# Appendix — Energy Reserves Group, Inc. Hodel > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385009_0971%3A2 ## Record - **Collection:** Supreme Court brief - **Document type:** Appendix - **Published:** January 1, 1983 - **Citation:** 459 U.S. 1127 ## Text la APPENDIX A TEMPORARY EMERGENCY COURT OF APPEALS OF THE UNITED STATES No. 10-39 In RE THE DEPARTMENT OF ENERGY Stripper WELL EXEMPTION LITIGATION ENnerGcy Reserves Group, Inc., Suburban Propane Gas Corporation, Marathon Oil Company and Sklar & Phillips Oil Company; Sierra PETROLEUM Co., INc.; BRADEN- ZeniTH, INc. and The Estate of S. H. Killingsworth; Mo. BIL OI CorPporRATION, Mobil Producing Texas & New Mexico, Ind. and Willie Ansley Bryson; STELBAR OIL Corporation, INc., The Standard Oil Company, Ohio and Theo M. Glenn, Jr. and Eleanor Glenn; Ropert DaLe BRANDENBURG and Texaco, Inc.; Aux ol. USA, INc., Oris C. PEAVEY, et al. and Sun Oil Company (Delaware); How. ARD Stout, Lorena Houlton and Mary E. Hall, Co- Trustees of the Charles S. Page Trust and Gulf Oil Corpor- ation; Ropert E. Davis and Energy Consumers & Pro- ducers Association, Inc., Ruthven, Inc., Pioneer Opera- tions Company, Inc.; GORE R. Jones, et al.; PETROLEUM MANAGEMENT INC.; ATLANTIC RICHFIELD Company, W. R. Murrin, d/b/a Murfin Drilling Company, and Champlin Petroleum Company; UNIon OI ComPANy OF CALIFORNIA; CoasTAL States Gas Corp., Coastal States Gas Producing Co., and Gas Producing Enterprises, Inc.; Exxon Corpor- ATION; CONTINENTAL OI. Co.; Hunt O. Company; CRS. TAL O Company and Ira Thomas May; Muskecon DEvVEL- OPMENT Co.; OKLAHOMA ASSN OF ENERGY ConsUMERS & Propucers; Paul B. FLetTcHer, Sr. and Anadarko Production Company; IU InTPRNATIONAL OI. & Gas, INCc.; Woop Ou. Co. and Dan Wa. ace d/b/a Columbus Oil Co.; Wit I. Lewis Enterprises, INc.; Jimmie Austin d/b/a Austin Drilling Company; Santa Fe Enercy Company; Georce G. ANDERMAN and Donald R. Kirby; Patricia ANNE LEONARD, ET AlL. FARMERS PETROLEUM CoorERA. TIVE, Inc.; Kirkwoop OIL & Gas Company; PETROLEUM CORPORATION OF TEXAS, GeEorGE W. War and Amoco Production Company, PLAINTIFFS-APPELLEES, V. DEPARTMENT OF ENERGY. ET AL. DEFENDANTS-APPELLANTS. Appeal from the United States District Court for the District of Kansas MDL No. 378 (Argued: April 9, 1982 Decided: July 29, 1982) Before GRANT, LARSON and Lacey, Judges. Grant, Judge: These multidistrict litigation cases, consolidated for disposi- tion by the Judicial Panel on Multidistriet Litigation at the United States District Court for the District of Kansas, pre- sent the issue of the validity of Federal Energy Administration (now the Department of Energy (DOE)) Ruling 1974-29 which interprets the stripper well exemption as excluding injection wells from well count, for purposes of applying the exemption from allocation and price regulation which is accorded crude petroleum produced from stripper well leases.’ The ruling in question, Ruling 1974-29 (39 Fed. Reg. 44414, December 24, 1974), provides in its relevant part as follows: Issue. Is an “injection” well a “well” for the of purposes of the stripper well lease exemption of 10 CF 240.455 Ruling. No. bee heeds — BR J — pay — — — including sural gs igs, prc produced — 1— 1 is — chao 3a Background The origin of these cases is with the decision of the United States District Court for the District of Kansas in Energy Reserves Group, Inc. v. Federal Energy Administration, 447 F. Supp. 1135 (D. Kan. 1978), In that case, Judge Theis in- validated Ruling 1974-29 on the basis that it was promulgated without satisfying the rulemaking requirements of the Admin- istrative Procedure Act (APA). Importantly, Judge Theis did not, in his ruling, reach other challenges to the validity of Ruling 1974-29 but instead rested his decision solely upon nonconformity with the APA. On appeal, this court reversed that decision, in a plurality opinion, holding that the Ruling was “Clearly Interpretative and Exempted From the Re- quirements” of the APA. Energy Reserves Group, Inc. v. Department of Energy, 589 F. 2d 1082, 1091 (Temp. Emer. Ct. production did not exceed 10 barrels per day per wel! during the calendar . “Average daily production” is further Refined im 10 CPR 310.3200) as: . The qualified total produetion erude enen arte e u ui, ea from a during the year, by a number to the of days in that i i; i Hf petroleum. Therefore, weil which dd ot actualy ye rie or pro not fon ‘wells for, this purpose. Whether — producing well was an “injection” well, a disposal well, a dry : . : 3 8 : i 7 i da App. 1978) (Energy Reserves I).“ In that appeal, the appellees argued that Ruling 1974-29 was legislative in nature and effect and this subject to the notice and comment requirements of the APA. 5 U.S.C. § 553(b) and (c). That argument was re- jected, — — stantial — test eS — — tive rule is “i ve” or “legislative,” Ruling 1974- 29 had no substantial impact on — — — exception of EP snd TAB. 90 FK. § 210.32, or both, it had no impact. In that event the — the statute and valid legisla- tive ion being interpreted, not from the interpreta- tive ruling. terpretation of the term“ used in § 406 ying eh y yh rage, ly AA. and in 10 C.F.R. 122 such it had no “impact” if such be a test. The “impact, "if any, resulted f. , from the sta ute and from the regulation 10 C. F. R. 210.32(b) found to be valid by the district court. The interpretation of § 406 of TAPAA and § 4(e) (2) (A) of EPAA to exclude ir — Judge Christensen, in his concurring opinion, — soma ons eet cnguteed ty considerable stirring of waters in the arguments, no sig- In that case, the court included a comprehensive review of the history of the stripper well exemption but, because of the widespread interest in these cases, we find it useful and necessary to repeat much of that history here. See also Southern Union Production Company v. Federal Energy Administration, 569 F. 2d 1147 (Temp. Emer. Ct. App. 1978). 5a nificant impacts to operate inst the ruling in question. And a holding that — 1 21. petroleum” means, as contemplated by the properly adopted and isti ae and in view of the seminal statute, a well that produces or yields such pet- roleum directly rather than one which may be utilized asa part of a system to obtain indirectly crude petroleum from a producing well, seems essentially the sort of an in- terpretation that must have been intended by the APA exception to the rulemaking requirement. 589 F.2d at 1103 (emphasis supplied). Following remand of these cases to the district court, the DOE filed with this court a petition for writ of mandamus directing the district judge to execute the mandate of our previous decision. It argued that Energy Reserves I definitive- ly and conclusively established the validity of Ruling 1974-29, and the district court was without any authority to reach a different result. This court, with Judge Christensen now writ- ing for a unanimous panel, denied the DOE’s petition for the writ. Duncan v. Theis, 613 F.2d 305 (Temp. Emer. Ct. App. 1979). Recognizing that the previous mandate could pose some interpretation difficulties as to what exactly was decided and what was not, Id. at 308, the court went on to declare: It may well be beyond the issues thus clearly resolved (he —— on appeal that in line with Judge 8 ive analysis and reasoning and as he has suggested, 589 F.2d a aoe oe 7 regula- tion its interpretation constituted not a reason- able construction of the statute as well, but in addition “may be the construction ultimately preferred by the courts.” But since our decision did not definitely resolve any statutory problem, there is presently no basis to cut off further proceedings in the district court except for the mandated judgment sought by the petitioners. We deny the government's petition for a writ of man- damus because of the narrow reach of this extraordinary remedy, un ved issues as to the ruling in —_— is arbitrary, capricious or unreasonable in the ight of, or is in conflict with, or is beyond the authority granted by controlling statutory provisions, the province 6a and duty of the district court, consistent with the mandate of this court and the doctrine of stare decisis, to exercise ite reasonable discretion in determining interlocutory — 1 — and judgments in the first following the determination 1 t issuance of the mandate of this court, and our confidence that Judge Theis upon this clarification of what we — — „ decision will not trans- gress the fair meaning and 1 application of the doctrine of sture decisis Id. at 309 (emphasis supplied) (footnotes omitted). Thus, while denying the petition for a writ of mandamus, the court expressed a rather strong belief that it had previously implicitly held Ruling 1974-29 to be valid in all respects. This is most clearly evidenced by footnote 4 which quotes approvingly from Judges Becker and Christensen’s opinions in Energy Reserves I: Judge Becker expressly held that “Ruling 1974-29 is a reasonable interpretation of the term ‘ave daily A adm OCF E, $210.50) ten § 4(e) ( ©) a) of — 1 41 TEE 4 5 or the seminal — — chi — such petroleum directly rather than one which may be utilized as a part of system to obtain — ＋ wy from a producing well, seems essentially the sort of an interpretation that must have been intended the APA exception to the rulemaking requirement.” F.2d at 1103. Id. at 308 n.4. To assist and guide the district court with respect to the merits of any outstanding issues, the court footnoted its deci- sion with Yablonski v. United Mine Workers of America, 454 F. 2d 1036 (D.C. Cir. 1971), cert. denied, 406 U.S. 906 (1972), wherein the Court of Appeals for the District of Columbia 7a addressed a situation not unlike the situation presented here. In Yablonski, the issue was whether the district court had failed to give “full effect” to a previous mandate from the Court of Appeals. The court stated: We had t t that the factual basis for our earlier — ee ee relevant its legal basis from the prinei we identified as controlling. > the « same token, we be- lieved that we had furnished the District Court with uns- quivocal standards which successor counsel ... would have to meet. Id. at 1039, quoted at 613 F.2d at 309-10 n.10. After “recapitulating” their initial holding, the Yablonski court pro- ceeded to grant the petition, adding: [Blut in the belief that issuance of a formal writ is . We trade instead upon our confidence that without more the District Court will now take action to rectify the error which gave birth to the present proceed- ing. 454 F.2d at 1042, quoted at 613 F. 2d at 309-10 n. 10 (footnote omitted). In essence, Duncan v. Theis implicitly held that Ruling 1974-29 is valid but, rather than resorting to the ex- traordinary remedy of mandamus, left final determination of that question with the sound judgment of the district court. Following the decision in Duncan v. Theis, the district court issued a lengthy opinion finding that 6 C.F.R. § 150.54(s) and subsequent similar regulations, as interpreted by Ruling 1974- 29, are void and of no legal effect. In Re Department of Energy Stripper Well Exemption, 520 F. Supp. 1232 (D. Kan. 1981). This single paragraph summarizes the district court’s reason- ing: This Court therefore holds that the agency’s decision to exclude injection wells from the well count for the pur- fevond the of — 2 tye te * produetion was authority of and was contrary to T . as seen in of the measure, as well as the 1 purpose an the application of appropriate 8a canons of construction all indicate that injection wells should be counted. These considerations outweigh any deference due the agency’s intrepretation. Furthermore, as is explained and Id tn the fo of this opin- ion, the agency’s action was arbi ve pele So — to —.— obliterate any — yw te of deference. Id. at 1265-66. On this appeal, we review the district court’s finding of invalidity. More specifically, we examine whether the district court has correctly construed congressional intent; whether Ruling 1974-29 exceeds the authority of the DOE; and whether Ruling 1974-29 is arbitrary and capricious. We hold Ruling 1974-29 to be valid and reverse the decision of the district court. Statutory and Regulatory History Rapidly rising increases in world oil prices in 1973, accentu- ated by the Arab oil embargo, presented the United States with a serious inflationary problem. To halt the inflationary spiral in domestic oil prices, the Cost of Living Council (CLC), acting pursuant to the Economic Stabilization Act & 1970, Pub. L. No. 91-39, 84 Stat. 796, 799, on August 22, 1973, issued its Phase IV system of price controls, setting up a two-tier price system on the first sale of all domestic production of crude oil. Shortly thereafter, in two statutes enacted only eleven days apart, Congress expressly exempted from price controls oil produced from stripper well leases. The stripper well exemption first appeared in the Trans- Alaska Pipeline Authorization Act (TAPAA) which was signed into law as Pub. L. No. 93-153 on November 16, 1973. 87 Stat. *See6C.F.R. § 150, Subpart L (38 Fed. Reg. 22536 (1973)). Under this two-tier system, a ceiling price was placed on the volume of crude oil produced from a particular property equal to or less than the level of production from that property in the same month of 1972 (old oil). Crude oil produced in excess of 1972 levels and newly discovered oil (new oil) were free of controls. 9a 576, 584; 42 U.S.C. § 1651 et seq. Section 406 thereof reads as follows: (a) The first sale of crude oil and natural gas liquids produced from any lease whose average daily production of such substances for the p ing calendar month does not exceed ten barrels per well not be subject to price restraints established pursuant to the Economic Stabiliza- tion Act of 1970, as amended, or to any allocation program for fuels or petroleum established pursuant to that Act or to any Federal law for the allocation of fuels or petroleum. (b) To qualify for the exemption under this section, a lease must be operating at the maximum feasible rate of production and in accord with recognized conservation practices. (e) The agency designated by the President or by law to implement any such fuels or petroleum allocation p is authorized to conduct inspections to insure compliance with this section and shall promulgate and cause to be published regulations implementing the provision of this The Joint Statement of the TAPAA Committee of Con- ference explained the presence of the provision in the Alaskan Pipeline bill: 6. The Senate Bill had a number of miscellaneous provi- sions that were not directly related to oil pipeline rights- of-way. The House amendment had no comparable provi- sions. The Conferees’ action was as follows: - x * * (c) The provision exempting the first sale of oil and from stripper wells from the Ty. restraints of the Eco- nomic Stabilization Act of 1970, and from any allocation — r was adopted. A stripper well is defined as a well ith an average daily production during the preceding month of not more than ten barrels. In order to qualify for the exemption the lease must be operating at a maximum 10a feasible rate of production and in accord with recognized conservation practices. TAPAA Conf. Rep. No. 93-924, 93d Cong., Ist Sess., re- printed in [1973] U.S. Code Cong. & Admin. News 2523, 2524 (hereinafter “TAPAA Conf. Rep.