Amicus Curiae Brief — National Mining Association Association v. Kempthorne (No. 08-63)

No. 08-63

IN THE

Supreme Court of the United States

—_—_ -

NATIONAL MINING ASSOCIATION,

Petitioner,

V.

DIRK KEMPTHORNE, SECRETARY

OF THE INTERIOR, et al.,

Respondents.

On PETITION FOR A WRIT OF CERTIORARI TO THE

UniTED States Court OF APPEALS

FOR THE District OF COLUMBIA

MOTION FOR LEAVE TO FILE AMICI CURIAE BRIEF AND

BRIEF ON BEHALF OF THE AMERICAN PETROLEUM INSTITUTE,

THE INDEPENDENT PETROLEUM ASSOCIATION OF AMERICA, AND

THE INDEPENDENT PETROLEUM ASSOCIATION OF MOUNTAIN

STATES AS AMICI CURIAE IN SUPPORT OF PETITIONER

Harry M. Nc PETERJ. SCHAUMBERG

Erik MILITO Counsel of Record

AMERICAN PETROLEUMINSTITUTE FRED R. WAGNER

1220 L Street, NW BEVERIDGE & Diamonp, PC.

Washington, DC 20005 1350 I Street, NW, Suite 700

(202) 682 8253 Washington, DC 20005

(202) 789 6000

Counsel for Amici Curiae

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217613 cel

COUNSEL PRESS

(800) 274-3321 * (800) 359-6859

MOTION FOR LEAVE TO FILE AMICI CURIAE

BRIEF IN SUPPORT OF PETITIONER

The American Petroleum Institute (“API”) has

received the written consent of all parties to file this

amicus curiae brief. After API had already received

consent to file this brief, the Independent Petroleum

Association of America and the Independent Petroleum

Association of Mountain States (“Amicz”) agreed to join

with API in support of the arguments presented.

However, the additional Amici did not have the

opportunity under S. Ct. R. 37.2(a) to seek consent from

the parties. Amici therefore move pursuant to S. Ct.

R. 37.2(b) for leave to join API in filing this amicus

curiae brief in support of the petition for writ of

certiorari to the United States Court of Appeals for the

District of Columbia Circuit (“Court of Appeals”).

As more fully explained at pages 1-2 of the attached

brief under “Interests of Amici Curiae,” Amici are

trade associations that, like API, represent domestic

oil and gas producers. And like API’s members, Amici’s

members will suffer from the burden imposed by the

Office of Surface Mining’s definition of the phrase “Valid

Existing Rights,” set forth in 30 C.F.R. § 761.5 and

affirmed by the Court of Appeals, if that definition is

allowed to stand.

Accordingly, Amicz respectfully request that the

Court grant Amici leave to file the attached brief.

Respectfully submitted,

PETER J. SCHAUMBERG

Counsel of Record

FRED R. WAGNER

BEVERIDGE & Diamonp, PC.

1350 I Street, NW, Suite 700

Washington, DC 20005

(202) 789 6000

Harry M. Nc

Erk MILITO

AMERICAN PETROLEUM INSTITUTE

1220 L Street, NW

Washington, DC 20005

(202) 682 8253

Counsel for Amici Curiae

i

TABLE OF CONTENTS

INTERESTS OF AMICI CURIAE ...........

SUMMARY OF ARGUMENT ...............

sR ee ee eT ee ee

THE COURT’S REVIEW IS NECESSARY

BECAUSE THE DEPARTMENT OF THE

INTERIOR’S “VER” INTERPRETATION

COULD THREATEN THE CONTINUED

VIABILITY OF FEDERAL OIL AND GAS

EP V IEEE bch ona scaccccsseecsces

I.

VER HAS TRADITIONALLY

SERVED AS THE LINCHPIN

BALANCING PRE-EXISTING

EXPLORATION AND DEVELOP-

MENT RIGHTS AND FUTURE

CONSERVATION INTERESTS ON

PLS SEEMED: 550s avsnvccsveccs.

FEDERAL OIL AND GAS LEASE

EXPLORATION AND DEVELOP-

MENT IS ACOSTLY AND HIGHLY

REGULATED PROCESS .........

FEDERAL LANDS ARE

SUBJECT TO COMPETING

RESOURCE DEMANDS AND

MAY BE WITHDRAWN FROM

FURTHER DEVELOPMENT .....

Page

7

Contents

C. VERISTHE LEGAL “GLUE” THAT

PRESERVES THE RIGHTS OF

PUBLIC AND PRIVATE PROPERTY

HOLDERS BY BALANCING

COMPETING INTERESTS IN

PRT vaducedssnsuscess

II. “VER PLUS” UPSETS THE BALANCE

BETWEEN USE AND CONSER-

VATION OF RESOURCES ............

