Union Oil Co. v. United States Department of Energy

688 F.2d 797, 1982 U.S. App. LEXIS 26000
CourtTemporary Emergency Court of Appeals
DecidedSeptember 1, 1982
DocketNos. 9-60 to 9-64
StatusPublished
Cited by20 cases

This text of 688 F.2d 797 (Union Oil Co. v. United States Department of Energy) is published on Counsel Stack Legal Research, covering Temporary Emergency Court of Appeals primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Union Oil Co. v. United States Department of Energy, 688 F.2d 797, 1982 U.S. App. LEXIS 26000 (tecoa 1982).

Opinion

JAMESON, Judge.

On January 28, 1981, President Reagan issued Executive Order 12287, which immediately exempted all crude oil and refined petroleum products from price and allocation controls. On February 19, 1981, the DOE issued Ruling 1981-1, which allows producers to continue to recoup certain expenses incurred in connection with the development of enhanced oil recovery (tertiary) projects, as long as the expenses were incurred, paid and reported prior to February 28 and March 31, 1981 respectively, through the recertification of crude oil sold in December, 1980 and January, 1981. The validity of Ruling 1981-1 is the primary issue on these appeals. In Union Oil Company of California v. DOE, et al., the ruling was held invalid by the District Court for the Central District of California, 530 F.Supp. 717. (Appeal No. 9-60). Its validity was upheld in Tosco Corporation v. DOE, et al., by the District Court for the District of Nevada, 532 F.Supp. 686. (Appeal No. 9-61).

No. 9-63 involves the validity of a so-called “in house” expense amendment allowing producers to recoup expenses paid to affiliated entities for development of tertiary projects. In No. 9-64 Tosco has moved for injunctive relief requesting this court to order the DOE to determine the amount of excess payments each- crude oil producer received and pro-rate distribution to the refiner-participants in the Entitlements Program.

[800]*800I. Regulatory History

A. Crude Oil Price Controls

Regulations administered by the DOE and its predecessor agencies governed the allocation and price of crude oil from August’ 19, 1973 until January 28, 1981. See 10 C.F.R. Parts 210-212. For purposes of the price controls, crude oil was divided into three categories. “Old” domestic crude oil was generally that portion of production which did not exceed the base production control level and was subject to a “lower-tier” maximum price. “New” or “upper-tier” domestic crude oil, where production was in excess of the base period level, could be sold at significantly higher but controlled prices. The third category, “exempt oil,” including foreign oil, and domestic oil, newly discovered or produced from a stripper well or pursuant to tertiary recovery techniques, could be sold at uncontrolled or market prices.1 See 10 C.F.R. Part 212, subpart D.

The regulations required each producer to certify the category of crude oil sold to a purchaser. 10 C.F.R. § 212.131. This was necessary to ensure that a purchaser not pay a price in excess of the maximum allowable for the category of crude oil purchased. The regulations did not initially specify when the certifications had to be made. As a result of complaints of long delays in making the required certifications, the DOE amended its regulations in 1975 to impose a two month limit on the issuance of certifications by producers.2 The two-month limitation period provided greater predictability and stability to refiners’ crude oil costs while still allowing producers adequate time to determine the correct elassification for which a given volume of crude oil had qualified. 40 Fed.Reg. 13522, 13523 (March 27, 1975).

B. The Tertiary Incentive Program

Tertiary enhanced recovery techniques are higher cost production methods which maximize oil production from a depleting field.3 In 1976 Congress directed the DOE to amend its price regulations to provide “additional price incentives for bona fide tertiary enhanced recovery techniques.” Energy Conservation and Production Act (ECPA) § 122, 15 U.S.C. § 757(j)(l)(A). Pursuant to that directive, on July 26,1978, the DOE adopted an amendment to its price regulations, 10 C.F.R. § 212.78 (1979), which provided that increased production of crude oil resulting from a qualified and certified enhanced recovery project would be exempt from price controls. 43 Fed.Reg. 33678 (Aug. 1,1978). This regulation created a new category of exempt crude oil known as “tertiary incremental crude oil.” Effective September 1, 1978, crude oil produced by using tertiary techniques could be sold at market prices.

Concluding that further production incentives were needed, the DOE amended 10 C. F.R. § 212.78 to add the so-called Tertiary Incentive Program (not to be confused with the Tertiary Incremental Program previously adopted). This program was intended “to provide front-end money to producers engaged in the initiation or expansion of tertiary enhanced crude oil projects ...” up to a limit of 20 million dollars per project. 44 Fed.Reg. 18677 (March 29, 1979).

Effective January 1, 1980, the Tertiary Incentive Program permitted a producer to [801]*801recoup up to 75% of the “allowed expenses” it had “incurred” and “paid” in connection with a “qualified tertiary enhanced recovery project.” 10 C.F.R. § 212.78(c). Producers were permitted to self-certify their projects as “qualified” and their expenses as “incurred” and “paid,” subject to possible DOE audit. 10 C.F.R. § 212.78(d). Allowed expenses which had been incurred, paid, and reported could be recouped by selling otherwise price-controlled crude oil at uncontrolled market prices. 44 Fed.Reg. 51148, 51149 (Aug. 30, 1979). No limitations were imposed on prepaying tertiary expenses, so a producer could currently recoup prepaid expenses even though the tertiary enhanced recovery project might not be begun for a period of months or even years. 45 Fed.Reg. 40106, 40107. (Aug. 15, 1980).

In order to allow tertiary producers that sold little or no price-controlled crude oil to benefit from the program, the DOE permitted a producer with an interest in a qualified tertiary project to purchase a temporary interest in another producer’s price-controlled oil, Interpretation 1980-22, 45 Fed.Reg. 61563, 61564 (Sept. 16, 1980), or to sell other producers a temporary interest in its tertiary project. Interpretation 1981-3, 46 Fed.Reg. 27281 (May 18, 1981). To add even more flexibility, the DOE allowed

[participating producers with respect to a particular project [to] attribute the recoupable allowed expenses among themselves in whatever proportion they determine, regardless of their actual interest in the project. This flexibility will permit participants in a project to agree upon internal business arrangements with minimal governmental interference.

44 Fed.Reg. 51148, 51149 (Aug. 30, 1979).

In other words, except for the two-month recertification limitation in § 212.131(a)(6)4 and the requirement that the producer have an interest in the particular tertiary project, there were no limitations as to when or where the crude oil had been produced.

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Bluebook (online)
688 F.2d 797, 1982 U.S. App. LEXIS 26000, Counsel Stack Legal Research, https://law.counselstack.com/opinion/union-oil-co-v-united-states-department-of-energy-tecoa-1982.