colorado, appearing for the Appellants.
Tamara N. Rountree, Attorney, Environmental and Natural Resources Division, United States Department of Justice, Washington, DC (Jeffrey H. Wood, Acting Assistant Attorney General, and Eric Grant, Deputy Assistant Attorney General, United States Department of Justice, Washington, DC; William Lazarus and John L. Smeltzer, Attorneys, Environmental and Natural Resources Division, United States Department of Justice, Washington, DC; and Philip C. Lowe, Rocky Mountain Regional Solicitor‘s
Before BRISCOE, LUCERO, and MATHESON, Circuit Judges.
BRISCOE, Circuit Judge.
Plaintiffs Maralex Resources, Inc. (Maralex), Alexis O‘Hare and Mary C. O‘Hare (the O‘Hares) filed this action against the Secretary of the Department of the Interior (Secretary), the Department of the Interior, and the United States seeking review of a decision of the Interior Board of Land Appeals (IBLA) upholding four Notices of Incidents of Noncompliance that were issued by the Bureau of Land Management‘s (BLM‘s) Tres Rios Field Office to Maralex for failing to allow a BLM representative to access certain oil and gas lease sites operated by Maralex on land owned by the O‘Hares. The district court affirmed the IBLA‘s decision. Plaintiffs now appeal.
Exercising jurisdiction pursuant to
The Parcel and its component Tracts
At issue in this case is a 320-acre parcel of land (the Parcel) that is located in the S1/2 of Section 35, Township 34 South, Range 7 West in La Plata County in southwestern Colorado. The Parcel, which is comprised of 240 acres of private surface/mineral estate and 80 acres of Indian surface/mineral estate, lies over the Ignacio Blanco gas field and the Fruitland coal formation.
The O‘Hares own the surface and mineral estate in a 120-acre tract of land in the SW1/4SE1/4 and E1/2SW1/4 of the Parcel (the O‘Hare Tract). The Southern Ute Indian Tribe (Tribe) holds the surface and mineral estate in the W1/2SW1/4 of the Parcel (the Tribe Tract). The remainder of the Parcel (the Remainder Tract)—the N1/2SE1/4 and SE1/4SE1/4—is privately-owned by the O‘Hare family, J. Elmer and Wanda Lee Kenner, and Irma Rowse.
The leases of the Tracts
On June 6, 1974, the Tribe, acting pursuant to the Indian Mineral Leasing Act of 1938,
The O‘Hares, Kenners, and Rowse issued three private oil and gas leases covering the Remainder Tract. SG III and Maralex became the lessees of those leases.
The Communitization Agreement
In 1996, all of the parties (SG III, Maralex, the Tribe, the O‘Hares, Kenners, and Rowe) “communitized” their coal and gas interests in the Parcel under the terms of a written agreement. More specifically, in a written Communitization Agreement (CA) dated May 1, 1996, the parties agreed to develop and operate the Parcel “as an entirety, with the understanding and agreement . . . that all Communitized Substances produced therefrom [would] be allocated among the leaseholds comprising said area in the proportion that the acreage interest of each leasehold bears to the entire acreage interest committed to [the CA].” Aplt. App. at 3. The CA further stated, in pertinent part, that “[t]he royalties payable on Communitized Substances allocated to the individual leases comprising the [Tract] . . . shall be determined and paid on the basis prescribed in each of the individual leases.” Id.
Two other provisions of the CA are relevant to this case. First, the CA stated: “This agreement shall be subject to all applicable Federal and State laws or executive
The CA was approved by the Tribe and the Bureau of Indian Affairs (BIA) effective May 1, 1996.
The wells operating under the CA
There are four wells associated with the CA and arising from the underlying leases, all of which are operated by Maralex. The four wells are physically situated in two areas on the O‘Hares’ private surface estate in the O‘Hare Tract. Each such area is enclosed by a fence and a locked gate. All four of the wells are producing “both fee and Tribal minerals” from the Fruitland coal formation. Id. at 32. Although the oil and gas at issue is produced from private mineral interests and from wells situated on private surface estates, such production is, under the terms of the CA, allocated to all of the oil and gas interests, including that of the Tribe, as the owner of record title to the mineral estate in the Tribe‘s Section of the Parcel.