Ill.“VER PLUS” DISRUPTS EXISTING

PROPERTY RIGHTS AND MAY

RESULT IN REDUCED OIL AND

GAS PRODUCTION FROM FEDERAL

RAPED sSntassaNesetebdasevhesacice

“VER PLUS” IS UNREASONABLE AND NOT

ENTITLED TO DEFERENCE BECAUSE

IT CONFLICTS WITH THE SECRETARY

OF THE INTERIOR’S CONTEMPOR-

ANEOUS APPLICATION OF VER TO

FEDERAL MINERALS ..................

1. THE 1998 SOLICITOR’S OPINION

RECOGNIZES EXISTING PROPERTY

he SSG wh Nip nk 544606 RAs cen eee

Page

iii

Contents

Page

II. OSM’S INTERPRETATION IS

NOT ENTITLED TO CHEVRON

DEFERENCE BECAUSE OF DOI’S

ARBITRARY AND CAPRICIOUS,

CONFLICTING INTERPRETATIONS

GF PE cA dacccdhsctccopesse@anadinss 23

III. INCONSISTENT DOI OPINIONS

REGARDING VER UPSET THE

DELICATE BALANCE BETWEEN

DEVELOPMENT AND CONSER-

MEE bb es ciccvcéenccscdveseeevens 25

EE 6k 6 ccuvecccenisevacsupenweete 26

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TABLE OF CITED AUTHORITIES

Cases:

Best v. Humboldt Placer Mining Co.,

er

California v. Norton,

311 F-3d 1162 (9th Cir. 2002) ...............

Chevron U.S.A., Inc. v. NRDC, Inc.,

occ ecacccnccces

Fina Oil & Chem. Co. v. Norton,

332 F.3d 672 (D.C. Cir. 2008) .............-.

INS v. Cardoza-Fonseca,

en es ce ebesese

Martin v. Occupational Safety

& Health Review Comm’n,

ED << cance bee vscacccsecese

Mobil Oil Exploration & Producing S.E., Inc.

v. United States, 530 U.S. 604 (2000) ........

NMA v. Kempthorne,

512 F.3d 702 (D.C. Cir. 2008) ...............

NRDC ». Berklund,

609 Fi2d 553 (D.C. Cir. 1980) ..............-

Page

Vv

Cited Authorities

Page

S. Utah Wilderness Alliance,

a ce cca en nees 16

S. Utah Wilderness Alliance v. U.S. DOI,

2007 U.S. Dist. LEXIS 55562

(D. Utah July 30, 2007) (Kimball, J.) ........ 18

S. Utah Wilderness Alliance v. Norton,

457 F. Supp. 2d 1253 (D. Utah 2006) ........ 18

Union Oil Co. of California v. Morton,

512 F-2d 743 (9th Cir. 1975) ............... 6,13

United States v. Winstar Corp.,

ES 13

Wilbur v. United States ex rel. Krushnik,

ee gua waee es 6

Constitution:

re ee Oe. cc odaneosecées ll

rE ese whesbeeaseen 13

Statutes:

Antiquities Act of 1906, Act of June 8, 1906, ch.

3060, 34 Stat. 225 (1906) (codified at 16 U.S.C.

ET cc+ccwdunethegheadtas Gund eee oe 12

vi

Cited Authorities

Page

Appropriations Act of Dec. 23, 1981, Pub. L. No.

97-100, 95 Stat. 1399 (Dec. 23, 1981) ....... 12, 17

Gulf of Mexico Energy Security Act of 2006,

Pub. L. No. 109-432, 120 Stat. 2922 (Dec. 20,

Dt Sli ccn pad keedeneweebneestow iwaens< 0 17

Mineral Leasing Act for Acquired Lands, Act

of Aug. 7, 1947, ch. 513, 61 Stat. 913 (1947)

(codified at 30 U.S.C. §§ 351 et seq.) ........ 8

| Mining Law of 1872, Act of May 10, 1872,

ch. 152, 17 Stat. 91 (codified at 30 U.S.C.

PE ov scckcabkseedndebavbesupenes 21, 22

Mineral Leasing Act of 1920, Pub. L. No. 146,

41 Stat. 437 (1920) (codified at 30 U.S.C.

ETE ae eae oe 22

National Marine Sanctuaries Act, Pub. L. No.

101-605, 104 Stat. 3089 (1990) (codified at

16 U.S.C. §§ 1481 et seg.) «0... cece cece eee 12

Outer Continental Shelf Lands Act, Pub. L. No.

212, 67 Stat. 462 (1953) (codified at 48 U.S.C.

