State v. EstradaState v. Estrada
- Reporters:
Crothers, Justice.
[¶1] In Gadeco LLC v. Industrial Comm‘n, 2012 ND 33, ¶¶ 19-21, 812 N.W.2d 405, we reversed an Industrial Commission order authorizing Slawson Exploration Company to assess a 200 percent risk penalty against Gadeco, LLC, for failing to accept Slawson‘s invitation to participate in the Coyote 1-32H well within 30 days, and we remanded to the Commission to explain its decision. On remand, the Commission determined Slawson‘s invitation to Gadeco to participate in the Coyote 1-32H well complied with regulatory requirements and authorized Slawson to assess a 200 percent risk penalty against Gadeco. Gadeco appeals from a district court judgment affirming the Industrial Commission‘s order on remand. We affirm.
I
[¶2] In Gadeco, we outlined the legal background for authorization of a risk penalty, and we described the factual circumstances underlying the Commission‘s authorization of a 200 percent risk penalty against Gadeco for failing to accept Slawson‘s invitation to participate in the Coyote 1-32H well within 30 days:
“Slawson and Gadeco are owners of oil and gas leasehold interests in a section of real property located in Mountrail County which comprises the spacing unit for the Coyote 1-32H well. On July 8, 2009, Slawson sent to Gadeco and to other working interest owners in the spacing unit invitations to participate in the cost of drilling and completing the well. The letter stated:
“Slawson Exploration Company, Inc., proposes to drill the Coyote #1-32H well from a surface location in the SWSE of Section 32-152N-92W, Mountrail County, North Dakota. This well will test the Bakken formation and will be drilled to an approximate total vertical depth not to exceed 10,500 feet, with a single lateral terminating in the N2NE of Section 32. This is a 640-acre spacing unit comprised of the above-referenced section. The estimated spud date for the Coyote #1-32H is August 25, 2009.
“A recent records check indicates that you have a leasehold interest in this spacing unit, and you are offered participation in the Coyote #1-32H well based upon your ownership. Please indicate your election to participate in this well in the space provided at the end of this letter.
“In the event you do not elect to participate in the drilling of the Coyote #1-32H well, Slawson plans to impose a risk penalty in accordance with North Dakota law. You may object to the risk penalty by filing an application or request for hearing with the North Dakota Industrial Commission.
“If you choose to participate in this well, please sign the attached AFE (authority for expenditure) with costs of $2,707,375 DHC (dry hole costs) and $4,219,256 completed. Return this letter and AFE within 30 days by mail, e-mail, or fax . . . .
“On July 15, 2009, Slawson sent another letter to Gadeco and the other working interest owners stating:
“Please note the surface location and estimated spud date of the Coyote #1-32H well have changed (proposal originally sent under letter dated July 8, 2009). The new information is listed below:
“•The new surface location is NWNE of Section 5-151N-92W, Mountrail County, North Dakota. The bottom hole location remains the same—N2NE of Section 32-152N-92W.
“•The estimated spud date has changed to September 27, 2009 (originally August 25, 2009).
“On August 19, 2009, Gadeco signed and returned the invitation, electing to participate in the well and sending a check for $338,421.87 for its proportionate share of expenses. On August 20, 2009, Slawson acknowledged receipt of the election and check, but returned the check to Gadeco explaining ‘[s]ince this proposal was received by Gadeco, LLC, on July 10, 2009, the 30-day election period expired on Monday, August 10, 2009.’
“In November 2009, Slawson filed an application with the Commission requesting an order pooling all interests in the well‘s spacing unit and authorizing recovery of a 200 percent risk penalty against Gadeco as a nonparticipating owner under
N.D.C.C. § 38-08-08(3)(a) . Gadeco objected to assessment of the risk penalty and, following a hearing, the Commission pooled all interests and authorized Slawson to impose the 200 percent risk penalty. In authorizing assessment of the risk penalty, the Commission stated:“(10) . . . Gadeco believes its election was timely and argues Slawson‘s invitation was invalid because the location of the well and spud date were amended. Gadeco argues Slawson was required to revise the AFE and confirm the spacing unit had not changed. Slawson responded that its letter to Gadeco received on July 17, 2009, indicated the only change was the surface location and the spud date. Slawson further indicated the AFE was not revised because the new location would be drilled from an existing well site and that savings would offset any additional drilling and completion costs. Slawson stated it actually spent approximately $3.4 million on drilling and completion costs on the Coyote #1-32H well, much below the estimated costs of $4.2 million.
“(11) The Commission concludes Slawson has complied with NDAC Section 43-02-03-16.3 and that because Slawson failed to receive Gadeco‘s election by August 10, 2009, the risk penalty may be assessed against Gadeco‘s leasehold interests.”