BLM‘s attempt to inspect the wells
On February 11, 2013, Gabriel Trujillo, a Petroleum Engineering Technician employed by the BLM, sent an email to Maralex stating that he planned to inspect the four wells. On February 12, 2013, Christi Reid, a Maralex employee, responded by
On February 22, 2013, Trujillo drove to the Parcel in an attempt to examine the wells. Upon arrival, Trujillo found that there was a locked gate that prevented him from examining the wells. That same day, Trujillo spoke by phone with Mickey O‘Hare. O‘Hare informed Trujillo that he had no right to inspect the wells because O‘Hare owned both the surface and mineral rights.
BLM‘s issuance of INCs to Maralex
On February 26, 2013, Trujillo completed four official BLM forms entitled “Notice of Incidents of Noncompliance” (INC). Id. at 23. The INCs noted that Trujillo had attempted unsuccessfully to access the wells on February 22, 2013. The INCs, which were sent to Maralex, alleged that Maralex was in violation of
Maralex‘s administrative appeal of the INCs
On March 27, 2013, a law firm representing Maralex and the O‘Hares sent a letter to BLM appealing the four INCs. The letter asserted that the BLM had
On April 10, 2013, the BLM notified Maralex‘s counsel that it was treating the March 27, 2013 letter “as a request for State Director‘s review (SDR) . . . under
On July 9, 2013, the BLM‘s Deputy State Director, Energy, Lands, and Minerals, Colorado State Office, sent a letter to Maralex‘s counsel responding to each point raised by Maralex‘s counsel. The letter disagreed that the applicable
Section 101(b) of the Federal Oil and Gas Royalty Management Act of 1982 (FOGRMA) provides that, “Authorized and properly identified representatives of the Secretary may without advance notice, enter upon, travel across and inspect lease sites on Federal or Indian lands and may obtain from the operator immediate access to secured facilities on such lease sites, for the purpose of making any inspection or investigation for determining whether there is compliance with the requirements of the minearal [sic] leasing laws and this Act.”
Id. at 90-91 (italics in original). The BLM in turn stated that “[s]ince the subject wells’ production is subject to a federal CA and the government receives a portion of the production‘s royalty, the BLM is responsible for assuring production accountability” and that “[t]his includes inspections for site security, proper handling, measurement and reporting of production and protection against product theft.” Id. at 91. “Therefore,” the letter stated, “BLM must be allowed to perform the production related inspection which necessitates physical access to the subject wells and their associated facilities without advance notice.” Id. In a section entitled “Decision,” the letter stated:
Upon review, the four INCs covering denied access to the subject wells were properly issued and are upheld. The stay of enforcement action granted in our April 10, 2013, letter to Maralex is hereby lifted.
Maralex must provide the BLM Tres Rios Field Office access without advance notice as required by the INCs and the regulations. If Maralex chooses not to provide access as required, Maralex will be subject to assessments pursuant to
43 CFR 3163.1 . In addition furthernon-compliance shall result in proposed civil penalties pursuant to 43 CFR 3163.2(e)(1) .
Id. at 93.
On August 20, 2013, Maralex‘s counsel sent the BLM a notice of appeal of the July 9, 2013 decision. Id. at 97. Maralex‘s counsel followed that up by filing with the IBLA a Statement of Reasons for Appeal. Id. at 98. The Statement of Reasons argued that the regulation relied on by the BLM,
On July 10, 2015, the IBLA issued a written decision affirming the BLM‘s July 9, 2013 decision. In doing so, the IBLA did not address whether plaintiffs were required to provide the BLM with a key or allow the BLM to install its own locks on Maralex‘s gates, nor did the IBLA address plaintiffs’ constitutional arguments.
The district court proceedings
On October 19, 2017, the district court issued an order affirming the IBLA‘s determination. Plaintiffs now appeal.
II
Plaintiffs raise two issues on appeal: (1) whether they waived their argument that the BLM lacked authority to require them to provide the BLM with keys to the locked gates on the O‘Hares’ private property or, alternatively, to allow the BLM to place its own locks on those gates; and (2) whether the BLM has statutory or regulatory authority to require plaintiffs to provide the BLM with keys to locked gates on privately-owned lands or, alternatively, to allow the BLM to place its own locks on such gates.2 As discussed in more detail below, whether plaintiffs waived their argument is a close question, but assuming they did, we nevertheless exercise discretion to address the underlying issue. We in turn conclude that BLM lacked authority to impose the “key or lock” requirement.