PE oe cvivcdshaenbnnbeddeescet 8, 15

Surface Mining Control and Reclamation Act

of 1977, Pub. L. No. 95-87, 91 Stat. 445 (1977)

(codified at 30 U.S.C. §§ 1201 et seg.) ....... 5

vii

Cited Authorities

Page

Wilderness Act of 1964, Pub. L. No. 88-577, 78

Stat. 890 (1964) (codified at 16 U.S.C. §§ 1133

EE Reeds ASS 08s wh cdccveccccecceetepes 13, 21

16 U.S.C. § 1133(d)(3) «0... ee ee eee eee ee eee 21, 22

ET vc cevacvccsbec sane ctdbney bas 13

EE dd eccn béunvesdabossoenae see’ 22

i cc nsvensedkeebns gaveceets eased 15

ED <nvesestesevecvpobescesiccses 15

EE vic orcccccvdscoesesvoeeees 8

ED svc accasccosvcsesceensvess 12

ED sc ceconccteictveccccessoen 8, 11

ED beac chsesss avcetevevsess . 13

Regulations:

EE Gisvcboedeevevesvescerscesss 15

30 C.FR. §§ 250.168 - 250.177 ................ 16

BD (Rees PEED osc cccccccvescceeevceesees 10

vili

Cited Authorities

Page

EE io, o open cesesadeesanese 10

EE RE RE EER ae Nana mesa 9

Ses IS 6 ond s viebicnceccccecséivenne 16

Proclamation No. 6920, 61 Fed. Reg. 50,223

ED: pen. ink snes deve dens cksonner 12, 13

Proclamation No. 8031, 71 Fed. Reg. 36,443

i i ond Cah whee eenekeent 12

Valid Existing Rights, Final Rule, 64 Fed. Reg.

I ED og vccceccncceseecoes 25

Other Authorities:

American Petroleum Inst., OCS Moratoria Fact

Sheet, http://www.energytomorrow.org/energy/

OCS_Moratoria_Fact_Sheet.aspx .......... 9

Energy Info. Admin., Oil and Natural Gas

Market Supply and Renewable Portfolio

Standard Impacts of Selected Provisions of

H.R. 3221 (Dec. 2007), http://www.eia.doe.gov/

oiaf/servicerpt/bmy/index.html ............. 9

ix

Cited Authorities

DOI Departmental] Manual, Part 209, Chapter

3.2A(11) (209 DM 3.2A(11)), http://elips.doi.

gov/ app_home/index.cfm?fuseaction=home

Jan G. Laitos, The Nature & Consequence of

“Valid Existing Rights” Status in Public

Page

Lands Law, 5 J. Min. L. & Pot’y 399 (1989) ... 9, 15, 23

Larry Rohter, Obama, in New Stand, Proposes

Use of Oil Reserve, N.Y. Times, Aug. 5, 2008

Mn be ccede cc tuacedawheienebiete.s

Mark Udall, http://www.markudall.com/page/s/

Fis eek Adin k ued bedbnnec

Minerals Mgmt. Serv. (“MMS”), 2001-Forward

MRM Statistical Information, http://www.

mrm.mms.gov/MRM WebStats/Home.aspx

MMS, OCS Report, MMS 2008-013, Deepwater

Gulf of Mexico 2008: America’s Offshore

Energy Future 76-77 (2008), http://www.gomr.

mms.gov/PDF's/2008/2008-013.pdf ..........

MMS Webpage, http://www.mms.gov/offshore/

gomesa/gomesa.htm ...........2.e eee eeeee

q

,

,

J

x

Cited Authorities

Patenting of Mining Claims and Mill Sites in

Wilderness Areas, M-36994 (May 22, 1998) ..

Press Release, More than 17,099 Protest BLM

Decision to Lease the Roan Plateau,

available at http://www.saveroanplateau.org

Steven Lee Myers & Carl Hulse, Bush Lifts

Drilling Moratorium, Prodding Congress,

N.Y. Times, July 14, 2008, available at http://

www.nytimes.com/2008/07/1 4/washington/

14drillend.html?_r=2&sq=Drilling%20

Moratorium &st=cse&adxnnl=1&oref=

slogin&éscp=1€&adxnnlx=1218560935-

m58a960jOgjprPxNZT3aAQ ...............

Page

1

The American Petroleum Institute, the

Independent Petroleum Association of America, and the

Independent Petroleum Association of Mountain States

respectfully submit this brief as amici curiae in support

of petitioner.’

INTERESTS OF AMICI CURIAE

Amici concur in the arguments advanced by the

National Mining Association (“NMA”) in its Petition for

a Writ of Certiorari filed with the Court on July 14, 2008

(“NMA Petition”), and proffer the following, additional

reasons why it is important that the Court grant the

NMA Petition.

The American Petroleum Institute is a nationwide,

non-profit, trade association headquartered in

Washington, D.C. that represents over 400 members

engaged in all aspects of the petroleum and natural gas

industry, including exploration, production,

transportation, refining and marketing.

The Independent Petroleum Association of America

represents the thousands of independent oil and natural

' No counsel for a party authored this brief in whole or in

part, and no such counsel or party made a monetary contribution

intended to fund the preparation or submission of this brief.