2012 ND 33, ¶¶ 9-12, 812 N.W.2d 405.
[¶3] The district court reversed the Commission‘s decision holding that, after sending the July 8, 2009 invitation to participate, Slawson changed three of the five requirements for an invitation—the location of the well, the itemization of estimated costs, and the approximate spud date. See
[¶4] In Gadeco, we reversed and remanded to the Commission, stating:
“The Commission‘s decision in this case does not explain how it reached the conclusion that the risk penalty could be assessed, except to note Slawson ‘complied’ with the pertinent regulations and Gadeco‘s election was untimely because it was not received by Slawson by August 10, 2009. There can be no serious dispute that changes were made to the original invitation to participate. Although the Commission and Slawson argue the changes were not material or substantial, the decision fails to explain that the Commission was employing this standard, let alone why it did not deem the changes to be material or substantial.
“The argument that immaterial or insubstantial changes do not necessitate a new amended invitation to participate is compatible with the administrative requirements for the ‘estimated’ costs and the ‘approximate’ spud date under
N.D. Admin. Code § 43-02-03-16.3(1)(a)(2) and(3) . The administrative requirement for the location of the well does not call for an estimation or an approximation. SeeN.D. Admin. Code § 43-02-03-16.3(1)(a)(1) . But even if immaterial or insubstantial deviations from the administrative requirements that do not refer to estimations or approximations are allowable, seeN.D.C.C. § 31-11-05(24) (‘The law disregards trifles.‘), the Commission and Slawson have offered no explanation why, in view of the changes that were made, Gadeco‘s ten-day tardiness in accepting the invitation and forwarding its share of the costs is not an equally immaterial and insubstantial deviation. Moreover, the Commission might well have based its decision on other unspecified factors.“The Commission must provide some indication that it is complying with the law before a reviewing court can afford any deference to its decisions. See Hystad [v. Indus. Comm‘n], 389 N.W.2d [590,] 598 [(N.D. 1986)]. Although the district court ruled a new invitation to participate was necessary ‘because of changes in three of the five things required’ under the administrative regulation, a reviewing court needs to know the reasons for the Commission‘s decision before the court can intelligently rule on the issues. Because the Commission‘s findings are insufficient to enable us to understand the basis for its decision, we reverse the judgment and remand to the Commission for the preparation of findings of fact that reveal the basis for its decision.”
2012 ND 33, ¶¶ 19-21, 812 N.W.2d 405.
[¶5] On remand, the Commission again authorized Slawson to assess a 200 percent risk penalty against Gadeco, ruling Slawson‘s invitation to participate complied with the regulatory requirements for a valid invitation to participate and Gadeco failed to accept the invitation within 30 days of receipt:
“Requiring the invitation to participate to include the location of the proposed or existing well and its proposed depth and objective zone will allow working interest owners to conduct an evaluation as to the economic potential of the project. The Commission believes the crucial well location is the ‘completion location’ (the interval of the well bore that hydrocarbons are produced from), not the surface location, hence the requirement of the well‘s proposed depth and objective zone. Slawson made it very clear in their [July 15, 2009] letter Gadeco received July 17, 2009, that the only change was the surface location and the spud date, therefore the completion location did not change. The Commission notes it is becoming commonplace for multi-well sites to be drilled in the Bakken play and there is a considerable amount of cost savings when such operations are utilized versus drilling each well from its own single-well site.
“Requiring the invitation to participate to include an itemization of the estimated costs of drilling and completion will allow working interest owners to calculate their financial responsibility necessary to participate in the well. Slawson included an AFE in its invitation to Gadeco. An AFE is an estimate of expected costs to drill and complete the well, but it is common place to have some costs overestimated or underestimated, due to various conditions encountered during the location preparation, drilling, and completion of the well. Slawson further indicated the AFE was not revised because the new location would be drilled from an existing well site and that savings would offset any additional drilling and completion costs. The Commission notes its pooling orders provide that in the event of any dispute as to such costs the Commission shall determine the proper cost, which can only be determined after the well is drilled.
“Requiring the invitation to participate to include the approximate date upon which the well was or will be spudded or reentered is important so working interest owners know the well has been or will soon be drilled. Pursuant to NDAC Section 43-02-03-16.3, an election to participate is only binding upon an owner electing to participate if the well is spudded or reentry operations are commenced on or before ninety day[s] after the date the owner extending the invitation to participate sets as the date upon which a response to the invitation is to be received. The new spud date of September 27, 2009, given by Slawson was still within this ninety-day period, which ended November 8, 2009, therefore, the Commission accepts the new spud date as approximate under the invitation Gadeco received from Slawson on July 10, 2009.