Did plaintiffs waive their argument that the BLM lacked authority to require them to provide keys to their locked gates or to allow the BLM to place its own locks on those gates?
To resolve this issue, we begin by turning to the record. Plaintiffs, in their initial appeal of the INCs, “claim[ed] that BLM ha[d] no statutory authority or legitimate justification giving the BLM unbridled discretion to search the subject well facilities in order to ensure site security and proper measurement” and that, consequently, “the BLM‘s request for a key to any gates to conduct inspections [wa]s in violation of Maralex‘s constitutionally guaranteed protection against unreasonable searches under the Fourth Amendment.” Aplt. App. at 90.
In their appeal to the IBLA from the State Director‘s decision denying their initial appeal, plaintiffs argued, in pertinent part, that “there [wa]s no statutory authority nor . . . any legitimate justification for giving the BLM unbridled discretion to search the facilities at issue at any time and without notice,” and that, consequently, “BLM‘s request for a key to any gates to conduct unannounced inspections [wa]s violative of Maralex‘s constitutionally guaranteed protection against unreasonable searches under the Fourth Amendment.” Id. at 102. Plaintiffs further argued that “there [wa]s no statutory support for warrantless, unannounced
In our view, it is a close question whether plaintiffs presented their argument to the IBLA that BLM exceeded its statutory and regulatory authority by requiring a key or lock in the INCs. On the one hand, plaintiffs clearly argued, as part of their Fourth Amendment challenge, that the BLM lacked both statutory and regulatory authority to impose the key/lock requirement. On the other hand, plaintiffs expressly asserted before the IBLA that it lacked authority to address their Fourth Amendment challenge and they asked the IBLA not to consider it.
Even assuming, however, that plaintiffs failed to properly present to the IBLA their argument that the key/lock requirement exceeded the BLM‘s statutory and regulatory authority, we nevertheless choose to exercise our discretion to address that
In this case, the issue of the BLM‘s statutory and regulatory authority has been fully briefed and argued in this court by both sides. Further, the factual record is essentially undisputed and, thus, we are presented with only a question of law. Lastly, and perhaps most importantly, the BLM has indicated its intention to enforce the key/lock requirement at the conclusion of this litigation. On October 22, 2018,
Does the BLM have authority to require a landowner or operator to provide the BLM with keys to the landowner‘s locked gates or allow the BLM to place its own locks on the landowner‘s gates?
We now turn to the merits of plaintiffs’ argument. Plaintiffs assert that, even assuming some statutory or regulatory authority exists for the BLM to conduct inspections on fee lands without advanced notice, “there are limits to such inspections.” Aplt. Br. at 40. Plaintiffs point to the language of
Defendants argue, in response, that “the INCs’ corrective action requiring Plaintiffs to provide BLM with key or lock access is permissible under the statute and the regulations.” Aple. Br. at 39. In particular, defendants assert that “FOGRMA and its implementing regulations provide that any person who fails to allow authorized inspections is liable for penalties, which may not be applied if the liable person takes the prescribed corrective action within the required timeframe.” Id.
a) Standard of review
When reviewing an agency‘s interpretation of a statute it administers, we first determine whether Congress has directly spoken to the precise issue. See Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 842 (1984); Cliffs Synfuel Corp. v. Norton, 291 F.3d 1250, 1257 (10th Cir. 2002). “If the intent of Congress is clear, that is the end of the matter; for the court . . . must give effect to the unambiguously expressed intent of Congress.” Chevron, 467 U.S. at 842–43. If, however, the statute is silent or ambiguous on the issue in question, we do not impose our own construction on the statute, but rather ascertain whether the agency‘s interpretation is a permissible construction of the statute. Id. at 843. If it is, we defer to that interpretation. Id. at 844. Our review of federal regulations is similar. “In the usual course, when an agency is authorized by Congress to issue regulations and promulgates a regulation interpreting a statute it enforces, the interpretation receives deference if the statute is ambiguous and if the agency‘s interpretation is reasonable.” Encino Motorcars, LLC v. Navarro, 136 S. Ct. 2117, 2124 (2016). “This principle is implemented by the two-step analysis set forth in Chevron.” Id. “At the first step, a
b) Analysis
We begin our analysis by briefly examining the overall statutory and regulatory scheme for inspections of oil and gas lease sites that implicate Indian
(1) “Federal land” means all land and interests in land owned by the United States which are subject to the mineral leasing laws, including mineral resources or mineral estates reserved to the United States in the conveyance of a surface or nonmineral estate; . . .