No person other than the amici curiae, or its members, or

counsel, made a monetary contribution to its preparation or

submission. The parties have consented to the filing of this brief

by the American Petroleum Institute, and have been given at

least 10 days notice of such filing. Those consents are being

lodged herewith. Unfortunately there was not enough time to

obtain the consents with respect to the other two amici.

2

gas producers and service companies across the

United States. IPAA is a national trade association

headquartered in Washington, D.C. that serves as an

informed voice for the exploration and production

segment of the industry.

The Independent Petroleum Association of

Mountain States, founded in 1974, is a non-profit trade

association representing more than 400 independent oil

and natural gas producers, service and supply

companies, banking and financial institutions and

industry consultants committed to environmentally

responsible oil and natural gas development in the

Intermountain West.

Amici represent all segments of the domestic oil

and gas industry, from the largest integrated companies

to the smallest independent oil and gas producers.

Amici’s members are unified in their concern regarding

the decision of the Court of Appeals finding no error in

the interpretation of the phrase “valid existing rights”

(“VER”) adopted by the United States Department of

the Interior’s (“DOI”) Office of Surface Mining (“OSM”).

That interpretation is dramatically inconsistent with

long-standing principles governing the property rights

of lessees on public lands.

SUMMARY OF ARGUMENT

The D.C. Circuit wrongly allowed DOI’s novel and

insupportable interpretation of VER, which engrafts an

“all permits” requirement onto the well-established

application of VER in withdrawal situations, to stand.

If left uncorrected, that ruling threatens pre-existing

3

\

property rights and upsets the delicate balance between

competing interests in resources on federal lands.

Moreover, it provides precedent for DOI to apply a

similarly insupportable interpretation to other

withdrawals of federally-managed lands, and could

therefore seriously disrupt what to this point had been

the settled right and expectation to develop a federal

oil and gas lease once it is issued by DOJ. DOI’s

interpretation would thus threaten the value of such

leases and may deter investment by the domestic oil and

gas industry in production onshore and on the Outer

Continental Shelf (“OCS”), an unacceptable outcome

given today’s prevalent energy challenges.

3

A. The D.C. Circuit’s ruling upsets the balance

between the use and conservation of resources on

federal lands achieved through the well-accepted

application of VER prior to DOI’s interpretation.

Congress has declared the development of federally-

managed onshore and offshore oil and gas resources to

be a national priority. Property rights to develop oil and

gas resources accrue to a leaseholder upon issuance of

the lease; yet, due to both regulatory and economic

factors, it often takes substantial time and financial

resources to commence production. Secure in these

property rights, amici’s members, who hold large

numbers of leases, have invested billions of dollars over

many years to secure and develop these leases.

B. Other demands on federal lands must be

balanced against resource development. These

competing uses include recreation, wilderness, and

4

conservation. Acting pursuant to various authorities,

Congress and the Executive accordingly may designate

and withdraw areas from leasing or development.

C. VER serves as the essential tool preserving the

balance between these competing demands. By

regularly including VER provisions in over 100 federal

laws, Congress recognizes that, despite its plenary

authority over the use and disposition of federal lands

and interests therein, preexisting property rights in

federal oil and gas leases in a withdrawn area must be

respected. VER provisions instill confidence in existing

and prospective domestic oil and gas producers that

future withdrawals will not upset their considerable

investment or require expensive takings litigation.

II.

Given the importance of VER, future withdrawals

coupled with compromised VER provisions would strip

the rights of federal lessees and, consequently, may deter

important future investment in domestic oil and gas

resources on federal lands. DOI’s VER interpretation,

which superimposes a requirement that a producer not

only holds a valid lease but also has obtained al]

necessary permits prior to withdrawal of the area from

further mineral leasing and development, unfortunately

achieves precisely this result. An oil and gas lessee may

spend billions of dollars on bonuses, rentals and

exploration costs before it is even in a position to apply

for its development permits. And, given the need for

exploration and planning, the lessee will not be able to

submit that permit application until many years after

the lease is issued.

5

Under DOI’s VER interpretation, during the multi-

year window between leasing and receipt of permits,

every federal oil and gas lessee would face the threat of

unilateral cancellation by the government of leases in

which it has invested potentially billions of dollars. DOI’s

VER interpretation ignores the considerable time

required to obtain permits after a lease is issued and

jeopardizes a lessee’s property rights until production

is feasible and imminent. Though DOI’s VER

interpretation at this point applies only to coal mining

under the Surface Mining Control and Reclamation Act

(““SMCRA”), 30 U.S.C. § 1272(e), DOI could seek to

extend similar VER interpretations in the future to

analogous federal land contexts.

IIT.

Because DOI’s VER interpretation threatens to take

lessees’ development rights, it also may diminish existing

and future lessees’ incentive to invest in domestic

resources on federal lands and ultimately may result in

decreased domestic production. Such deterrence is

particularly troubling given the already restricted

opportunities for domestic production and the national

debate surrounding the opening of new areas to leasing.