“. Eleven days later, on November 27, 1973, the President signed into law the Emergency Petroleum Allocation Act (EPAA), Pub. L. No. 93-159, 87 Stat. 627, 15 U.S.C. § 751 et seq. That Act contained an almost identical exemption, but changed the qualifying period from the “preceding calendar month” to the “preceding calendar year.” Section 4(e) (2) thereof provided: (A) The regulation promulgated under subsection (a) of this section shall not apply to the first sale of crude oil produced in the United States from any lease whose aver- age daily production of crude oil for the preceding calendar year does not exceed ten barrels per well. (B) To qualify for the exemption under this paragraph, a lease must be operating at maximum feasible rate of production and in accord with recognized conservation practices. (C) Any agency designated by the President under sec- tion 5(b) for such is . to conduct inspec- tions to insure compli with this ph and s promulgate and cause to be oy ished regulations implementing the provisions of this paragraph. The only apparent mention of stripper wells in the legislative history of the EPAA appears in the Joint Explanatory State- ment of the Committee of Conference. (8) Stripper wells. The conference substitute contains a vision relating to stripper wells. This provision, found in section 4(e)(2) states that the regulation promulgated under subsection (a) of this section shal! not apply to the first sale of crude oil produced in the United States from any lease whose average daily production of crude oil for the preceding calendar year does not exceed ten barrels per well. In order to qualify for the exemption, a lease must be — — maximum feasible rate of produc- tion and in with recognized conservation prac- lla tices. Any agency designated by the President under sec- tion 5(b) of the conference substitute for such purpose is authorized to conduct inspections to insure compliance be po oa — ten age Sg — i uirements implementing the provisions o EPAA Conf. Rep. No. 93-628, 93d Cong., Ist Sess., reprinted in U.S. Code Cong. & Admin. News 2688, 2699. However, in the legislative history of the TAPAA, Congress directed that in implementing the stripper well exemption, the administer- ing agency was to “insure that the limited exemption of this class of wells for the express purposes described . . . is not in any way broadened.” TAPAA Conf. Rep. at 2532. To achieve this end, the conferees emphasized that ihey expected the administering agency to prevent manipulation “of lease units in a manner that evades the price controi and allocation pro- grams.” Id. The conferees ordered the agency to make certain that: [T)he exemption is narrowly defined and prudently administered, and to insure that the incentive being granted is properly limited in accord with congressional intent. Id. at 2531 (emphasis supplied). In order to implement the TAPAA stripper well exemption, the CLC, on November 21, 1973, issued a regulation which closely tracked the statutory language. 38 Fed. Reg. 32494 (1973); 6 C. F. R. § 150.54(s). “Stripper well lease” was defined therein as: a “property” whose average daily production of crude petroleum and petroleum condensates, including natural gas liquids, per well did not exceed 10 barrels per day uring the preceding calendar month. 6 C. F. R. § 150.54(s) (2). “Average daily production” was de- fined as: . the qualified maximum total produetion of domestie erude petroleum and petroleum condensates, including natural gas liquids, produced from a property during the preced- 12a ing calendar month, divided by a number equal to the number of days in that month times the number of wells which produced crude petroleum and petroleum con- densates, including natural gas liquids, from that r- ty in that month. To qualify as maximum total production, each well on the property must have been maintained at or ym feasible — of — seam —rTr— with recognized conservation ices, signifi- cantly curtailed by reason of — sie] failure or other disruption in production. Id. (emphasis supplied). After the EPAA was enacted, the definitions of “average daily production” and “stripper well lease” in the above regulation were amended on December 12, 1973, to reflect the “calendar year” period of § 4(e)(2)(4) of the EPAA rather than the TAPAA’s period of a “calendar month.” See 38 Fed. Reg. 34464 (1973). The phrase “wells which pro- duced crude petroleum” was unaffected.‘ Section 4(e) (2) (e) of the EPAA authorized the President to designate any agency to promulgate and publish regulations implementing the EPAA. Pursuant to this grant of authority, Executive Order 11748 (38 Fed. Reg. 33575, December 6, 1973) was issued on December 4, 1973, which delegated the President’s authority under the EPAA and the Economic Stabilization Act of 1970 to the Administrator of the Federal Energy Office. On December 11, 1973, the FEO issued a notice of proposed rulemaking which, inter alia, incorporated the provisions set forth in Part 150 of Title 6 of the Code of Federal Regulations, 38 Fed. Reg. 34434 (1973) (10 C.F.R. § 201.4), and excluded stripper well leases from the regulations. 38 Fed. Reg. 34416 (1973) (10 C.F.R. § 200.2(a)). Final regulations were issued on December 27, 1973. 39 Fed. Reg. 744 (1974). In early 1974, 10 C. F. R. § 210.32 was issued. Section (b) thereof On January 16, 1975, 6 C. F. R. § 150.54(s), along with other provisions of Chapters I, V. and VI in Title 6, were adopted by the Department of Treasury. 40 Fed. Reg. 3572 (1975). Section 150.54 was effectively removed. 13a defined “Average daily production” in the same manner as in 6 C.F.R. § 150.54(s). See 39 Fed. Reg. 35510 (1974). It was subsequently amended on May 15, 1975, to read: “Average daily production” means the qualified maximum —.— of crude oil, including condensates, pro- d from a property, divided by a number equal to the number of days in the year times the number of wells that produced oil, including condensates, from that prop- erty in that year. To qualify as maximum total producton, each well on the property must have been maintained at the maximum feasible rate of production, in accordance with recognized conservation practices, and not signifi- cantly curtailed by reason of mechanical failure or other disruption in production. 40 Fed. Reg. 22124 (1975) (subsequent amendments to 10 C.F.R. § 210.32 at 40 Fed. Reg. 24517, 31927, 40820 and 52843 are irrelevant for purposes of this appeal). The problem resulting from the issuance of these regulations is that nowhere, except possibly by implication, was the term “well” defined to exclude injection wells. The FEA interpreted the regulations to exclude injection wells from the well count in calculating “average daily production” per well. The industry strongly disagreed with this interpretation and argued that injection wells should be included in the well count because they were a necessary part of a secondary recovery system. In response, the FEA, on December 19, 1974, issued Ruling 1974-29 which expressly excludes injection wells from the Through an injection well, fluids are forced into an underground oil reservoir to maintain reservoir pressure to help increase produc- tion of nearby producing wells. See Wiggins Brothers, Inc. v. Depart- ment of Energy, 667 F. 2d 77, 80 (Temp. Emer. Ct. App. 1981), cert. denied. U. S.. 50 U.S. L. W. 3783 (1982); Energy Reserves I, 589 F. 2d at 1105 (Zirpoli, J., dissenting). Inclusion of injection wells in the calculation of average daily production would enable a produc- er to divide his total production from a property by a greater number of wells, thereby allowing more production to qualify for the exemp- tion by falling under 10 barrels per day per well. Ida calculation of average daily production in determining the ap- plicability of the stripper well exemption from the price control program. The following paragraph from the Ruling (quoted in its entirety in n. I, supra) concisely articulates the FEA’s reasoning: Thus, the FEA tions by their specific lan provide that only wells “which produce crude petroleum” are to be counted in calculating average daily production for the purpose of determining whether the stripper well lease exemption applies. While injection techniques hel to “produce” crude petroleum, they are not wells whic themselves “produce” crude petroleum. Therefore, wells which did not actually yield or produce crude petroleum during the preceding calendar year are not production wells for this purpose. Whether the non-producing well was an “injection” well, a disposal well, a dry well, a spent well or a shut-in well will not change this result. This Ruling, here under challenge, has been consistently adhered to since first issued. Post-Enactment Developments The stripper well lease exemption underwent a significant change not very long after its enactment. Section 401 of the Energy Policy and Conservation Act of 1975 (EPCA), Pub. L. No. 94-163, 89 Stat. 871, 42 U.S.C. § 6201 et seq. and 15 U.S.C. § 751 et seq., repealed the stripper well lease exemption of the EPAA and required the President to “establish ceiling prices” for stripper well production. FEA regulations were amended accordingly with 10 C.F.R. § 210.32 deleted on February 1, 1976. 41 Fed. Reg. 4939 (1976). Just eight months later, however, on August 14, 1976, Con- gress enacted the Energy Conservation and Production Act (ECPA), Pub. L. No. 94-385, 90 Stat. 1125, 15 U.S.C. § 751 et seq. Section 121 thereof amended § 8 of the EPPA of 1973 by adding the following pro ‘sion: (i) (1) The first sale price of stripper well crude oil shall be exempt from the regulation promulgated under section 15a so this Act as amended pursuant to the requirements of section. * * * * (2) For the purposes of this subsection, “stripper well crude oil” means crude oil produced and sold from a prop- erty — maximum average ne — — crude oil well during any consecutive I2- mont iod beginn- eller December 31, 1972, does not — 10 barrels. (3) To qualify for the exemption under this subsection, a y must be producing crude oil at the maximum ble rate throughout the 12-month qualifying period and in accordance with recognized conservation practices. (4) The President may define terms used in this subsec- tion consistent with the purposes thereof. 90 Stat. at 1133, 15 U.S.C. § 757(i) (emphasis supplied). On October 29, 1976, 10 C.F.R. § 212.54 was issued which pro- vided in pertinent part: “Av daily production” means the qualified max- imum sched predation of crude oil (excluding condensate recovered in non-associated uction) uced from a property, divided by a number equal to the number of ys in the 12-mon qualifying period times the number of wells that produced crude oil (excluding condensate recovered in non-associated production) from that proper- ty in that 12-month qualifying period. To qualify as max- imum total production, each well on the rty must have been maintained at the maximum feasibie rate of i the 12-month qualifying period and accordance with recognized conservation practices, and not significantly curtailed by reason of — failure or other disruption in production. R X * ** Stripper well rty” means a “property” whose 1 .— of erude o (excluding con- densate recovered in non- associated production) per well did not exceed 10 barrels per day during any preceding 16a 2 12-month period beginning after December 41 Fed. Reg. 48323 (1976) (emphasis supplied). As the language of these provisions demonstrates, Congress and the FEA refused to expand the stripper well exemption beyond its scope prior to being repealed. Congress did, how- ever, address the growing importance of secondary recovery techniques. In doing so, it modified 15 U.S.C. § 757(d) (3) (C) which allowed for a special adjustment for production from marginal wells, including production from stripper wells, and lumped together all secondary recovery techniques, a category within which injection wells were intended to fall, for exemp- tion purposes. See 15 U.S.C. § 757(j). The Conference Report to the ECPA explained this action as follows: The conferees are agreed that there exists great poten- tial for augmenting domestic crude oil production through the application of enhanced recovery techniques. There is also a general agreement that current economic circum- stances would permit adjustments to the pricing mechan- ism contained in the Energy Policy and Conservation Act to give needed additional incentives for the application of i enhancement — „* which today are not economical. The conferees not, however, agree to the provisions of the Senate amendment which would permit substantial price increases — — — secondary enhancement techniques such as water flooding and gas displacement. Moreover, the conferees did not believe it wise to attempt to ereate in rigid statutory language a special classi ion of domestic production which — freed of 8 T 14 Unlike — — — stri we uction, for which there is a legislative and administrative — 8 3 not com- mon agreement as to the practicality, feasibility or cost - effectiveness of the various enhancement — 2 em- ployed throughout the industry. S. Conf. Rep. No. 94-1119, 94th Cong., 2d Sess., reprinted in {1976} U.S. Code Cong. & Admin. News 2027, 2047. Thus, as was recognized by Senator Jackson in later debate, see 123 Cong. Rec. 36059 (1977), Congress did provide in the EPAA a procedure by which a producer could obtain an exemption for 17a the costs of secondary recovery techniques, including injection wells. Senator Bartlett of Oklahoma, one of the principal architects and proponents of the stripper well exemption, who had on many occasions urged its expansion, stated in Senate debate on March 31, 1976: In the Emergency Petroleum Allocation Act of 1973— per production to receive free market new pricing 222 of the — place stri ae oz price con n the definition of i ion is ex to include ion other than from we less than 10 Dr = category inc i igh watercut wells, from some and offshore wells producing in excess of 10 BPD, from marginal fluid injection projects. 