OXY USA, Inc. v. Babbitt

122 F.3d 251, 1997 WL 552926
Court of Appeals for the Fifth Circuit·Decided September 23, 1997·No. 95-31047·Published·Cited by 14 cases

Opinion

KING, Circuit Judge:

This is an appeal of a grant of summary judgment in favor of the government upon review of an alleged final determination of the Department of the Interior. For the reasons that follow, we vacate the judgment of the district court as it relates to Count III and remand for entry of judgment dismissing Count III with prejudice.

I. BACKGROUND

OXY USA, Inc., Mobil Exploration & Producing U.S., Inc., and Chevron U.S.A., Inc. (collectively, the “Companies”) are lessees under several oil and gas leases involving submerged lands in the Outer Continental Shelf (“OCS”) lying seaward of the State of Louisiana. 1 The oil and gas leases implicated by this action were granted by the State of Louisiana on the 1942 Louisiana State Lease form (the “1942 lease form”) at a time when Louisiana claimed jurisdiction over submerged lands in the Gulf of Mexico. After a series of Supreme Court decisions *253 established that the United States had exclusive jurisdiction over submerged lands seaward of the low-water line, 2 Congress enacted the Outer Continental Shelf Lands Act (“OCSLA” or the “Act”), 43 U.S.C. §§ 1331-1356, which enabled the United States both to issue new mineral leases on the lands under its jurisdiction and to validate and maintain as federal leases existing state-issued mineral leases covering OCS lands. The leases between the State of Louisiana and the Companies were validated pursuant to section 6 of the OCSLA, id. § 1335. The Companies accordingly -pay royalties to the United States on production from these leases.

The OCSLA vests authority for administering federal OCS mineral leases in the Secretary of the Interior. Id. § 1334. The Minerals Management Service (“MMS”) within the Department of the Interior (“DOI”) is responsible for valuing production from federal oil and gas leases and collecting royalties on that production. See 30 C.F.R. pts. 201-203, 206. 3 The Royalty Valuation and Standards Division (“RVSD”) 4 of the MMS is responsible for responding to requests by federal OCS lessees to deduct transportation costs from royalty payments.

Section 6(b) of the OCSLA provides that the original royalty provisions of state-issued leases validated under section 6 continue to govern. 43 U.S.C. § 1335(b). The regulations issued pursuant to section 6 provide, in relevant part, that the royalty provisions of leases maintained under section 6 (subject to certain provisions of section 6(a) not relevant here) “shall continue in effect, and, in the event of any conflict or inconsistency, shall take precedence over these regulations.” 30 C.F.R. § 256.79. Accordingly, the royalty provisions of the 1942 lease form govern the calculation of royalties due the federal government under the section 6 leases at issue in this suit. The royalty provisions of the 1942 lease form are as follows:

Should sulphur, potash, oil, gas and/or other liquid hydro-carbon mineral be produced in paying quantities on the premises hereunder, then the said lessee shall deliver to lessor as royalty, free of expense:
One eighth (1/8) of all oil produced and saved, including distillate or other liquid hydro-carbons, delivery of said oil to be understood as made when same has been received by the first purchaser thereof. Or lessee may, in lieu of said oil delivery, and at its option, pay to lessor sums equal to the value thereof on the premises; provided no deductions or charges shall be made for gathering or transporting said oil to the purchaser thereof, or loading terminal, nor shall any deductions whatsoever be made chargeable to lessor; provided further, that the price paid lessor for said oil shall not be less than the average posted pipe-line or loading terminal price then current for oil of like grade or quality.
One-eighth (1/8) of all gas produced and saved or utilized, delivery of said gas to be understood as made when same has been received by the first purchaser thereof. Or lessee may, in lieu of said gas delivery, and at its option, pay to lessor sums equal to the value thereof at the well, provided no gathering or other charges are made chargeable to lessor; provided further that *254 the price paid lessor for said gas shall not be less than the average price then current for gas of like character or quality delivered to the pipe line purchaser in that field.

The procedural history of this case begins with a 1985 request by OXY’s corporate predecessor, Cities Service Oil and Gas Corporation (“Cities”), for a transportation allowance for production during 1984 under leases OCS-G 0146 and OCS-G 0163. By letter dated May 30, 1985, the Chief of the RVSD approved this request and stated that the 1984 transportation allowance was to be used as a tentative allowance for production during calendar year 1985. Cities subsequently requested, in a series of letters and a meeting with RVSD officials, that the transportation allowance for 1985 be increased to reflect actual transportation costs for gas production during that year. By letters dated July 21, 1986, and September 19, 1986, the Chief of the RVSD denied Cities’s requests and also rescinded the RVSD’s earlier approval of the 1984 transportation allowance. Both letters stated that leases OCS-G 0146 and OCS-G 0163 were not eligible for transportation allowances as a result of their section 6 status. 5

Cities appealed the RVSD’s decision to the Director of MMS pursuant to 30 C.F.R. § 290.3. The Director affirmed. OXY then appealed the decision of the Director to the Interior Board of Land Appeals (“IBLA”) pursuant to 30 C.F.R. § 290.7 and 43 C.F.R. pt. 4. In an order issued on October 19, 1992 (the “OXY decision”), the IBLA affirmed the decision of the Director. The IBLA based this decision in part upon its holding in Exxon Company, U.S.A., 118 IBLA 30 (1991) (the “Exxon decision”), that a federal lessee may not deduct transportation costs from royalty payments under the 1942 lease form.

In 1992, OXY, Mobil, and Chevron each requested transportation allowances for a number of section 6 leases originally issued on the 1942 lease form. By letters dated January 28, 1993, January 22, 1993, and January 14, 1993, the Chief of the RVSD informed OXY, Mobil, and Chevron, respectively, that these leases were not eligible for transportation allowances and that their applications for transportation allowances accordingly were denied. Each letter stated that the lessee had a “right to appeal this decision” and referred to the procedures for appeal to the Director of MMS set forth in 30 C.F.R. pt.

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OXY USA, Inc. v. Babbitt, 122 F.3d 251, 1997 WL 552926 (5th Cir. 1997).

122 F.3d 251 (OXY USA, Inc. v. Babbitt) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.

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