In a time of pervasive energy challenges nationwide,

DOI’s VER interpretation would have the undesirable

effect of making federally-managed resources even less

attractive.

6

IV.

DOI’s VER interpretation deserves no deference

because it conflicts with contemporaneous

interpretations of VER at the highest agency level.

Inde2d, concurrent with OSM’s rulemaking setting out

its “all permits” requirement, the DOI Solicitor published

a formal opinion, concurred in by the Secretary and

binding on OSM, concluding that property rights

embodied in a valid mining claim could aione establish

VER without any permit requirement. In such

circumstances, DOI’s contrary VER interpretation is

unreasonable and the D.C. Circuit was wrong to defer.

ARGUMENT

THE COURT’S REVIEW IS NECESSARY BECAUSE

THE DEPARTMENT OF THE INTERIOR’S “VER”

INTERPRETATION COULD THREATEN THE

CONTINUED VIABILITY OF FEDERAL OIL AND

GAS DEVELOPMENT

Prior to DOI’s 1999 interpretation of VER, it was

generally recognized that the holder of a property right

to develop minerals on federally-administered land,

whether through a federal oil and gas lease,’ a federal

coal lease,’ or a valid mining claim,‘ was protected from

2 Union Oil Co. of California v. Morton, 512 F.2d 743, 750-

51 (9th Cir. 1975).

3’ NRDC v. Berklund, 609 F.2d 553, 559 (D.C. Cir. 1980).

4 Wilbur v. United States ex rel. Krushnik, 280 U.S. 306,

316-17 (1930); Best v. Humboldt Placer Mining Co., 371 U.S.

334, 335-37 (1963).

7

the effects of future regulatory actions withdrawing that

area from mineral development. The Court of Appeals,

however, affirmed DOI’s interpretation of VER as

requiring not only the existence of a property interest

but also that the holder acquire or reasonably attempt

to acquire requisite permits necessary for production.

The oil and gas industry is concerned that this “VER

Plus” definition, if left unchecked, is clear precedent that

may be applied to existing and future VER provisions

that affect federal oil and gas leases. This real possibility

seriously threatens the value of federal oil and gas leases

and could deter the domestic oil and gas industry from

investing in oil and gas production onshore and on the

OCS.

Adverse impacts to this Nation’s oil and zgas

production capability could not come at a worse time.

Our Nation faces historically-high energy prices.

Restrictions on leasing that defy existing property rights

and put significant volumes of our oil and gas resources

off-limits challenge our economic stability and threaten

our national security.

8

I. VER HAS TRADITIONALLY SERVED AS THE

LINCHPIN BALANCING PRE-EXISTING

EXPLORATION AND DEVELOPMENT RIGHTS

AND FUTURE CONSERVATION INTERESTS

ON PUBLIC LANDS

A. FEDERAL OIL AND GAS LEASE

EXPLORATION AND DEVELOPMENTISA

COSTLY AND HIGHLY REGULATED

PROCESS

Development of federally-managed oil and gas

resources is an important national policy. 43 U.S.C.

§ 1701(a)(12) (“The Congress declares that it is the policy

of the United States that. . . the public lands be

managed in a manner which recognizes the Nation’s

need for domestic sources of minerals. . .”); 48 U.S.C.

§ 1332(3) (“[T]he outer Continental Shelf is a vital

national resource reserve held by the Federal

Government for the public, which should be made

available for expeditious and orderly development .. .”).

Amici’s members hold property rights in large numbers

of oil and gas leases on federal lands onshore and on

the OCS issued under various mineral leasing laws

administered by DOI.’ As of 2007, there were well in

excess of 28,000 producing federal oil and gas leases.°®

® The principal mineral leasing laws for oi] and gas include

the Outer Continental Shelf Lands Act, 43 U.S.C. §§ 1331 et seq.

(“OCSLA”); the Mineral Leasing Act (“MLA”), 30 U.S.C. §§ 181

et seq.; and the Mineral Leasing Act for Acquired Lands, 30

U.S.C. §§ 351 et seg.

®° See Minerals Mgmt. Serv. (“MMS”), 2001-Forward MRM

Statistical Information, http://www.mrm.mms.gov/MRM Web

Stats/Home.aspx (last visited Aug. 11, 2008).

9

Oil and gas production from onshore and offshore federal

lands is particularly vital to our Nation’s economic well-

being, accounting for 35% of domestic oil production and

30% of domestic natural gas production as of 2006.’

Federal oil and gas leases are issued with a primary

term generally ranging from five to ten years. See, e.g., 30

C.ER. § 256.37 (stating that initial term of oil and gas leases

on the OCS shall be for five years and cannot «ceed ten

years). Thereafter, the leaseholder retains lease rights as

long as there is production from the lease in paying

quantities. Jd. Property rights are conferred upon lease

issuance, see Jan G. Laitos, The Nature & Consequence of

“Valid Existing Rights” Status in Public Land Law, 5 J.