122 Cong. Rec. 8757 (1976). In the Senate version of that “bill” he mentions, S. 3233, injection wells were included, with a proposed amendment to § 8 of the EPAA to include the follow- — 1, crude oil at the maximum ible rate and in accordance with ized conserva- tion practices, and if injection wells are to be counted to — fi 7 — — — . purpose of increasing ultimate recovery or the producing rate of crude oil from the property. Id. at 8758. The Senate and House conferees failed to accept that Senate amendment. It is obvious from the final measure enacted by Congress, that Senator Bartlett did not succeed in obtaining the “expanded” interpretation he sought. Congress decided to maintain the scope and nature of the stripper well exemption just where they were prior to being eliminated by the EPCA. 18a Following a public hearing on September 22, 1976, the FEA, on October 29, 1976, adopted a stripper well exemption again substantially similar to the previous regulations. That regula- tion is quoted earlier in this opinion at page 15. 41 Fed. Reg. 48323 (1976). The stripper well exemption was placed in essentially the same position it was in prior to being repealed. Senator Bartlett’s efforts to obtain an expanded exemption were unsuccessful. Nonetheless, he vigorously continued to seek to amend the established law to include injection wells in the well count. The most important act by Senator Bartlett for purposes of this appeal occurred in the fall of 1977. On October 31, 1977, during Senate debate on a bill to extend the life of the EPAA of 1973, Senator Bartlett offered an amendment (No. 1502) to the EPAA of 1973 “to clarify the intent of the ‘stripper well’ amendment.” 123 Cong. Rec. 36058 (1977). His amendment provided that injection wells would be counted, together with producing wells, to determine the stripper well status of a lease. His amendment read as follows: Sec.. Section Sci) (2) of the Emergency Petroleum Allocation Act of 1973, as amended, is amended by adding the following new sentence at the end thereof: “Includi in the count of the total number of wells on a propert be all wells producing crude oil and all wells utilized for the of injecting water and or other materials into a — — — — el recovery. Id. A lively debate ensued with the vast majority of speakers in favor of the amendment. Senator Bartlett stated: First, let me approach the cost question this way. In looking at the produeing well alone, the costs in- volved of the small producer are those costs of just produc- ing that well, operating the ing unit, presumably, keeping in ym ger line to the tank, keepi ~ pee up, normal expenses, pulling t well occasionally, and so on. The cost of operating an injection well in a waterflood is „ 19a 1 —— to bo tracted Riisty enter the stripper well amendment, we should, therefore, count the injection wells as oil wells for the purpose of qualify- ing Id. Senator Tower stated: The inclusion of injection wells in the computation of a ay wpe barrels-per-day average per well, for of stri oil — — would be a nat and beneficial It w bea which would make the law more reasonable and less arbitrary. Most impor- tant, it would add significantly to the Nation’s supp y of domestic crude oil by extending the economic life of many older, developed oil fields. Id. at 36061. Senator Bellmon stated: Mr. President, very briefly, I would simply like to say I M of injection wells when determining average daily produc- tion. If these are not oil wells in the strict sense of the word, they are certainly essential to oil production. I felt, when — — the stripped well amendment initially, they w be included. Interior Department has long counted injection wells. a Id. Senator Dole stated: This amendment would let producers count both the producing wells and the injection wells when he is calculat- ing the number of barrels per well that he produces from the property. I think this would certainly be fair. While these injec- tion wells are very costly, they uce no oil of their own and thus they uce no ts for the producer. Yet, without them there would be no production from such a property at all. They deserve to be counted as part of the total number of wells on the property. Id. at 36062. And Senator Bumpers stated: I had some reservations about the amendment, because I felt there was some serious ntial for abuse here in illing these salt injection we — 5 tee dy tier of the stripper price, the decontrolled price. But I with the people in my State who are in this 20a business. Virt all the oil produced in my State is stripper oil, and they teil me that as a practical matter, this 1s not likely to abused, because these wells are expensive to and to maintain, and that any figure we establish here of the number of wells that can be used in terms of the formula will be highly arbitrary. Id. at 36063. The only speaker opposed to the amendment was Senator Jackson, who argued: Mr. President, I o this amendment and that it be defeated. _— “_— The proponents are ing here, in effect, that it clar- ifies the intent of the so-called stripper well amendment. Mr. President, I supported the original exemption from price controls for the so-called stripper wells. I point out that the language of the existing law express- ly refers to wells producing crude oil. It does not include injection wells, nor was it intended to. The effect of the amendment would be to expand the number of crude-oil pos properties which are exempt from price con- trols. The Department of Energy indicates that it is unable to determine the amount of production that would be decon- trolled. It is even more di t to determine whether and to what extent the amendment would 47 any additional —1 r over and above that which is already stimu- ted by the current exemption for stripper wells. Much of the oil to which the amendment would apply is old oil which was discovered several years . The amendment—so that we all understand—would allow the price to jump from $5.25 to almost $14 over night. I see no justification for this $9 per barrel windfall. Mr. President, in connection with the colloquy between the distinguished Senator from Colorado (Mr. Hart) and the distingui Senator from Oklahoma (Mr. Bartlett), I — out that the existing law, the Emergency Pet- ro Allocation Act, does provide a procedure by which the producer can, in fact, get an exemption for secondary recovery, — & jection wells. In response to the question posed by t nator from Colorado, the hitch is 2la that these producers must demonstrate that the cost fies the price. 277 — If the 2 See, 2 the existing law. Mr. President, I feel very strongly that we must pro- vide additional incentives to bring out the so-called hard- to-get oil, where the cost can be demonstrated to be a factor that warrants mee adjustment. I think that is what we all seek. But should you turn around and grant a $9 per 1 increase where you cannot even come close to justifying that kind of a price exemption? Id. at 36959. Senator Bartlett’s amendment was approved by the Senate by a final vote of 62-24. Jd. at 36063. The House version contained no such provision. The final conference agreement also did not include this provision. See Joint Explanatory Statement of the Committee of Conference, reprinted at [1978] U.S. Code Cong. & Admin. News 8071, 8087. Congressionai Intention After reviewing the history of the regulations and Ruling 1974-29, the district court concluded that the exclusion of injec- tion wells conflicts with congressional intent. The primary reason articulated by the district court appears to be that excluding injection wells from the count would run contrary to the purpose of encouraging “the operation of marginally productive wells to produce oil that otherwise would not be produced.“ 520 F. Supp. at 1258. There is no question that continued production from stripper wells was the paramount sought after result from the exemption. Without it, the con- tinued operation of many such wells would become economical- ly infeasible and would have to be shut down. In a period of oil shortage, reduced domestic production was not desired. De- spite this laudable objective, the Congress and the FEA both realized that the exemption also carried with it a real potential for abuse. Il. e financial benefits to well operators to have their leases declared “stripper well” was an enormous incentive for manipulation of the exemption. The President and Congress 22a vested with the FEA broad authority to prevent such abuses. Prevention of such abuse and manipulation is one of the reasons for Ruling 1974-29. This concern is evident throughout the history of the exemption. It is most evident in the TAPAA Conference Report which provides: 15. Section 406, relating to stripper oil wells. was a Senate floor amendment to S. 1081. The Conferees have adopted the general concept of the floor amendment, but have added new provisions to insure that the exemption is narrowly de and prudently administered, and to in- sure that the incentive being granted is properly limited in accord with congressional intent. * & * The Congress intends that the provisions of this seetion will be strictly enforced and ted by the administer- ing agency to insure that the limited exemption of this class of wells for the express purposes described above is not in any way broadened. To achieve this, Congress authorizes on-site inspections to insure compliance. Con- gress also directs that the administering agency shall promulgate 21 to implement the provisions of this section before it becomes operative. The Conferees expect the administering agency to utilize State data production —— lath —— by regula- tion safeguards against the manipulation of gerrymander- ing of lease units in a manner that evades the price control and allocation programs. These regulations shall be so designed as to provide safeguar is against any abuse, over-reaching or altering of normal j tterns of operations to achieve a benefit under this section which would not otherwise be available. Con- gress specifically intends that the regulations shall, among other things, prevent any “gerrymandering” of leases to ave wn high production wells with a num- ber of low production stripper wells to remove the high production wells from price ceilings. The sole purpose and — of this — — 406 is to oe y so wells— those producing less than ten barrels per day in produc- tionand to insure tha the crude ol they produce continues to be available for U.S. refineries and U.S. consumers. It 23a is not intended to confer any benefit on the owners and operators of wells producing in excess of ten barrels per day. The Congress also intends that the regulations provide eS limitations and provisions in the definition of * to insure that an administratively workable sys- tem is established which does not permit abuse. TAPAA Conf. Rep. at 2531-33. A failure on the part of FEA to take action would have been a breach of its assigned responsi- bility to eliminate the potential for abuse. Injection wells were an area of possible abuse and the FEA acted accordingly. Their exclusion was within the scope of congressional intent and agency authority. See Grace Petroleum Corp. v. Department of Energy, 456 F. Supp. 945, 949-50 (W. D. Okla. 1978). Another important factor to consider is the original intended scope of the exemption. At the time the stripper well exemp- tion was first enacted in 1973, it was clear to Congress that a relatively small percentage of this country’s total oil produc- tion would be affected. Congress was legislating an exemption from price controls for only that “11.2 per cent of our domestic oil production,” 119 Cong. Rec. 23873 (1973), or that “very small percentage of the crude that is available for refining purposes.” Id. at 23876. Even the strongest proponents of the exemption recogni7ed the rather limited scope of the exemp- tion. During Senate debate of the TAPAA, Senator Bartlett stated that: A stripper well is a low productivity, marginally eco- nomic well. It can produce just enough oil to remain above the break-even point. By definition a stripper well aver- ages 10 barrels of oil per day or less. These wells provide 1.25 million barrels of oil per day. . . . In 1972, stripper wells accounted for 11.2 per cent of our domestic oil production. 119 Cong. Rec. 23873 (1973). During that same debate, Sena- tor Cook of Kentucky stated: I do not think there is any question about the fact, if we are ing about stripper wells with production of 10 barrels a day and less, that we are talking about a very 24a small percentage of the crude that is available for refining purposes. Id. at 23876. It is obvious from the congressional debates onthe TAPAA and the EPAA that the exemption was to have a narrow range of applicability. Any broader exemption would render the price controls on oil practically meaningless. In- terestingly, nowhere in the statutes or the governing Con- ference Report is there to be found even a mention of injection wells. Tue appellees in this case admit that they seek an exemption which would have an impact far in excess of that ever con- templated by Congress. During oral argument, their counsel stated: In 1973 and for many, many years, secondary recovery of oil, which is what we are dealing with here, constituted 30 to 50% of this nation’s oil production. The evidence in the record is that in 1973 alone seco recovery by means of waterflood operations, accounted for over one billion SS which is ion to sa e wae bet required to — — that 2 — impact on one half of the production that they are regulat - ing is absolutely ludicrous. The amount of oil subject to the exemption under appellees’ interpretation is much greater than originally anticipated and intended. Such an expansion might very well have been de- sired by Congress under the oil market conditions which pre- vailed following enactment. But such an interpretation on our part would conflict with the clear intention expressed when the exemption was first created. If an expansion in coverage was intended to include injection wells in the count, it was for the legislature and not this court to now do so. From 1973 to 1977, the FEA applied a single and unequivoc- al interpretation of the stripping well regulations. Even after the exemption was repealed and reenacted, Congress did not choose to modify Ruling 1974-29 even though it had the oppor- tunity to do so. While the district court practically ignored this 25a fact, we consider it a significant and probative indication of Congress’ approval of Ruling 1974-29. When we add to that the fact that the Conference Committee on the Energy Tax Act of 1978 (Pub. L. No. 95-618, 92 Stat. 3174) refused to accept the Bartlett amendment contained in the Senate version of the bill, which amendment would have amended the definition of stripper oil to include water and other injection wells in computing the average daily production per well, we are presented with clear and convincing evidence that Congress intended to include only “wells that produced crude petroleum” when it enacted and reeacted the stripper well exemption. We also cannot help but recognize that prior to the reenactment of the stripper well exemption in the ECPA, the EPAA had been extended