“Requiring the invitation to be accepted within thirty days of receiving has been part of the rule since its inception. Due to the enormous costs necessary to operate in the oil and gas industry, companies must raise venture capital to fund their exploration and development operations. It is crucial for companies to plan ahead and have a dependable drilling plan so they can accurately predict the amount of money necessary to fund the drilling and completing of each well. When a working interest owner does not participate in the well, the operator must cover the additional costs, which will affect future funds available for other wells on the operator‘s drilling schedule. The Commission concludes flexibility in the thirty-day deadline should not be allowed.
“(17) The Commission concludes Slawson has complied with NDAC Section 43-02-03-16.3 and that because Slawson failed to receive Gadeco‘s election by August 10, 2009, the risk penalty may be assessed against Gadeco‘s leasehold interests.”
[¶6] The district court affirmed the Commission‘s order, concluding its “findings and conclusions are sustained by the law and by substantial and credible evidence.”
II
[¶7] Judicial review of a Commission order is governed by
III
[¶8] Gadeco argues Slawson‘s invitation to participate in the well did not comply with
[¶9] The Commission and Slawson respond the “location” of a horizontal well does not mean the surface location but means the depth of the well and the location of its production. They also argue the cost of the well and the spud date are flexible and only the estimated costs and approximate spud date are required in an invitation. They further argue Gadeco was not entitled to additional time to accept the invitation because the mandatory language of
[¶10] The issue here involves interpretation of
[¶11] Throughout the prior appeal and this appeal, all parties have cited the following version of
“An owner may recover the risk penalty under the provisions of subsection 3 of North Dakota Century Code section 38-08-08, provided the owner gives, to the owner from whom the penalty is sought, a written invitation to participate in the risk and cost of drilling a well, including reentering a plugged and abandoned well, or the risk and cost of reentering an existing well to drill deeper or a horizontal lateral. If the nonparticipating owner‘s interest is not subject to a lease or other contract for development, an owner seeking to recover a risk penalty must also make a good-faith attempt to have the unleased owner execute a lease.
“a. The invitation to participate in drilling must contain the following:
(1) The location of the proposed or existing well and its proposed depth and objective zone.
(2) An itemization of the estimated costs of drilling and completion.
(3) The approximate date upon which the well was or will be spudded or reentered.
(4) A statement indicating the invitation must be accepted within thirty days of receiving it.
(5) Notice that the participating owners plan to impose a risk penalty and that the nonparticipating owner may object to the risk penalty by either responding in opposition to the petition for a risk penalty, or if no such petition has been filed, by filing an application or request for hearing with the commission.
“b. An election to participate must be in writing and must be received by the owner giving the invitation within thirty days of the participating party‘s receipt of the invitation.”
[¶12] The source notes for
[¶13] In other contexts, we have said issues not properly preserved may be waived or not considered by this Court. See Ruud v. Frandson, 2005 ND 174, ¶ 10, 704 N.W.2d 852 (stating, “Issues not raised in the trial court cannot be raised for the first time on appeal.“); State v. Kraft, 539 N.W.2d 56, 58 (N.D. 1995) (stating failure to preserve nonjurisdictional issue for review in conditional plea agreement precludes raising issue on appeal); Bjerklie v. Workforce Safety & Ins., 2005 ND 178, ¶ 7, 704 N.W2d 818 (stating specifications of error in administrative appeal must specifically enumerate alleged errors at administrative level and failure may result in summary affirmance). “Statutory rights or benefits may generally be waived by the party entitled to such benefits unless such a waiver is against public policy or the statute declares or implies that they may not be waived.” Brunsoman v. Scarlett, 465 N.W.2d 162, 167 (N.D. 1991). “As generally used, the law of the case is defined as ‘the principle that if an appellate court has passed on a legal question and remanded the cause to the court below for further proceedings, the legal question thus determined by the appellate court will not be differently determined on a subsequent appeal in the same case where the facts remain the same‘” and “the law of the case doctrine ‘encompasses not only those issues decided on the first appeal, but also those issues decided by the trial court prior to the first appeal which were not presented for review at the first appeal.‘” Peoples State Bank v. Molstad Excavating, Inc., 2006 ND 183, ¶ 10, 721 N.W.2d 43 (quoting Tom Beuchler Constr., Inc. v. City of Williston, 413 N.W.2d 336, 339 (N.D. 1987)).