Min. L. & Pot’y 399, 416 (1989) [hereinafter Laitos, The

Nature & Consequence of “Valid Existing Rights”), but

it generally takes years of diligent effort and significant

investment to obtain the requisite permits and approvals

to bring a lease into production, particularly on the OCS.

See, e.g., Minerals Management Service (“MMS”),

OCS Report, MMS 2008-013, Deepwater Gulf of Mexico

2008: America’s Offshore Energy Future 76-77 (2008)

(“MMS Report”).* During those years, the leaseholder

’ Energy Info. Admin., Oil and Natural Gas Market

Supply and Renewable Portfolio Standard Impacts of Selected

Provisions of H.R. 3221 (Dec. 2007), http:/Awww.eia.doe.gov/oiaf/

servicerpt/bmy/index.html (last visited Aug. 11, 2008).

8 Available at http://www.gomr.mms.gov/PDF's/2008/2008-

013.pdf (last visited Aug. 11, 2008); see also American Petroleum

Inst., OCS Moratoria Fact Sheet, http://www.energy

tomorrow.org/energy/OCS_ Moratoria_ Fact_Sheet.aspx (last

visited Aug. 11, 2008).

10

may spend billions of dollars for exploration and

development of its lease on top of the millions of dollars

that may have been paid in bonus bids to secure the

lease in the first place. Jd. Costs to develop in the

deepwater OCS, likely the best prospect for future

development, are particularly staggering. MMS Report

at 14. All of this investment is made in good faith reliance

on those property rights received under the lease

contract.

Compounding the enormity of the costs sunk into

development is the fact that it will take years, if ever,

for a lessee to see a return on its investment. This is

especially true offshore, where production may not occur

for as many as ten years depending on the complexity

of the engineering challenges, including water and

drilling depths and the geological characteristics of the

reservoir, that lessees must overcome in developing

their leases. Jd. at 14, 76-77. In addition, lessees seeking

to develop their offshore leases face a burdensome,

multi-step permitting process. /d. at 39. For example,

before drilling can even begin, MMS must first approve

a highly-technical Exploration Plan that involves an

extensive review of geological, geophysical and

engineering data, all of which must be developed by the

lessee. 30 C.E-R. § 250.201. Further, before the lessee

may begin production, MMS must approve a

Development and Production Plan or Development

Operations Coordination Document, another highly-

technical document. Jd. Of course, an oil and gas lessee

must obtain a variety of other permits to satisfy its

obligations under other environmental statutes before

production may begin. See 30 C.F.R. § 250.281.

11

B. FEDERAL LANDS ARE SUBJECT TO

COMPETING RESOURCE DEMANDS AND

MAY BE WITHDRAWN FROM FURTHER

DEVELOPMENT

The need to develop our Nation’s federally-managed

mineral resources is always balanced against competing

resource values. See, e.g., 43 U.S.C. § 1701(a)(8)

(declaring that it is the policy of Congress, inter alia,

that “the public lands be managed in a manner that will

protect the quality of scientific, scenic, historical,

ecological, environmental, air and atmospheric, water

resource, and archeological values”). In addition to their

substantial mineral resource values, our Nation’s federal

lands often are visually unique and have value for

purposes including recreation, wilderness, archeological

resources, and other uses. The significance of these

other resource values regularly subjects these lands to

consideration by Congress, the President, or the

Secretary of the Interior for mixed uses, including

withdrawal from further mineral development. Similarly,

our coastal states have resources important to uses

such as tourism and recreational opportunities.

In consideration of these coastal resources and other

concerns, Congress and the President likewise may

withdraw areas of the OCS from leasing and

development.

Various authorities are available to Congress and

the Executive to achieve that purpose. Through the

Property Clause, U.S. Const. art. IV, § 3, cl. 2, Congress

has plenary authority over disposition of federal lands

and resources. Well over 100 statutes have authorized

withdrawal of lands from application of the mineral

leasing laws and other mineral disposition statutes.

12

See Appendix E to NMA Petition (“NMA Appendix E”).

Congress uses this authority to designate national parks,

wildlife refuges, recreation areas, and wilderness areas

(to name but a few), precluding new leasing and

development of oil and gas in these designated areas.

For the past 27 years, Congress also has imposed an

annual moratorium on oil and gas leasing for most areas

of the OCS except the Central and Western portions of

the Gulf of Mexico, small portions of the Eastern Gulf of

Mexico, and certain areas offshore of Alaska. See, e.g.,

Appropriations Act of Dec. 23, 1981, Pub. L. No. 97-100,

95 Stat. 1399 (Dec. 23, 1981) (the first appropriations

bill to contain the moratorium on leasing).