three times without disturbing or modifying Ruling 1974-29. See Pub. L. No. 93-511, 88 Stat. 1608 (1974); Pub. L. No. 94-99, 89 Stet. 481 (1975); Pub. L. No. 94-133, 89 Stat. 694 (1975). By these actions, we believe Con- gress spoke loudly, clearly and unequivocally that its intention was not to enlarge or expand upon the “narrowly defined and prudently administered” exemption which it had originally mandated in the TAPAA Conference Report. “Arbitrary and Capricious” Finding As an alternative holding, the district court concluded that the exclusion of injection wells was arbitrary, capricious and an abuse of discretion. This paragraph summarizes the court’s position on this issue: Based on this undisputed record, the Court must con- clude that to the extent that the regulation excludes injec- tion wells from the well count, it was issued in a manner which was arbitrary, capricious, and a gross abuse of discretion. The record discloses that the exclusion con- tained in the regulation was not the result of any sembl- ance of reasoned decision making, but rather was the result of happenstance, and an unintended construction of language contained in the regulation. The agency failed to consider any factors which could be deemed relevant. The agency failed to consider any facts. The agency did not 26a consider whether excluding injection wells would further or hinder the co i purposes underlying the strip- per well exemption. Bluntly stated, neither ignorance of the subject matter nor vacuity of thought processes can amount to consideration as a t t process accomplish- ment of a government agency. agency's process in arriving at the regulatory exclusion of injection wells must be — “arbitrary” under any construction of that word. 520 F. Supp. at 1272 (footnote omitted). It is obvious from a reading of the court’s opinion that it simply disagreed with the FEA’s interpretation of the stripper well exemption regula- tion. But disagreement is not the standard of review to be applied. The district court has misapplied the correct standard of review in reaching its decision and misconstrued existing precedent. The most appropriate place to begin is with this court’s two previous decisions in this matter. Energy Reserves I and Duncan v. Theis Neither of our previous decisions in this matter expressly ruled on the validity of Ruling 1974-29. Nevertheless, the discussion of the court in each case fully establishes the error of the district court’s decision. In Energy Reserves I, Judge Becker stated that: The interpretation of § 406 of TAPAA and § 4(e)(2)(A) of EPAA to exclude injection wells in computing “average daily production” was a reasonable contemporaneous con- ge of the statute and created no new law or legisla- tive i 589 F.2d at 1098 (emphasis supplied). Judge Becker also added: There is no fundamental unfairness in the application of Ruling 1974-29 because it is a reasonable inte ation of the stripper well exemption of EPAA, TAPAA and the regulation 10 C.F.R. § 212.32(b). Id. at 1101 (emphasis supplied). And in his concurring opinion, Judge Christensen importantly expressed his view that: And a holding that “a well which uced crude pet- roleum” means, as contemplated by 2 properly adopted 27a and subsisting regulations and in view of the seminal statute, a well that produces or yields such petroleum directly rather than one which may be utilized as part of a system to obtain indirectly crude petroleum from a producing well, seems essentially the sort of an in- tion that must have been intended by the APA exception to the rulemaking requirement. Id. at 1103 (emphasis supplied). In Duncan v. Theis, supra, we sought to :eemphasize our views as we remanded the case to the district court for its determination of those enumerated remaining issues. We stated: In sum, the present situation is that the consistency of Ruling 1974-29 with the APA has been finally established and, in connection with the ruling on the issue before the court and particularly in dealing with the question of sub- stantial impact, both judges concurring in the result clear- ly indicated the majority view that the ruling in question id not 2 any substantial departure from the meaning of the regulation, and for this reason had no substantial —＋ as an oa ape ruling. Whether the regulation itself was within the ey of the FEA to promulgate, despite its conceded p ural regularity, or whether it was arbit or capricious does not so me — appear from a consideration of the decision as a whole. The unjustified ees i of the government on the one hand to acknowledge this differentiation in its effort to block all further proceedings before Judge Theis by way of discovery or otherwise, and on the other hand the mis- taken position of some of the plaintiffs that our decision essentially settled nothing, or at most only the issue of ural validity” as affecting the parties involved in peal, may account in some measure for the difficul- ties the lower court and the parties now profess to see within our mandate. Yet, it was rendered clear during the oral argument on the petition for mandamus now before us that the decision of this court set at rest the question of the compliance of the ruling in question with the APA because 28a it was simply a restatement of the meaning and effect of the regulation on which it was based. 613 F. 2d at 308 (footnotes omitted). In an effort to avoid any misunderstanding regarding the specific reason for our denial of the petition for mandamus relief, we wrote: In so withholding the peremptory writ we do not mean to be understood as — or suggesting that the bind- ing meaning and effect of the mandate is limited to express or formally mandatory language as distinguished from its reasonable meaning, spirit and effect in context of the decision agreed upon by the majority of the judges of the court, that our decision, even though involving the main, concurring and dissenting opinions, is not mandatory and binding upon remand in the light of context, spirit, unity of opinion and reasonable effect, that as to refiners who were not parties to the appeal, but who are now before the same court in essentially the same position as those who were, the doctrine of stare decisis is not controlling upon the district court, nor that interlocutory injunctions or dis- covery programs inconsistent with a mandate or repug- nant toa ay od application of the doctrine of stare decisis 4 beyond the reach of a peremptory writ or other reme- y. Id. at 310-11 (footnotes omitted). Thus, while not expressly holding that Ruling 1974-29 is fully valid, there should have been no serious doubt that the court believed such was the case. Contrary to the belief of Judge Theis that the panel in Energy Reserves I was merely “sounding off,” see 613 F. ad at 310 n.11, the discussion and analysis of all three judges, while not binding on other courts, represent authoritative in- terpretations of Ruling 1974-29. They speak all too clearly on the very issue the district court was asked to decide. This view, as well as our final holding in these cases, is completely supported by this Court’s recent decision in Wig- gins Brothers, Inc. v. Department of Energy, 667 F.2d 77 (Temp. Emer. Ct. App. 1981), cert. denied, _ U.S.. 50 U.S. L. W. 3783 (1982), a case practically on all fours with this case. The issue there was simply whether, under a proper construction of the Marginal Property Rule [10 C.F.R. 29a § 212.72 (as amended effective June 1, 1979)), injection wells may be counted ‘as wells that produced oil. Id. at 87. Just as is the case here, the regulation fails to define the key phrase “wells that produced oil.” The district court construed this phrase as including injection wells based upon its “plain mean- ing.” Id. at 81-82. In reaching that decision, the district court gave considerable weight to the industry’s interpretation as well as the treatment which had been given injection wells by other energy regulatory bodies. Id. at 82. The district court also disregarded the preamble to the rule in favor of the rule’s plain meaning. Id. That preamble, published in the Federal Register, incorporates Ruling 1974-29, the centerpiece of this appeal. Writing for this court in Wiggins, Judge Becker concluded “that injection wells may not be counted as ‘wells that pro- duced oil’ in the application of the Marginal Property Rule.” /d. at 87. Paramount in the court’s reasoning was the “clearly expressed” and “obvious intention” of the DOE to exclude injection wells from the count. Ruling 1974-29 was found to be controlling as well as a definition of “average daily production” which specified that it “must be determined in the same way as it is done for stripper well properties, and the provisions of the relevant stripper well property rulings will be applicable. Id. at 87. The opinion makes undeniably clear that the Margin- al Property Rule is to be interpreted in the same manner as the stripper well exemption which the court correctly understood as excluding injection wells. In three separate passages, the court found dispositive our earlier rulings in Energy Reserves I and Duncan v. Theis, supra. Finally, the prior decisions construing the interpreta- tive stripper well Ruling 1974-29 to be consistent with a similar under! statute are decisive. Energy Reserves ey we v. DOE, 589 F. 2d 1082 (Em. App. 1978), clar- ified in Duncan v. Theis, 613 F.2d 305 (Em. ‘App. 1979). 667 F.2d at 89. The critical phrase “average daily uction” had ear- lier acquired a meaning by 1 interpretation 30a in Ruling 1974-29 that excluded injection wells in calculat-. ing whether average daily production was 10 barrels or less for the purpose of the statutory stripper well lease exemption and regulation 10 C. F. R. § 210.32(b) (the lat- ter of two consistent implementi a Energy Reserves Group, Inc. v. DOE, F.2d 1082 (Em. App. 1978), clarified in Duncan v. Theis, 613 F.2d 305 (Em.App. 1979). Id. The reported practices and interpretations of state commissions and the Department of Interior for other purposes, relied on by the District Court, are not effective to rebut the cont ing and administra- tive interpretation of the steal Pemerty Rule by DOE. This was ex ly held in En Reserves Group, Inc. v. DOE, 589 P. 2d 1082, at 1098-1099 (Em. App. 1978), — in Duncan v. Theis, 613 F.2d 305 (Em. App. Id. at 90. While the district court below experienced difficulty in understanding the interpretations given Ruling 1974-29 in Energy Reserves I and Duncan v. Theis, this court in Wiggins did not. We agree with Wiggins’ analysis of Ruling 1979-29 and conclude that injection wells are not to be counted for purposes of the stripper well exemption. The agency’s interpretation of the stripper well is neither “plainly erroneous [nJor in- consistent with the regulation.” Wiggins, 667 F. ad at 88 (cites omitted). Justification for Ruling 1974-29 The district court attacked with unrestrained vigor the reasonableness of Ruling 1974-29. 520 F. Supp. at 1272-73. In its view, there was no logical reason for distinguishing injec- tion wells from producing wells. We note the district court’s reliance on industry practices in reaching its decision, but under the “arbitrary and capricious” standard we must apply, we do not believe Ruling 1974-29 is invalid for several reasons. The most important reason has already been articulated. Including injection wells in the count could possibly lead to a 3la serious abuse of the purposes of the exemption. A lease opera- tor could be encouraged to convert old abandoned wells or to drill additional injection wells to obtain the benefits of the exemption. The financial benefits resulting from the exemp- tion of an entire leasehold from price controls could significant- ly exceed the costs of the injection wells. This scenario was surely not desired by Congress. It would be grossly unfair to suggest that injection wells would spring up all over the coun- try if injection wells were included in the well count, but it is not unreasonabie to suggest that such a result could occur. Ruling 1974-29 eliminates any potential for such abuse. Perhaps it could be considered an extreme measure but it is not arbitrary or capricious. The core of appellees’ argument is that injection wells are “wells that produced crude oil” under the regulation. A plain reading simply does not support that conclusion. At minimum, a reasonable reading would distinguish injection from produc- ing wells. See Grace Petroleum, supra, 456 F. Supp. at 949. An injection well is a secondary recovery technique, and such techniques were not considered by Congress when creating the exemption and drafting the language of the statutes. Con- gress had numerous opportunities to modify the exemption to include injection wells in the count but consistently refused to do so. For the court to interpret the language to include them would constitute a flagrant disregard of a clear and contrary congressional intention. The district court’s error in its decision is its total reliance on production incentives. It fails to adequately weigh the other side of the coin. Price controls on oil was the fundamental purpose of the legislation. It is obvious that Congress in no way intended to create an opportunity for mass evasion of those controls. The stripper well exemption was designed as an extremely limited and narrow exemption, and the DOE in- terpretation gives full effect to this intent. There is no reason in this case not to give the agency’s own construction of its regula- tion great deference, see Udall v. Tallman, 380 U.S. 1 (1965); Pasco, Inc. v. Federal Energy Administration, 525 F. 2d 1391 (Temp. Emer. Ct. App. 1975), especially so here inasmuch as we find the agency’s interpretation reasonable. Energy Con- sumers and Producers Association, Inc. v. Department of Energy, 632 F.2d 129 (Temp. Emer. Ct. App.), cert. denied, 449 U.S. 832 (1980). We are not the legislative body responsi- ble for this nation’s energy policies. The wisdom or lack thereof of Ruling 1974-29 is properly left with the Congress. Our review is a narrow one and we will not unnecessarily and improperly intrude upon the public policy decisions made by the other branches of Government. Simply stated, there is nothing about Ruling 1974-29 which renders it arbitrary or capricious. It reasonably attempts to effectuate the con- gressional policies expressed throughout that body’s numer- ous efforts to formulate and implement an effective national energy policy. Conclusion In summary, we find: 1) The legislative history of the stripper well exemption amply supports the DOE’s position that injection wells were not intended by Congress to be included in the well count; 2) Ruling 1974-29 is not beyond the authority of the DOE — by the controlling statutory provisions; 3) Our prior decision in Energy Reserves I, Duncan v. Theis and and Wiggins have correctly decided that Ruling 1974-29 is a reasonable ——— of the applica- ble statutes and regulations; and 4) The stri well — as interpreted by Rul- ing 1974-29, are nei arbitrary nor capricious. For all these reasons, the decision of the distriet court is reversed, and these consolidated cases are remanded to the district court with instructions to enter judgment for the defendants-appellants. 