(3) “Indian lands” means any lands or interest in lands of an Indian tribe or an Indian allottee held in trust by the United States or which is subject to Federal restriction against alienation or which is administered by the United States pursuant to section 14(g) of Public Law 92-203 [
43 USC § 1613(g) ], as amended, including mineral resources and mineral estates reserved to an Indian tribe or an Indian allottee in the conveyance of a surface or nonmineral estate, except that such term does not include any lands subject to the provisions of section 3 of the Act of June 28, 1906 (34 Stat. 539) [unclassified]; . . .(5) “lease” means any contract, profit-share arrangement, joint venture, or other agreement issued or approved by the United States under a mineral leasing law that authorizes exploration for, extraction of, or removal of oil or gas;
(6) “lease site” means any lands or submerged lands, including the surface of a severed mineral estate, on which exploration for, or extraction or removal of, oil or gas is authorized pursuant to a lease; . . .
In our view, the plain language of the statutory definition of “lease” includes communitization agreements approved by the United States, such as the one at issue in this case. More specifically, a communitization agreement is a “contract” or “other agreement” that, depending upon the circumstances, has been “approved by the United States under a mineral leasing law,” i.e., federal law governing mineral rights on Indian and trust land, “that authorizes exploration for, extraction of, or
Section 1718 of FOGRMA, entitled “Inspection,” provides in pertinent part as follows:
(b) Inspection of lease sites for compliance with mineral leasing laws and
30 USCS §§ 1701 et seq. Authorized and properly identified representatives of the Secretary may without advance notice, enter upon, travel across and inspect lease sites on Federal or Indian lands and may obtain from the operator immediate access to secured facilities on such lease sites, for the purpose of making any inspection or investigation for determining whether there is compliance with the requirements of the mineral leasing laws and this Act. The Secretary shall develop guidelines setting forth the coverage and the frequency of such inspections.
Defendants concede that “Congress did not expressly address the application of Section 1718(b) inspection authority to fee lands committed to communitization agreements.” Aple. Br. at 15. But, defendants argue, “[g]iven that ambiguity, BLM reasonably exercised its delegated rulemaking authority to include the inspection of fee lands that, like the O‘Hares‘, are subject to a communitization agreement that was approved by the Department and involves Indian lands where the affected tribe shares in the production and royalties of the oil and gas operation.” Id.
Defendants’ arguments hinge on the threshold question of whether § 1718(b) is ambiguous or not. A statute is “ambiguous if it is reasonably susceptible to more than one interpretation or capable of being understood in two or more possible senses or ways.” Nat‘l Credit Union Admin. Bd. v. Nomura Home Equity Loan, Inc., 764 F.3d 1199, 1226 (10th Cir. 2014) (quotations and citations omitted); see Chickasaw Nation v. United States, 534 U.S. 84, 90 (2001). Although it may be reasonable from a policy standpoint for the BLM to have authority to inspect fee lands that are subject to a communitization agreement approved by the United States, § 1718(b) simply is not ambiguous and thus does not provide the BLM with any authority to exercise its delegated rulemaking authority on that issue. As noted, § 1718(b) quite clearly limits the BLM‘s inspection authority to lease sites on federal and Indian lands.
For these reasons then, we conclude that § 1718(b) does not afford the BLM with authority to inspect lease sites on privately-owned lands. Thus, we must look elsewhere to determine whether any authority exists for the BLM‘s proposed inspections of the wells in this case.
The Secretary has issued regulations implementing the various statutory directives outlined by Congress in FOGRMA. To begin with,
The regulations in this part and 43 CFR part 3170, including subparts 3173, 3174, and 3175, relating to site security, measurement of oil and gas, reporting of production and operations, and assessments or penalties for non-compliance with such requirements, are applicable to all wells and facilities on State or privately owned lands committed to a
unit or communitization agreement, which include Federal or Indian lease interests, notwithstanding any provision of a unit or communitization agreement to the contrary.