Congress also has delegated certain withdrawal

authority to the Executive Branch. Recently, Presidents

Bush and Clinton have utilized the authority granted

by the Antiquities Act, 16 U.S.C. §§ 431 et seq., to

withdraw lands in Hawaii’ and Utah," respectively.

Similarly, OCSLA authorizes the President to withdraw

areas of the OCS from consideration for leasing. 43

U.S.C. § 1341(a). The Secretary of the Interior also has

authority to withdraw lands from disposition. Under the

National Marine Sanctuaries Act, 16 U.S.C. §§ 1431 et

seq., the Secretary may designate marine sanctuaries

as areas off-limits to mineral development. The

Secretary also may temporarily withdraw lands from

®° Establishment of the Northwestern Hawaiian Islands

Marine National Monument, Proclamation No. 8031, 71 Fed.

Reg. 36,443 (June 26, 2006).

1 Establishment of the Grand Staircase-Escalante

National Monument, Proclamation No. 6920, 61 Fed. Reg. 50,223

(Sept. 24, 1996).

13

further mineral development while Congress considers

a permanent withdrawal. See, e.g., 16 U.S.C. § 3213;

43 U.S.C. § 1714(c).

C. VER IS THE LEGAL “GLUE” THAT

PRESERVES THE RIGHTS OF PUBLIC

AND PRIVATE PROPERTY HOLDERS BY

BALANCING COMPETING INTERESTS IN

PUBLIC LANDS

Obviously, if Congress or the Executive directly

extinguished pre-existing federal oil and gas lease rights

in an area for which it is implementing a withdrawal,

the existing property-right holders would have an action

against the government for breach of contract and

unlawful taking in violation of the Fifth Amendment to

the United States Constitution. See Mobil Oil

Exploration & Producing S.E., Inc. v. United States,

530 U.S. 604, 607 (2000); United States v. Winstar Corp.,

518 U.S. 839, 843 (1996); Union Oil, 512 F:2d at 750-51.

To avoid that legal consequence, Congress or the

President typically includes a provision that protects

VER. See, e.g., Wilderness Act of 1964, 16 U.S.C.

§ 1133(d)(3); Establishment of the Grand Staircase-

Escalante National Monument, Proclamation No. 6920,

61 Fed. Reg. 50,223, 50,225 (Sept. 24, 1996) (“The

establishment of this monument is subject to valid

existing rights.”); see also NMA Appendix E. Such

provisions embody the well-understood concept that

persons who hold existing mineral leases and property

rights in newly protected areas have the right to

continue to enjoy those property rights (although

development may become more difficult as a

consequence of the withdrawal). See NMA Petition at

8-9 n.16.

14

VER preserves a delicate and important balance in

federal property law that has developed over many

years. The various statutory, VER provisions reflect

Congress’ recognition that, while it has plenary authority

over the use and disposition of federal lands and

interests in land, and therefore may remove or withdraw

those lands from use or disposition for mineral

development or any other purpose, there likewise is a

requirement to respect pre-existing private interests

in those federal lands and resources at the time of

withdrawal.

If Congress did not regularly include VER

provisions in federal statutes that withdraw lands from

previously acceptable mineral disposition and other

uses, few, if any, would invest in developing federal

resources because of the very real prospect that, at any

time, Congress may render their efforts effectively

worthless. At best, the affected rights holders would face

years of litigation to recover their prior investment from

the government through an action for a taking or breach

of contract. VER is the “glue” that holds this delicate

balance together — Congress or the Executive may

withdraw lands and resources from previously acceptable

uses, but those who made investments in those

resources prior to withdrawal are entitled to retain the

benefit of their efforts.

15

Il. “VER PLUS” UPSETS THE BALANCE

BETWEEN USE AND CONSERVATION OF

RESOURCES

DOI’s VER Plus interpretation of SMCRA departs

dramatically from the well-recognized application of

VER in withdrawal situations. VER provisions generally

require only the demonstration of a valid property right

to produce minerals that pre-dates the withdrawal.

Laitos, The Nature & Consequence of “Valid Existing

Rights” at 425. DOI’s VER Plus, however, requires not

only the demonstration of a valid property right but also

demonstration of a lessee’s satisfaction of additional

conditions (7.e., all permits required to begin production

have been obtained or applied for). See 30 C.F-R. § 761.5.

There is no reasoned basis to distinguish the

property interest granted under a federal coal lease

subject to DOI’s VER Plus interpretation from the

property interest granted under a federal oil and gas

lease. Federal coal leases are issued under the same

leasing statute as onshore oil and gas leases. Compare

30 U.S.C. § 201 (coal) with 30 U.S.C. § 226 (oil and gas

onshore). Therefore, under the Court of Appeals’

decision, nothing would prevent DOI from applying VER

Plus.in the onshore oil and gas context should the area

where the lease is located be withdrawn from further

development by a post-lease statute or Executive action.