33a APPENDIX B In re THE DEPARTMENT OF ENERGY SrRIEPPER WELL EXEMPTION LITIGATION. ENERGY Reserves GROUP, Ixc. Suburban Propane Gas Corporation, Marathon Oil Company and Sklar & Phillips Oil Company V. DEPARTMENT OF ENERGY, et al. SIERRA PETROLEUM Co., INc. V. DEPARTMENT OF ENERGY, et al. BRADEN-ZENITH, Inc. and The Estate of S. H. Killingsworth V. DEPARTMENT OF ENERGY, et al. Mosit O1 Corporation, Mobil Producing Texas & New Mexico, Ind. and Willie Ansley Bryson V. DEPARTMENT OF ENERGY, et al. STELBAR OIL CorporaTion, INc., The Standard Oil Company, Ohio and Theo M. Glenn, Jr. and Eleanor Glenn V. DEPARTMENT OF ENERGY, et ul. Robert Dale BRANDENBURG and Texaco, Inc. V. DEPARTMENT OF ENERGY, et al. 34a AMIN OIL, INc. v. DEPARTMENT OF ENERGY, et al. Otis C. PEAVEY, et al. and Sun Oil Company (Delaware) V. DEPARTMENT OF ENERGY, et al. Howard Stout, Lorena Houlton and Mary E. Hall, Co- Trustees of the Charles S. Page Trust and Gulf Oil Corporation V. DEPARTMENT OF ENERGY, et al. Robert E. Davis and Energy Consumers & Producers Association, Inc., Ruthven, Inc., Pioneer Operations Com- pany, Inc. v. DEPARTMENT OF ENERGY, et al. George R. Joxks, et al. V. f DEPARTMENT OF ENERGY, et al. PETROLEUM MANAGEMENT, INC. V. DEPARTMENT OF ENERGY, et al. ATLANTIC RICHFIELD COMPANY V. DEPARTMENT OF ENERGY, et al. 35a W. R. Murry, d/b/a Murfin Drilling Company, and Champlin Petroleum Company V. DEPARTMENT or ENERGY, et al. Union OI Company or CALIFORNIA V. DEPARTMENT OF ENERGY, et al. CoasTaL States Gas Corp., Coastal States Gas Producing Co., and Gas Producing Enterprises, Inc. V. DEPARTMENT OF ENERGY, et al. EXXON CORPORATION V. DEPARTMENT OF ENERGY, et al. CONTINENTAL OIL Co. V. DEPARTMENT OF ENERGY, et al. Hunt O ComPANYy V. DEPARTMENT OF ENERGY, et al. CrystTaL OIL Company and Ira Thomas May V. DEPARTMENT OF ENERGY, et al. MUSKEGON DEVELOPMENT Co. V. DEPARTMENT OF ENERGY, et al. 36a OKLAHOMA Ass'N OF ENERGY ConsuMERS & PRODUCERS V. DEPARTMENT OF ENERGY, et al. Paul B. FLetcuer, Sr. and Anadarko Production Company V. DEPARTMENT OF ENERGY, et al. Iu INTERNATIONAL OIL & Gas, INc. V. DEPARTMENT OF ENERGY, et al. Woop O. Co. and Dan Wallace d/b/a Columbus Oil Co. V. DEPARTMENT OF ENERGY, et al. WILL I. Lewis ENTERPRISES, INc. V. DEPARTMENT OF ENERGY, et al. Jimmie Ausrix d/b/a Austin Drilling Company V. DEPARTMENT OF ENERGY, et al. SANTA FE ENERGY COMPANY V. DEPARTMENT OF ENERGY, et al. George G. ANDERMAN and Donald R. Kirby V. DEPARTMENT OF ENERGY, et al. 37a Patricia Anne LEONARD, et al. v. DEPARTMENT OF ENERGY, et al. FARMERS PETROLEUM COOPERATIVE, INC. V. DEPARTMENT OF ENERGY, et al. Kirkwoop Ol & Gas CoMPANY V. DEPARTMENT OF ENERGY, et al. PETROLEUM CORPORATION Or TEXAS V. DEPARTMENT OF ENERGY, et al. Civ. A. Nos. 77-1146, 77-1087, 76-429-C6, 78-1070, 78-1176, 78-1230, 79-1387, 78- 1410, 78-1513, 77-1456, 78-1235, 78-1509, 79-1204, 79-1258, 79-1318, 79-1319, 79- 1320, 79-1321, 79-1322, 79-1325, 79-1384, 79-1385, 79-1386, 79-1388, 79-1389 and 79-1416. MDL No. 378. United States District Court, D. Kansas July 14, 1981. TuEIs, Chief Judge. These multidistrict litigation (MDL) cases now come on for final decision of the Court. Trial of these cases, after extensive 38a pretrial proceedings and litigaticn involving two appeals by the defendants to the Temporary Emergency Court of Appeals (TECA), was finally held to this Court from January 19, to February 6, 1981. After considering the evidence presented at trial, and after studying the briefs of the parties, and review- ing the appellate decisions in the consolidated cases, the Court enters this opinion. A brief review of the pretrial proceedings may be illuminat- ing and certainly, in this Court’s opinion, accounts for the singularly bellicose and adamant efforts of the Government, through their various counsel, to resist trial on the merits of the issue of law common to all of these cases. Originating as a single case to enjoin as illegal the governmental enforcement of the regulations of the then Federal Energy Administration (FEA), now Department of Energy (DOE), prohibiting those plaintiff oil companies from including fluid injection wells in a well count to establish pricing levels for crude oil produced from stripper wells on plaintiffs’ leases, under a stripper well exemption in the legislative act, other cases were soon filed which were consolidated into one action. These cases were ruled on by this Court in its decision reported in Energy Reserves Group, Inc. v. Federal Energy Administration, 447 F. Supp. 1135 (D. Kan. 1978), which held FEA Ruling 1974-29, excluding the count of injection wells, was legislative in nature rather than interpretive of the regulation, and therefore void. This decision was appealed to the Temporary Emergency Court of Appeal, resulting in a reversal of the Court’s decision in a 2 to 1 decision of the three learned judges of TECA, in which each judge rendered a separate opinion. This decision is reported as Energy Reserves Group, Inc. v. Department of Energy, 589 F. 2d 1082 (TECA 1978). In short summary, the TECA majority held valid Ruling 1974-29 as a reasonable interpretation of the regulation implementing the statutory stripper well exemption, and remanded for trial the issue of whether the regulation was valid under the intent of Congress as expressed in the statute and its legislative history, and whether the regulation was arbitrarily and capriciously adopted by the administrative agency. By this time case litiga- tion was burgeoning on the identical issues in many other federal court districts and forwarded to this district and com- bined for disposition of this Court as multidistrict litigation under order of the Judicial Panel of Multidistrict Litigation in June, 1979, reported as In re Dept. of Energy Stripper Well Exemption Litigation, 472 F. Supp. 1282 (1979). Governmen- tal resistance to this Court’s efforts to get the case ready for trial and its unilateral insistence that the litigation had been terminated by TECA in the 1978 appeal, resulted in yet another appeal to mandamus this Court, reported as Duncan, Sec’y. of Energy v. Theis, Chief Judge, 613 F.2d 305 (Em.App.1979). TECA rejected the government counsels’ contention that TECA had decided this case in its prior opin- ion, and that there was no subject matter for litigation and decision. After continued resistance by the government at every stage of the pretrial discovery proceedings, trial finally began on January 19, 1981. The government’s theory of absolutism in the rightness of its conduct, its refusal to recognize the adversarial aspect of our legal system, and general truculence, are aptly illustrated by an early assertion in its Post-Trial Brief, wherein it is stated: “Although the trial held in this matter was extremely improper — and unnecessary .. .” Generally, the whole history of this litigation has been the government’s premise that its administrative decisions are judicially unreviewable, and the minds and actions of the ad- ministrative decision-makers may not be probed to determine the basis for such action. This position has been vigorously and adversarily disputed by an array of competent counsel from some of the leading law firms around this nation. As a result of an earlier injunction order in this case there has been accumu- lated in trust under court supervision a fund approximating one billion dollars, which awaits judicial distribution upon the termination of this litigation. 40a The issues now before the Court in the trial and for decision are: (1) whether the regulation itself, interpreted by TECA as excluding injection wells from the well count, was reasonable and valid within congressional intent of the statutory ex- emption; and (2) whether the promulgation of the regulation (C.F.R. 154(s)), was arbitrary and capricious. Since the incep- tion of this litigation these two issues have always been the principal underlying legal points for ultimate decision. To better understand the parameters of this dispute the Court considered engineering facts underlying crude oil production generally and secondary recovery in particular, various state procedures governing secondary recovery, and the treatment of injection wells in secondary projects under certain fede al programs. The Court’s conclusions with respect to these matters constitute the first portion of this opinion. The Court then sets out the controlling statutes, regulations and ruling. This section is followed by the holding of this Court that Congress intended injection wells to be included in the well count, and a lengthy explanation as to how the Court reached this conclusion and why the DOE’s contrary position is not binding on the Court. The Court then concludes that even if the statute did not mandate including injection wells, the manner in which the Department excluded the wells from the well count was arbitrary and capricious. For those reasons, the Court has found that the stripper well exemption regulation, as interpreted by Ruling 1974-29, is invalid and must be struck down. The Court, in this opinion, has also ruled on certain post-trial motions, and these rulings are contained in part V of this opinion and order. 4la I. FACTUAL AND REGULATORY BACKGROUND The organic theory of the origin of oil is accepted by 99.9% of engineers. (Whiting, T. 132033).' This theory holds that oil came from organisms that lived in and adjacent to inland seas during geologic times. Plant and animal residues were depo- sited in these inland seas and over time were covered with sediment and subjected to great heat and pressure. (Whiting, T. 139). This heat and pressure “destructively distilled” those organisms and generated petroleum. (Id.) This petroleum then is believed to have migrated from the place it originated, the source beds, through very small pores in the underground rock until it was caught in some kind of geologic “trap” which prevented further migration. Three of these geological traps are illustrated in P.X. 1-14 through P.X. 1-17. Oil caught in such a trap constitutes an oil reservoir. The rock formations which contain this oil must possess two characteristics to allow the oil to move within the reservoir. The rock must have “porosity” and “permeability.” Porosity is an indication of the storage capacity of a rock. (Whiting, T. 140.) Porosity must be present to have an accumulation of oil. (Whiting, T. 141.) Porosity is the measure of the microscopic pore spaces between the grains of sand in the rock formation. An artist’s conception of this characteristic is shown on P.X. 1-9. Permeability occurs where microscopic pore spaces are interconnected in a manner such that oil can move through the rock. The rock must have permeability in order to transmit oil. Samples of the type rock which contain the oil in the under- ground reservoirs are shown in P. X. 170-171. The Court will refer to citations to the trial transcript by citing the witness and the page in the transcript, e.g., (Whiting, T. 132-33.) Depositions will be cited similarly, only “D.” will be used to denote deposition testimony. Plaintiffs’ exhibits are cited P. X.“ and the number. Defendants’ (Government's) exhibits are cited G. X. and the letter. 42a The production of oil is the process of forcing the oil from the rocks in which it is found into a well bore for transportation to the surface. Primary recovery is an oil recovery process which utilizes the natural energies in a reservoir to displace the oil from the reservoir into the well bore of an output well. (Whit- ing, T. 154.) The three major forms of natural energy within an oil reservoir are the “gas cap drive,” the “natural water drive,” and the “solution gas drive.” These three naturally occurring drive forces are illustrated in P. X. 1-20, 1-22 and 1-21. “Gas cap drive” occurs where a quantity of undissolved gas exists within a reservoir. When a recovery well is completed in the formation, the pressure from the free gas forces the oil into the well bore through which it is transported to the surface. As the recovery continues, the gas cap expands to displace oil in the rock pores and force the oil into the recovery well bore. (Whiting, T. 160.) A natural water drive reservoir occurs where there is a water reservoir underlying the oil reservoir. In this situation, as oil is withdrawn from the reservoir, the water underlying that oil forces itself up, displacing oil as it expands into the oil bearing formation, forcing the oil into the recovery well bore. Solution gas, or dissolved gas drive, is the third primary drive mechanism. Because of the high pressures naturally occurring within an oil reservoir, natural gas is forced into solution in the oil. When a recovery well is completed the reservoir pressure is reduced, and the dissolved gas begins to come out of solution. The process is the same as when a bottle of a carbonated beverage is opened. When the cap is taken off, some of the dissolved carbon dioxide within the beverage comes out of the liquid. When the gas in the reservoir comes out of solution, it expands and forces oil out of the pore spaces in the rock and into the well bore. (Whiting, T. 155-56.) The point at which dissolved gas begins to come out of solution is referred to as the “bubble point.” There is a limit to the amount of oil that can be recovered utilizing the naturally occurring reservoir energy. A natural 43a gas cap or natural water drive allows for the recovery of 20 to 50 percent of the oil contained in the reservoir. (Whiting, T. 169, 170.) A solution gas drive mechanism allows for the recovery of 15 to 25 percent of the oil contained in the reser- voir. (Whiting, T. 169; O'Neal, T. 268.) Secondary recovery is a recovery process in which the naturally occurring reservoir energy is augmented by addi- tional energy in the form of matter injected into the producing formation. (Whiting, T. 163.) A water injection system in- creases the production of oil in two ways. First, the injection helps to maintain the pressure within the reservoir. The injec- tion process provides the power to move oil through the reser- voir to the recovery well. Second, water injected into an oil reservoir physically displaces the oil and moves it toward the recovery well. Water injection has been recognized for about fifty years as an accepted efficient method of augmenting oil recovery. (Whiting, T. 164.) A water injection recovery system requires at a minimum two oil wells. One well is the injection well and is used as a vehicle to inject water into the oil formation. The