[¶14] Throughout the prior appeal and this appeal, the parties and the Industrial Commission cited to and relied on the version of
[¶15] The plain language of
[¶16] One commonly used definition of “location” is “a tract of land designated for a purpose.” Merriam-Webster‘s Collegiate Dictionary 730 (11th ed. 2005). Another source defines “location” as “a tract of land whose bounds have been officially designated (as for settlement or for a mining claim).” Webster‘s Third New International Dictionary 1327-28 (2002). Still another source defines “location” as “[t]he designation of the boundaries of a particular piece of land, either on the record or on the land itself.” Black‘s Law Dictionary 1024 (9th ed. 2009). Those definitions describe location as pertaining to the surface of land and are not entirely compatible with the Commission‘s explanation of location as required only the completion location for a well. Moreover, the term “location” is used in conjunction with the phrase “and its proposed depth and objective zone” in
[¶17] We nevertheless conclude the Commission has discretion and administrative expertise to evaluate compliance with the requirements for an invitation to participate. Slawson‘s July 8, 2009 invitation contained the requirements for a valid invitation to participate, including a description of the surface location, the vertical depth of the well and the termination point for the single lateral in the Bakken formation. The import of the Commission‘s decision about the location of the well, the estimated costs and the approximate spud date is that Slawson‘s July 15, 2009 letter did not substantially alter the requirements for a valid invitation for the well. In Gadeco, we said that “even if immaterial or insubstantial deviations from the administrative requirements that do not refer to estimations or approximations are allowable, see
“The lateral did not change. It‘s [sic] always been in the east half of the Section 32. But originally, we tried to be—the surface location was in the southwest southeast of Section 32 for the Coyote well.
“We had problems with [a surface owner]. He had a center pivot irrigation system on the 160 down there. And in order not to mess up that system, we just moved it simply across the line and expanded the Jericho pad, keeping the lateral in the same place, going north on the—staying on the 320, but we just moved the surface location a little bit to the south. That saved money on the location, but a little bit extra money to drill, drill across the road, but the savings were about equal to the extra expenditure.”
[¶19] Todd Slawson also testified about the purpose of the July 15, 2009 letter:
“It basically indicates, just for informational purposes, the new information, and it states the new information listed below.
“And two things have changed. First of all, it‘s indicating that the surface location has moved from the southwest southeast of Section 32 to the northwest northeast of Section 5. So at that time we resolved that, basically, it‘s probably best to go ahead and move it down, expand the Jericho pad, put this well down here. Pad drilling wasn‘t uncommon for us.
“And also, we thought that there would be another well that would be drilled before this, and so we said this—the spud date looks like it‘s going to be September 27th versus the August 15th—25th date in the original letter. . . .
“[T]here was no change to the well path. There was no change to the AFE. This letter is basically informational, just saying which information has changed from the proposal. That was the surface location and the estimated spud date.
. . . .
“It basically was just informational reasons only, that basically that the—the surface location had changed and that the estimated spud date could be a little later.
“We ask that people prepay, so sometimes people need this for the planning of their—their budgets and things like that. When it is going to—when is it going to spud? So we try to keep people as accurately informed as possible when things are going to spud. And so that‘s the purpose of it.”
[¶20] The Commission heard evidence entitling it to conclude the changes to the surface location of the well, the estimated costs and the approximate spud date were “informational” and insubstantial for purposes of the validity of Slawson‘s July 8, 2009 invitation to participate. Evidence in this record establishes that a reasonable mind might accept as adequate the Commission‘s findings that the actual well did not substantially deviate from Slawson‘s invitation to participate and, under those circumstances, that Slawson was not required to issue Gadeco another invitation to participate. Under our deferential standard of review, the Commission‘s decision about the validity of the invitation to participate is supported by substantial and credible evidence.
[¶21] Under the plain language of the administrative regulation cited by the parties and used by the Commission, “[a]n election to participate . . . must be received by the owner giving the invitation within thirty days of the participating party‘s receipt of the invitation.”
IV
[¶22] We affirm the judgment.
[¶23] Daniel J. Crothers
Mary Muehlen Maring
Carol Ronning Kapsner
Dale V. Sandstrom
Gerald W. VandeWalle, C.J.
Notes
Those sources reflect the version of N.D. Admin. Code § 43-02-03-16.3(1) adopted effective January 1, 2008, provided:
“a. The invitation to participate in drilling must contain the following:
(1) The location of the proposed or existing well and its proposed depth and objective zone.
(2) An itemization of the estimated costs of drilling and completion.
(3) The approximate date upon which the well was or will be spudded or reentered.
(4) The time within which the invitation must be accepted. At least thirty days should be given, for it is presumed that at least thirty days is needed to adequately consider and respond to an invitation. In unusual circumstances, however, the owner seeking the risk penalty may allow less than thirty days in which to respond to the invitation, but in no circumstances may less than fifteen days be allowed.
(5) Notice that the participating owners plan to impose a risk penalty and that the nonparticipating owner may object to the risk penalty by either responding in opposition to the petition for a risk penalty, or if no such petition has been filed, by filing an application or request for hearing with the commission.
“b. An election to participate must be in writing.”