In turn,
(a) The authorized officer shall establish procedures to ensure that each Federal and Indian lease site which is producing or is expected to produce significant quantities of oil or gas in any year or which has a history of noncompliance with applicable provisions of law or regulations, lease terms, orders or directives shall be inspected at least once annually. Similarly, each lease site on non-Federal or non-Indian lands subject to a formal agreement such as a unit or communitization agreement which has been approved by the Department of the Interior and in which the United States or the Indian lessors share in production shall be inspected annually whenever any of the foregoing criteria are applicable.
(b) In accomplishing the inspections, the authorized officer may utilize Bureau personnel, may enter into cooperative agreements with States or Indian Tribes, may delegate the inspection authority to any State, or may contract with any non-Federal Government entities. Any cooperative agreement, delegation or contractual arrangement shall not be effective without concurrence of the Secretary and shall include applicable provisions of the Federal Oil and Gas Royalty Management Act.
Lastly,
(a) The operating rights owner or operator, as appropriate, shall comply with applicable laws and regulations; with the lease terms, Onshore Oil
and Gas Orders, NTL‘s; and with other orders and instructions of the authorized officer. These include, but are not limited to, conducting all operations in a manner which ensures the proper handling, measurement, disposition, and site security of leasehold production; which protects other natural resources and environmental quality; which protects life and property; and which results in maximum ultimate economic recovery of oil and gas with minimum waste and with minimum adverse effect on ultimate recovery of other mineral resources. (b) The operator shall permit properly identified authorized representatives to enter upon, travel across and inspect lease sites and records normally kept on the lease pertinent thereto without advance notice. Inspections normally will be conducted during those hours when responsible persons are expected to be present at the operation being inspected. Such permission shall include access to secured facilities on such lease sites for the purpose of making any inspection or investigation for determining whether there is compliance with the mineral leasing laws, the regulations in this part, and any applicable orders, notices or directives.
(c) For the purpose of making any inspection or investigation, the Secretary or his authorized representative shall have the same right to enter upon or travel across any lease site as the operator has acquired by purchase, condemnation or otherwise.
The regulatory provisions thus provide for an inspection framework that applies to federal, Indian, and certain privately-owned lands, but that, not surprisingly, provides the BLM with greater inspection authority over federal and Indian lands than privately-owned lands. With respect to lease sites on federal and Indian land that are “producing or . . . expected to produce significant quantities of oil or gas in a year or which ha[ve] a history of noncompliance with applicable
Thus, at least for purposes of this case, the key difference between lease sites on federal/Indian lands and lease sites on privately-owned land subject to a communitization agreement is how BLM representatives may access them. For lease sites on federal/Indian lands, BLM representatives have the right to enter those sites by themselves without first seeking permission from the operating rights owner or operator. In contrast, for lease sites on privately-owned lands, BLM representatives may not independently enter the sites, but instead must seek entry (but do not have to give advance notice) from the operating rights owner or operator and the operating rights owner or operator, as noted, is obligated to allow such entry.
As for how often BLM representatives may inspect the wells, the regulations contain no limitation. Indeed, the only reference to frequency of inspections is contained in
We agree with plaintiffs that the BLM lacks authority to require an operator or landowner to provide the BLM with a key to the landowner‘s locked gates or to allow the BLM to place its own locks on the landowner‘s locked gates. But we arrive at this conclusion in a different manner than suggested by plaintiffs. Although plaintiffs base many of their arguments on the language of § 1718(b), that statutory subsection, as discussed above, does not apply at all to lease sites on privately-owned lands. Instead, the parameters of inspections of lease sites on privately-owned lands are outlined in two regulations:
Defendants, for their part, cite in their appellate brief to the statutory and regulatory provisions authorizing the BLM to take “corrective action.” Aple. Br. at 39 (citing
III
We REVERSE and REMAND to the district court with directions to enter judgment in favor of plaintiffs on their claim that the BLM lacks authority to require plaintiffs to provide the BLM with a key to access the wells at issue or to allow BLM to install its own locks.