other well is the recovery well and is used as the conduit to remove the oil forced into the well bore. Typically, an injection well is a former recovery well which has been converted to injection. Physically, there is little difference between the structure of an injection well and the structure of a recovery well. Plain- tiffs’ Ex. 35, which is attached to this opinion as Appendix “A,” shows the similarity of physical structure between a typical injection well and a typical recovery well. Drive mechanisms should not be confused with lift mechanisms. Lift mechanisms are the devices utilized to transport the oil from the bottom of the well bore to the surface. Drive mechanisms are the mealis of forcing the oil through the rock into the well bores. Various means of lifting the oil are available, the specifics of the devices are not important to the resolution of this case. da From an engineering standpoint, there is an appropriate time at which to initiate waterflooding so as to maximize recovery from a reservoir. (Whiting, T.172). The optimum time, however, the “bubble point,” is that time at which the dissolved gas in the oil starts to come out of solution. Delay in initiating injection past the “bubble point” decreases ultimate recovery, since the mobility of the oil decreases. (Whiting, T. 177.) Recovery lost because of slow initiation of secondary recovery can never be recaptured by use of primary recovery or waterflooding. Delays past the optimum point in initiating waterflooding cause an absolute decrease in recoverable oil reserves. The early initiation of injection also results in less recovery than in a properly waterflooded field, since the natu- ral displacement power of the dissolved gas is wasted. (Whit- ing, T. 173, 175.) The increased recovery resulting from water injection is shown on P.X. 1037 to P.X. 1-40. The increased recovery is normally expected to be from 67 to 150 percent of the amount of oil recovered using primary methods. (O'Neal, T. 268, 311.) Institution of a secondary recovery project using water- flooding is a complex and expensive undertaking. Before in- itiating waterflooding, a producer must determine whether an oil-bearing formation is suitable for secondary recovery. Dis- solved gas drive reservoirs seem to be the best candidates for secondary recovery, since the natural energy is more quickly dissipated, leaving more oil in place. (Platt, T. 698-99; Whiting, T. 170.) The engineers and geologists must make laboratory studies to determine if additional oil could be recovered by injection of fluid into the reservoir. (Platt, T. 700.) If it is found that water injection would be beneficial, then the entire oil field must be “unitized.” Different portions of an oil field may be leased by different companies. Efficient waterflooding requires that the entire reservoir be under a single plan. Unitization is the process through which the vari- ous leaseholders are brought into one d entity for the exploita- tion of the field. (O'Neal, T. 246-47; Watt, T. 703.) 45a A producer must obtain a source of water to inject into the reservoir. Fresh water might be obtained from a river, as was done in the Salem Unit (Eley, T.400), or from wells, as was done in the Northwest Cha Cha Unit (Shearin, T.544). Salt water might be obtained from a variety of sources (Platt, T.701). While the costs of obtaining the water vary, they may be high. The water from the water supply must be chemically treated and filtered to be suitable for injection. (See P. X. 28.) Injection of water which is not compatible with water already present in a reservoir could cause a plugging of the pore space in the oil-bearing rocks, which in turn could prohibit continued injection, or otherwise be detrimental to the recovery process. (Platt, T.708; Burt, T.1035-36.) The water is injected at high pressures which could vary between 1000 p. s. i. and 6000 p. s. i. (Platt, T.709.) These injection presures require large injection pumps. (McConnell, D.18.) (See, P.X. 41, P.X. 29-2.) Wells to inject the water must either be drilled, or recovery wells must be converted to injection wells. Costs of drilling an injection well are comparable to the costs of drilling a recovery well. (McConnell, D.17.) The conversion of wells from recove- ry wells to injection involves first performing remedial work on the recovery well. (Platt, T.710; P.X. 35.) Next, tubing is placed in the well casing and a packer is placed around the bottom of the tubing. (Platt, T.711.) A well head sufficient to withstand the high pressures is installed on the top of the well. (Id.) Various patterns of the placement of injection wells can be used in a secondary recovery project. The pattern which is selected depends upon the geologic characteristics of the reser- voir, such as the permeability of the rock, the reservoir pres- sure and the oil characteristics. (O'Neal, T.269.) Recognized patterns include the peripheral flood pattern (O’Neal, T.270; P. X. 7), the five spot flood pattern (O'Neal, T.270-1; P. X. 8), and the inverted nine spot pattern (ONeal. T.271; P. X. 8). The five spot and the nine spot pattern result in an injection well to recovery well ratio of one to one and one to three, respectively. (O’Neal, T.270-71.) 16 Long pipelines for transporting the water from its source to the treatment plant to the injection pumps and then to the injection wells may be required. These pipelines may need to be specially treated to withstand corrosive forces and the high pressures associated with the injection process. (Platt, T.709, 710.) Other facilities may be necessary for separation of oil from the water lifted by the recovery wells. Facilities may be necessary for preparing recovered water for reinjection, or disposing of recovered water in some other manner. The important contribution that oil recovered through waterflooding operations makes to the oil needs of this coun- try, and the necessary role of injection wells in that process, is undisputed. In 1973, approximately one billion barrels of oil were produced through the injection process. (Platt, T.722- 23.) Thirty to fifty percent of all oil produced in the United States was attributable to fluid injection projects. (Platt, T.743.) The injection well is a necessary and indispensible ingredient in the secondary recovery process. Professor Whit- ing, on cross-examination, was asked: “Q. When you testified that an injection well is a uc- ing well or a well that produces crude oil, didn’t you — are ey — — age fp pent emitting of oi t uction well, the recove well, of the curnes ¢ he earth? of A. I will say once again—and I guess other times if you insist on it—I teach my students that there is no question about the ntal premise that there are three necessary of a secondary recovery system. Elements of it. The reservoir, the input well, and the production well—using your words. All of those are essential ingredients, and I think I should answer your question by saying without an injection well in secondary recovery there would be no oil production into the well bore of the production well you are talking about. It is an essential in- gredient of the system. Without an injection well 47a you don’t have secondary rec . This has been recognized I know for 40 years.” (Emphasis added.) (Whiting, T.193.) The Government expert, Mr. Burt, agreed with Professor Whiting, as follows: Right. And, therefore, wouldn't you agree that an injection well is an absolute and necessary essential part of a secondary recovery waterflood producing system? A. I don't think I ever said otherwise. I've always said it was essential to have an injection point.” (Burt, T. 1062-63.) Mr. O'Neal testified that injection wells and recovery wells are “hydraulically linked.” He explained: “A. ‘Hydraulic linkage’ is merely a form of reservoir communication in one sense. As I mentioned before, we started out with a tiny sample of rock that is in a reservoir that is in a stannic conduit, the pore 8 , but those things are connected, they are not efficient pipelines, but they are connected from one end of the reservoir to another. And that is what you are able to utilize in conducting a waterflood, is that you use that communication, and then by injecting water into the well on the left you force that water out into the oil-bearing formation, and that provides the energy to move the oil and the water, and it also is sweeping the oil out of those pore spaces. Q. Allright. Mr. O’Neal, as I understand it, then, there is an hydraulic linkage between the injection well here and the recovery well here, is that correct? A. That is correct. Those two wells are used in pairs.” (O’Neal, T.273-74.) The relationship described is rather like a pipeline with the injection well acting as one end and the recovery well acting as the other end. Nothing can flow out of the one end of the pipeline in the absence of something being forced into the other end. An injection well provides the force. On cross-examination the witness clarified this relationship: “Q. Now you testified in response to a question by Mr. Beck, the summary question, that producing, that 18a injection wells, are wells that produce crude oil. Lou mean by that, do you not, that they help produce crude oil, isn’t that a fact? A. No. As I said for me the injection well, number one, is a well that produces e oil, like that which was demonstrat on the model— A. All right. What I said was that an injection well forces, by the use of water, puts energy in the reser- voir, displaces oil through the reservoir and up the recovery well. And, I said more than assist said it was the prime mover, because if I did not put that injection well in, I would have no more oil production.” (Emphasis added.) (O’Neal, T.351-52.) Mr. Eley testified similarly: “A waterflood, certainly a waterflood, such as the Salem Unit—and this unit is typical of a successful waterflood unit — I can see it as a hydraulic system, you inject water into the injection wells, and put energy in the formation which moves oil and water to your recovery wells where you recover. In the absence of water injection, you would pot ＋ in this field, you would have no production at all. And , today as of October 1, 1980, our injection program resulted in the production of an additional 118 million barrels of oil, and will ultimately produce an additional 138 million barrels of oil. Now, this is, again, oil that would not be produced in the absence of injection wells. Injection wells are an essential part of your injec- tion operation, and certainly in this sense injection wells do produce crude oil.” (Eley, T.434.) All of these principles were clearly and graphically demonstrated through the model of the oil reser- voir. Movies of this demonstration were submitted as P. X. 175 and P.X. 176. The defendant did aptly point out that other types of wells are present on oil leases. No other type of well, however, contributes to the recovery process in the manner that both 49a injection and recovery welis do. These are the only two types of wells which cause oil to flow within the reservoir. In many states, the entire process is heavily regulated. The materials submitted by the plaintiffs show that California, Colorado, Illinois, Kentucky, Michigan, Nebraska, New Mex- ico, Texas, Utah and Wyoming, all require producers to obtain permits prior to drilling a well for injection purposes. All of these states and Arkansas, Kansas, Montana, and Oklahoma require application and approval prior to instituting water injection. The approval necessary to institute waterflooding seems to be obtainable only after furnishing extensive studies on the feasibility of waterflooding. In Kansas, for example, an application to inject must show: “(1) the location of the intake well; (2) the location of all oil and gas wells, including abandoned and drilling wells and dry holes, d the names of landowners and lessees within one-half mile of the intake well; (3) the formation from which wells are producing or have produced; (4) the name, description and depth of the formations to be flooded; (5) the openhole depths of each formation to be flooded; (6) the elevations of the top of the oil-or-gas-bearing formation in the intake well and the wells producing from the same formation within one-half mile radius of the intake well; (7) the log of the intake well or such information as is available; (8) descriptions of the intake well casing; (9) descriptions of the liquid, stating the kind, where obtained and the estimated amounts to be injected daily; (10) the names and addresses of the operators notified of the application and the date that such notice was given; (11) such other information as the commission may require to ascertain the flooding may be safely and legally made.” Kan.Admin.Reg. No. 82-2-502. Other states have similar requirements. See, e.g., Rule 401, Rules and Regs. of Neb. Oil and Gas Comm.; Rule 228.3, Gen. Rules and Regs. of Oil and Gas Comm. of Montana. See also, P. X. 48, which is form H-1 of the Texas Railroad Commission and is required to be com- pleted prior to initiation of injection. These natural and regulatory barriers to the institution of waterflooding render the process quite expensive. Even the 50a defendant’s expert engineer acknowledged: “The cost of a waterflood system is more than primary.” (Burt, T. 1073.) This fact was affirmed by other experts who testified: Shearin, T.536; McConnell, D. 15-20; Platt, T.700-04. Moreover, as apt- ly pointed out by the Government’s engineer, water injection is subject to the risk of failure. (Burt, T.1033, 37; G.X. G2-A through G2-E.) State agencies have afforded injection wells special treat- ment in proration programs, to insure that their contribution to the production process is recognized. One of the goals of a system of proration or allowables is to maximize the ultimate recovery from each field, thereby preventing waste and con- serving oil. (Coker, T.598; Baumel, T.663.) This Court was treated to an extensive lesson in the method allowables are determined in Texas. The actions of the Texas regulators, the Texas Railroad Commission, are of particular interest since that oil rich state accounts for approximately one-third of the total oil production in the forty-eight con- tinental United States. (Platt, T.723; Coker, T.624.) Mac Cok- er, who served the Texas Railroad Commission for 28 years, Jack K. Baumel, who worked for the Commission for 15 years, and designed the system of yardstick allowables used in Texas, and Bob Harris, who currently is director of the Oil and Gas Division of the Commission, provided the Court with a full picture of the functions of the allowable system in Texas. No individuals could possibly be more qualified to testify about the Texas practices than these three individuals, and their credi- bility was unsullied. To establish an allowable for a water flood project, each well must undergo a test prior to injecting water into the formation. This test is required of all wells which are either converted from recovery wells or drilled as injection wells. (Coker, T.608.) The test required determines how much oil the well can yield in a twenty-four hour period. Thus, even if a well was drilled to be operated as an injection well, the operator must use that well as a recovery well for twenty four hours to determine how much oil that well can recover in that period. 5la (Coker, T.609.) The amount of oil that the well emits in that test period is assigned to that well as its allowable. (Coker, T.610.) When the test is completed and the wells are converted to injection wells, the allowable of those wells are transferred to other specific recovery wells on the property. (Id.) Thus, if prior to injection, an injection well has an allowable of five barrels per day, and a recovery well has an allowable of six barrels per day, the allowable of the injection well can be transferred to the recovery well so that the recovery well could extract eleven barrels per day. (Coker, T.611.) If the waterflood operation is able to produce more oil than this allowable permits, a different set of allowables comes into play. Rule 48, Texas Railroad Commission. The first step in increasing the allowable for waterflood projects is to assign a “marginal allowable” to the wells on the property. The allow- ables for the injection wells are transferred to the recovery wells. If the waterflood produces more than this allowable permits, a yardstick allowable is assigned to each well, includ- ing injection wells, and the allowables from the injection wells are transferred to the recovery wells (Coker, T.638.) Other higher allowables can be assigned after a hearing and are assigned on a lease basis rather than a well basis. (Coker, T.615-619. ) Mr. Coker made clear the reasons for allowing the transfer of allowables from injection to recovery wells: “The transfer of an allowable concept was initiated by the - Railroad Commission for two primary reasons: One, as an incentive to operators to initiate secondary recovery in order to increase the ultimate recovery from the various fields. Further, the transfer allowable concept was adopted and has been utilized for at least 40 years in recognition of the fact that the water injection wells are an integral part of the recovery system in secondary recove- ry projects.” 52a (Coker, T.629.) State conservation practice recognizes the im- portance and necessity of secondary recovery, and the essen- tial contribution of the injection well to secondary recovery. Louisiana has also recognized the role of injection wells in their allowable system. Not only does Louisiana allow the transfer of allowables from injection weils to recovery wells on a unit, but Louisiana also allows an extra allowable to be assigned to a property for each injection well. This bonus allowable “was an incentive for operators to initiate secondary recovery early in the life of a reservoir or earlier than might be normally done to ensure that the maximum recovery from the reservoir is obtained.” (Boudreaux, D.15.) Oklahoma and New Mexico also allow the transfer of allow- ables in waterflood operations. New Mexico Oil Conservation Div. Rules and Regs., Rule 701 (1968); Corporation Commis- sion of Oklahoma Rules and Regs., 2-240, 2-250, 2-261 (1973). The material before the Court shows no state in which produc- tion from secondary recovery projects is treated in a manner identical to production from primary recovery projects. The systems of allowables shown in the records before this Court show that the state regulators all recognize the role played by enhanced recovery techniques and the necessary role of injec- tion wells in the production of crude oil. The state regulators recognize that the goals of the proration system—to prevent waste and to ensure maximum recovery of oil from a reservoir—can be achieved by providing for the role of injec- tion wells when setting allowables. Historically, federal agencies have recognized the identity of contribution to the oil production process made by recovery wells and injection wells on secondary recovery projects. In 1944, the director of the Office of Economic Stabilization granted “stripper wells” an increase in price. The plan was * Notably, an allowable will not be given a salt water disposal well, unless that well is an injection well. Rule 47, Texas R.R. Comm. 53a designed to keep stripper wells in operation, to encourage reopening and cleaning out of old wells, and to make secondary recovery projects feasible.” 9 Fed. Reg. 7769. Pools“ which were averaging less than nine barrels of oil per well per day were allowed to increase prices. The regulations required calculation of: “Daily Ave r well production of pool during month of Dasenber in terms of 42-gallon ls. (The num- ber of wells to be considered the number of wells produc- ing as of December 31, 1943.)” (Id.) Although is it unclear whether this definition was subject to one standard interpretation or not, the only evidence this Court has as to the application of this provision to injection wells is the undisputed testimony that in Texas injection wells were included in determining qualification for the increased prices under that federal regulation. (Baumel, T.668, 671.) Section 263 of the Internal Revenue Code allows operators an option either to deduct or capitalize intangible drilling and development costs “in the case of oil and gas wells.” This provision has been implemented to include all intangible ex- penditures “incident to and necessary for the drilling of wells and preparation of wells for the production of oil and gas.” Treas.Reg.Sec. 1.612-4(a). The I.R.S. recognizes that the costs incurred in drilling an injection well should be treated in the same manner as those costs incurred in drilling a recovery well, and are chargeable to capital or deductible as expenses. Rev. Rul. 69-583, 1969-2 C. B. 41. The I. R. S. thus has held that injection wells are within the term “oil wells” as used in Section 263 of the Internal Revenue Code. The Mineral Land Leasing Act of 1920, Pub. L. No. 146. Ch. 85, 41 Stat. 437, authorized the execution of oil and gas leases by the Secretary of the Interior on federal lands at royalties to be determined by the Secretary on the basis of competitive bidding. The Act itself provided a stripper well exemption from these standard royalty provisions: “Whenever the average daily production of any oil well shall not exceed ten barrels per day, the Secretary of the 54a Interior is authorized to reduce the royalty on future production when in his judgment the wells can not be successfully operated upon the royalty fixed in the lease.” The apparent purpose of this exemption was to allow marginal wells preferential treatment to prevent abandonment and to insure maximum production. In 1935, as a part of a general revision of this act, the exemption was rewritten to provide: “Whenever the average daily production of the oil wells on an entire lease or on any tract or portion thereof segre- gated for royalty — shall not exceed ten barrels per well per day, or where the cost of production of oil or gas is such as to render further produetion economically imprac- ticable the Secretary of th .:terior, for the purpose of encouraging the greatest ui nate recovery of oil and in the interest of conservation of naturai resources, is autho- rized to reduce the * on future production when in his judgment the wells cannot be successfully operated upon the royalty fixed in the lease.” (Emphasis added.). Ch. 599, Sec. 1, 49 Stat. 676 (Aug. 8, 1935). In 1936, the statutory measure was implemented through a provision which provided that only wells which yielded commercial volumes of production during part of a month were to be considered in ascertaining the well count for determining aver- age daily production. Injection wells were to be counted. 56 I.D. 415, 427 (1936). This holding has remained unchanged and is currently embodied in Section 221.49 of 30 C. F. R.: “Sliding and step-scale royalties are based on the ave daily production per well. The supervisor shall — which wells on a leasehold are commercially productive . . but only wells which yield a commercial volume of production during at least of the month shall be — in ascertaining the average daily production per well. “(b) Wells approved by the supervisor as input wells shall be counted as producing wells for the entire month if so 55a used 15 days or more during the month, and disregarded if so used — 15 days — the month.“ Although the statutory stripper well exemption from the royalty rates was subsumed into a general provision granting the Secretary of the Interior power to modify royalty rates, the exemption continues in the administrative practices of the Department of Interior. The testimony of John Duletsky provided the Court with great insight into the manner in which this provision was actually applied by the Department of Interior (DOD. Mr. Duletsky had been a long time employee of the DOI and had served as a senior official in a position within the DOI which dealt with the application of this regulation. The Court be- lieves that there could be no individual more knowledgeable about the treatment of injection wells for purposes of the step or sliding scale royalty than Mr. Duletsky. He testified that to be counted as a well for purposes of determining average daily production, an injection well had to meet two conditions. First, the injection well had to be completed in the correct oil bearing formation. Second, the well must have been injecting water into the oil bearing formation for at least fifteen days a month. (Duletsky, T.577-78.) He dispelled any doubt that the term “input well” used in the regulation, is synonymous with the term “injection well.” (Duletsky, T.575-76.) This testimony is buttressed by plaintiffs’ Exhibit 45, which is a chapter from the DOI Conservation District Manual, containing rules and pro- cedures relating to the variable regulatory rate and well count. See, P.X. 45, pp. 6-7. Duletsky stated it was his belief that the inclusion of injec- tion wells was brought about by the Government’s concern “in the public interest to maximize the ultimate recovery from a reservoir, prevention of waste, and conservation.” (T.579.) Duletsky’s testimony shows that the DOI treats injection wells in a manner similar to recovery wells for purposes of determining well count. An active injection well is routinely counted as a well for determining average daily production per 56a well. A shut-in injection well is usually treated as a shut-in recovery well and excluded from the well count. Beyond all question, DOI regulation 221.49(b) is not a narrow, limited exception niggardly administered by a secretary who ex- ercises discretion to exclude injection wells. This section estab- lishes the general proposition that active injection wells are productive wells and are to be included in the well count for purposes of the variable royalty.“ II. STATUTORY BACKGROUND In the early 1970s, acting pursuant to the Economic Stabilization Act of 1970, 12 U.S.C.A. Sec. 1904 (note), the Cost of Living Council (CLC) promulgated a comprehensive series of regulations governing the maximum prices at which domestic crude oil and refined petroleum products could be sold. In general, the regulations established a “two tier” price system for production from each “property,” and set a ceiling on the prices charged for the first sale of domestic crude oil. This system was designed to halt the inflationary spiral of crude oil prices while limiting the disincentive effect of oil price regulations. 6 C.F.R. Sec. 150.354. The statutory stripper well exemption originated as an amendment to S. 1081 (TAPAA) offered by Senator Bartlett, United States Senator from Oklahoma, a principal oil- producing state, on the Senate floor. This original amendment read: “Those oil leases whose daily average production per well does not exceed that of a stripper well of not more than ten Other types of wells are not allowed to be counted. Abandoned, disposal, water source, observation wells, are not permitted to be counted. Under certain circumstances, shut in wells are allowed to be counted only if approved by the Supervisor. P. X. 45, p. 6. 57a barrels of oil day shall be exempt from any allocation or price restraints established by any act of law.” This amendment was adopted by the Senate and subsequently amended by Senator Jackson to read: ain aon ae uids produced from any lease whose average — 1 — sibstances does not exced ten barrels pr well shall not be subject pursuant to the Economic Stabilization Act of 1970 as amended. or to any — — for fuels or petroleum established pur- suant to that or to any Federal law for the allocation of a pen Senator Jackson also amended the amendment to provide that the agency designated to administer the allocation program be allowed to promulgate regulations implementing the exemp- tion. The exemption as amended was enacted as Section 406 of the Trans-Alaska Pipeline Authorization Act, Pub.L.93-153, 87 Stat. 590 (codified at 12 U.S.C. § 1904). The Conference Com- mittee added a provision requiring leases to be operated at the Sec. 406(a) The first sale of crude oil and natural gas liquids produced from any lease whose average daily production of such substances for the preceding calendar month does not exceed ten barrels per well shall not be subject to price restraints established pursuant to the Economic Stabilization Act of 1970, as amended, or to any allocation program for fuels or petroleum established pursuant to that Act or to any Federal law for the allocation of fuels or petroleum. (b) To qualify for the exemption under this section, a lease must be operating at the maximum feasible rate of production and in accord (e) The agency designated by the President or by law to implement any such fuels or petroleum allocation program is authorized to conduct inspections to insure compliance with this section and shall promulgate and cause to be published regulations implementing the provisions of this section.” maximum feasible rate. Regulations implementing this ex- emption were published by the Cost of Living Council (CLC) at 38 Fed. Reg. 32494 (November 26, 1973) (6 C. F. R. Sec. 150.54(s)). These regulations defined the terms “average daily production” as follows: “Average daily production” means the qualified maximum total production of domestic crude . and pet- month, my by Taher ea a 5 to ~ number of days in that month the number of wells which produced crude — petroleum condensates, including natural gas liquids, from that property in that month. To qualify as maximum total production, each well on the y must have been maintained at the maximum — ged a — in accordance with ——— — — — — reason of failure — 2 — 8 produe- On November 27, 1973, the President signed into law the Emergency Petroleum Allocation Act of 1973 (EPAA), Pub. L. No. 93-159, 87 Stat. 628 (codified at 15 U.S.C. See. 751). Section 4(a) of the EPAA required the President promulgate regulations providing for the mandatory allocation of crude oil, residual fuel oil, and each refined petroleum product, in amounts and at prices specified in regulations. Subparagraph 4(e)(2)(A) of the EPAA also contained a strip- per exemption.* Regulations implementing this provision were ANA) The regulation promulgated under subsection (a) of this section shall not apply to the first sale of crude oil produced in the United States from any lease whose average daily production of crude oil for the preceding calendar year does not exceed ten barrels per well. (B) To qualify for the exemption under this paragraph, a lease must be operating at the maximum feasible rate of production and in accord with recognized conservation practices. O) Any agency designated by the President under section 5(b) for such purpose is authorized to conduct inspections to insure com- published as a revised version of 6 C.F.R. Sec. 150.54(s), 38 Fed. Reg. 34464 (December 14, 1973). These regulations were identical to the earlier regulations in all respects important to this case. On December 4, 1973, the President issued Executive Order No. 11748, establishing the Federal Energy Office (FEO) and delegating to the FEO primary responsibility for administer- ing and enforcing the petroleum allocation and pricing provi- sions of the EPAA. 38 Fed. Reg. 33575 (December 6, 1973). The FEO thereafter adopted Mandaiory Petroleum Price Regulations which incorporated the petroleum pricing regula- tions that had originally been promulgated by the CLC. The CLC’s stripper well lease exemption was ultimately in- corporated in these regulations, when on January 14, 1974, FEO adopted and reissued the CLC definitions of “stripper well lease” and “average daily production.” 10 C.F.R. § 210.32(b), being identical to 6 C.F.R. § 150.54(s). On May 7, 1974, the President signed into law an act of Congress known as the Federal Energy Administration Act of 1974 (FEAA), 15 U.S.C. Sec. 761 et seq., Pub. L. No.93-275, 88 Stat. 96. The FEAA established the Federal Energy Adminis- tration (FEA) and authorized the President to delegate to the FEA authority vested in the President by law. On June 25, 1974, the President issued Executive Order No. 11790. 39 Fed.Reg. 23185 (June 27, 1974). That Executive Order, in addition to giving notice that the FEAA was to become effective as of June 27, 1974, abolished the FEO, revoked Executive Order No. 11748, and delegated to the FEA all authority vested in the President by the EPAA. The duty of administering and enforcing the petroleum allocation and pricing provisions of the EPAA was thereby assigned to pliance with this paragraph and shall promulgate and cause to be published regulations implementing the provisions of this para- the FEA, and the implementing regulations became the re- sponsibility of the FEA. On December 19, 1974, the FEA issued Ruling 1974-29, 39 Fed.Reg. 44414 (December 24, 1974). That Ruling held that injection wells were not to be counted as weils for purposes of determining whether the average daily production per well from a property exceeded ten barrels in the preceding calendar year. The relevant portions of the Ruling read as follows: “ISSUE: Is an ‘injection well’ a ny for the purpose of 1 property was or well in calendar year, for the stripper well lease — of 10 C. F. R. § 210.32? “RULING: No. Under the FEA regulations, the first sale . — ural — = —— — nat gas any stri S tion regulations. A stri well lease is defined as a 10 barre whose average daily prod uction did not exceed ls per per day per well dur well during — — calendar ear. ‘Av tion’ is Ir de in 10 CF. F. R. § 210. 210, 32(b) as: ‘The qualified maximum total production of domestic crude petroleum condensates, 17 24 — > quids, produced from a property during the calendar year, divided — — equal to the number of wells which produced crude petroleum and petroleum condensates, luding natural gas liquids — that property in that ol “Thus, the FEA by their specific provide that only w whieh produce crude dernen jj caste cheteaeer e for the purpose of whether the stripper — lease exemption applies. „ per te themselves ‘produce’ crude petroleum. Therefore, wells which did not actually yield or produce crude petroleum during the preceding calendar year are not production 6la wells for this purpose. Whether the non-producing well was an ‘injection’ well, a disposal well, a dry well, a spent well or a shut-in well will not change this result.” III. THE DOE'S EXCLUSION OF INJECTION WELLS CONFLICTS WITH CONGRESSIONAL INTENT As stated in this Court’s order of June 11, 1980, the Court believes that TECA has held that the regulation defining aver- age daily production itself mandated the exclusion of injection wells from the well count. Ihe focus of this decision, therefore, is upon the underlying regulation and not upon the ruling. The legal foundation and proper procedure for this Court to follow in reviewing the regulation at issue in this case was stated by the Supreme Court in Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 91 S.Ct. 814, 28 L.Ed.2d 136 (1971). Three distinct inquiries are required. First, this Court must determine whether the actions of the agency were within the agency’s authority. Second, the Court must decide whether the action by the agency was “arbitrary, capricious or an abuse of discretion, or otherwise not in accordance with law.” Finally, this Court must decide whether the agency’s actions followed the necessary procedural requirements. In the prior proceedings in this case the third inquiry has been satisfied. Both the regulation and ruling at issue have been determined to be procedurally valid. The Court need now only consider the first two issues. The defendant contends that the agency’s interpretation of the statute to exclude injection wells from the well count must control this Court. Much of the problem with this position, as will be more fully noted, is that the only real clue of how the agency viewed the statute is the result it reached in holding that injection wells cannot be counted. The Court is acutely aware that an agency’s interpretation of a statute which the agency is authorized tu administer is enti- tled to “substantial deference.” Quern v. Mandley, 436 U.S. 725, 736, 98 S.Ct. 2068, 2076, 56 L.Ed.2d 658 (1978). This 62a deference, however, does not render an agency’s interpreta- tion exempt from judicial scrutiny. The deference due any interpretation “is constrained by our obligation to honor the clear meaning of a statute, as revealed by its language, pur- pose and history.” International Brotherhood of Teamsters v. Daniel, 439 U.S. 551, 99 S.Ct. 790, 800, 58 L. Ed.2d 808 (1979). “The weight to be given to an administrative interpreta- tion depends upon ‘the thoroughness evident in its con- sideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and ail of those factors which give it power to persuade, if lacking power to control. Standard Oil Co. v. D.O.E., 596 F.2d 1029, 1056 (Em. App. 1978), quoting Skidmore v. Swift & Co., 323 U.S. 134, 140, 65 S.Ct. 161, 164, 89 L.Ed. 124, 129 (1944). The Court has an obligation to examine anew the legislative history and purpose of the statute.’ The interpretation given the statute did not evolve as a result of a comprehensive evidentiary hearing, as is done in many instances. Nor does the interpretation given the statute appear to have been the product of the expertise of the agency. Rather, the interpretation seems to have been the product of the agency’s reading of congressional intent, principally from language of the Act alone. Divining congressional intent be- hind a statute is a task to which courts are at least equally suited as are administrative agencies. This fact mitigates against according the interpretation extra authoritative weight. In Barlow v. Collins, 397 U.S. 159, 166, 90 S.Ct. 832, 837, 25 L.Ed.2d 192 (1970), the Supreme Court was faced with a challenge to a regulation promulgated by the Secretary of The Court believes that this obligation is even greater in the present case where the Court has found the interpretation to have been arrived at in an arbitrary and capricious manner. See part IV, infra. 63a Agriculture which defined “making a crop.” The Court held that defining that term was not a discretionary judgment of the Executive Branch: “On the contra y, ince the only or principal) dispute re- lates to the meaning of the statutory term, the con- troversy must ultimately be resolved, not on the basis of matters within the special e..npetence of the Secretary, but by judicial application of canons of statutory construc- tion. Texas Transmission I I. Shell Oil Co., 363 U.S. 263, 268-70, 80 S.Ct. 1122, 1126-1127, 4 L.Ed.2d 1208. ‘The role of the courts should, in particular, be viewed hospitably where . the question sought to be reviewed does not significantly e the agency’s ex- pertise. “Where the only or principal dispute relates to the meaning of the statutory term .. .” (the controversy) presents issues on which courts, and not (administrators) are relatively more expert.’ Hardin v. Kentucky Utilities Co., 390 U.S. 1, 14, 88 S.Ct. 651, 658-659, 19 L. Ed. 2d 787 (Harlan, J. dissenting).” See also, Wilderness Society v. Morton, 479 F. 2d 842, 866 (D. C. Cir. 1973), cert. denied, 411 U.S. 917, 93 S.Ct. 1550, 36 L.Ed.2d 309 (1973); UPG, Inc. v. Edwards, 647 F.2d 147, at 156 n.23 (Em. App. 1981). The defendant argues that other factors are also important in determining whether the agency interpretation should be given extra authoritative weight. Three questions are general- ly considered when looking at an agency interpretation. Was the interpretation contemporaneous with the enactment of the statute? Has the interpretation consistently been followed over a long period of time? Was the interpretation outstanding at the time of a reenactment of the statute? Energy Consum- ers and Producers Association, Inc. v. D. O. E., 632 F. 2d 129, 143 (Em. App. 1980). It is true that, in this case, the regulation was issued con- temporaneously with the statute. It is equally true, however, that the regulation was not drafted with the intent either to exclude or to include injection wells from the well count. There raged within the agency a great debate as to whether injection 64a wells were within the statutory exemption. The documentary material before the Court shows that the proper interpretation to be given the regulation and statute was debated until the time that Ruling 1974-29 was promulgated. See, e. g., P. X. 72, 73, 75, 85, 92, 131, 132, 136, 137, 139, 140. See also, G. X. Z-1. All individuals involved in the agency action with respect to injection wells who came before this Court agreed that the inclusion of injection wells in the stripper well exemption was an unresolved issue until the time of the Ruling. Linda Buck, in May, 1974, prepared a memorandum, the purpose of which “was to devise a method of proposing a clarification to wha. we believed to be an ambiguous regula- tion.” (Buck D. 41.) George Biondi recognized in July of 1974, that the issue was unresolved. (Biondi, D.36-7.) See also, Wal- ker, D. 59, 64, Ware T. 957, 1005-16, 1009-10. Phillip Essley recognized that the regulation did not conclusively decide the issue, and that the issue was not finally determined until the release of Ruling 1974-29 in December, 1974, more than one year after the passage of the stripper well exemption. (Essley, T. 1208-15.) Since the construction ultimately arrived at by the agency was not one made “soon after the time of enactment,” it does not qualify as a contemporaneous construction. Russ v. Wil- kins, 624 F. 2d 914, 923 (9th Cir. 1980). The evidence before the Court shows that there was no single contemporaneous con- struction of the statute or regulation to exclude injection wells from the well count. This factor does not indicate that extra authoritative weight need be given the agency interpretation. Nor does the evidence show that there was one consistent and uniform application of the statute and regulation to ex- clude injection wells. The record before the Court contains examples of times at which oil producers were advised to count injection wells. On December 6, 1973, Robert Weldon, who was then Engineering Supervisor of Joint Operations for Clinton Oil Company (now Energy Reserves Group, Inc.), contacted the 65a CLC to determine whether injection wells could be included in the well count. Mr. Weldon was referred to Andrew Drance, of the CLC, who advised him that injection wells were to be included in the well count. (Weldon, D. 21-4.) Mr. Drance’s position within the agency was close to that of the regulation’s draftors. On December 7, 1973, Ernest T. Pelikan, who was then in the Management Services Department of Arthur Young & Company, contacted the CLC on behalf of Suburban Propane Gas Corporation, another of the plaintiffs. Mr. Pelikan also had a telephone conversation with Andrew Drance and was advised that injection wells could be included in the well count. (Pelikan, D.27-8.) In January, 1974, August Erickson, then Vice-President of Sklar & Phillips, contacted Eugene Waters of the Internal Revenue Service, the agency delegated responsibility at that time for enforcing the petroleum pricing regulations. On Janu- ary 30, 1974, Waters and W. M. Meriwether, of the I.R.S., telephoned Erickson and advised him that injection wells could be included in the well count. (Erickson, D. 28-31.) The oral advice that injection wells could be counted was confirmed by a letter from Waters on January 31, 1974 (P.X. 54). In late 1973, James H. Roark and Car! E. Stone, of King Resources Company (now Phoenix Resources Company) were advised by I.R.S. officials in Oklahoma City that injection wells could be included in the well count. (Roark, D.12-3, 46). In October, 1974, Larry White, Dallas Area Manager of the F.E.0.’s Region VI Office, advised a New Mexico producer that injection wells could be included in the well count in calculating average daily production under the stripper well exemption regulation. (White, D.26, 39, 71-7.) White based this advice on the regulations and on Form P-1 of the Texas Railroad Commission, Oil & Gas Division, which included in- jection wells as producing wells. (White, D.85-7, 99, 101.) White’s advice was founded in part on a mid-May, 1974, letter from the Regional Counsel of Region VI, advising a Dallas- based company that injection wells were to be included in the well count, a copy of which he had seen. (White, D.2 [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385009_0971%3A2. Public record. Not legal advice.