Further, because the leasing regime for offshore leases

under OCSLA, 43 U.S.C. § 1337, is the same as under

the MLA, see Fina Oil & Chem. Co. v. Norton, 332 F.3d

672, 673 (D.C. Cir. 2003), the same concern applies for

offshore leases.

16

If VER Plus were applied to the federal oil and gas

leasing regime, the delicate balance between use and

conservation of resources would falter. A federal oi] and

gas lease grants the leaseholder the right to develop

mineral resources thereunder without unreasonable

restriction. See, e.g.,S. Utah Wilderness Alliance, 159

IBLA 220, 240-41 (2003). DOI’s VER Plus standard

alters that important legal principle by limiting that

development right only to situations where the lessee

effectively is ready to commence production because it

has obtained all permits or made a good faith effort to

do so. Until such time, the functional effect of the DOI

regulation is that the lessee’s rights under its lease are

subject to unilateral termination by the government.

Because it may take years from the time a lease is issued

to obtain the requisite regulatory approvals and permits

to begin production from a federal oil and gas lease,

particularly on the OCS, the lessee risks losing its

property rights and substantial investment any time

before it begins production.

This is particularly problematic where either the

MMS or the Bureau of Land Management (“BLM”) has

directed a suspension of a federal lease, see 30 C.F-R.

§§ 250.168 - 250.177 (MMS); 43 C.ER. § 3103.4-4 (BLM),

during which time the lessee is prevented from

conducting those activities on the lease necessary to

obtain requisite permits. Because these suspensions

frequently remain in effect for years, see California v.

Norton, 311 F.3d 1162, 1173 n.6 (9th Cir. 2002), during

that entire time the lessee would be at risk of losing its

lease if Congress subsequently withdrew the area from

mineral disposition. VER Plus exacerbates that risk.

17

Ill. “VER PLUS” DISRUPTS’ EXISTING

PROPERTY RIGHTS AND MAY RESULT IN

REDUCED OIL AND GAS PRODUCTION

FROM FEDERAL LEASES

Investing in domestic exploration and development

has historically been attractive to the oil and gas

industry because of the certainty of the property rights

granted under federal mineral leases. If that certainty

no longer exists, domestic oil and gas companies will

likely be less willing to pay tens of millions of dollars in

bonus bids for oil and gas leases if the Federal

Government later may declare the area off-limits and

leave the lessee with a non-producible lease if it has not

yet acquired all the requisite permits to begin

production. This new threat — that a lease does not

provide a secure right to produce — will be most acutely

felt in those areas with a significant risk of withdrawal.

For example, millions of acres of the OCS currently

are unavailable for leasing and development pursuant

to a moratorium that has been renewed annually for the

past 27 years. See, e.g., Pub. L. No. 97-100 (Dec. 23,

1981). In 2006, some of the areas of the Eastern Gulf of

Mexico previously subject to the moratorium were made

available for leasing as a consequence of the Gulf of

Mexico Energy Security Act of 2006, Pub. L. No. 109-

432, 120 Stat. 2922 (Dec. 20, 2006) (“GOMESA”). Lease

sales were held pursuant to GOMESA in October 2007

and March 2008, resulting in bonus bids in the tens of

millions of dollars and another lease sale is anticipated

in 2009.'! Moreover, today, as a consequence of

'! See http://www.mms.gov/offshore/gomesa/gomesa.htm

(last visited Aug. 11, 2008).

18

historically-high oil prices, Congress is embroiled in a

heated debate over opening additional areas of the

Eastern Gulf of Mexico and Atlantic OCS to leasing and

development.” Lifting the moratorium even has become

an important issue in the presidential campaign, as both

major-party candidates have expressed support for

increased offshore development.'*

Opening new areas to leasing is equally controversial

onshore. Most recent federal onshore oil and gas lease

sales held by the BLM have been challenged. See, e.g.,

S. Utah Wilderness Alliance v. U.S. DOI, 2007 U.S.

Dist. LEXIS 55562 at *4-5 (D. Utah July 30, 2007)

(Kimball, J.). Issues include concerns about impacts of

development on wildlife, air quality, and archeological

resources as well as on areas that are considered by

some to be of wilderness quality. See, e.g., S. Utah

Wilderness Alliance v. Norton, 457 F. Supp. 2d 1253

(D. Utah 2006). The debate is more animated when BLM

seeks to offer new areas that were not extensively leased,

like Colorado’s Roan Plateau.“ For the most part, BLM

——

'2 See, e.g., Steven Lee Myers & Cari Hulse, Bush Lifts

Drilling Moratorium, Prodding Congress, N.Y. Times, July 14,

2008, available at http://www.nytimes.com/2008/07/14/

washington/14drillend.html? r= 2&sq=Drilling%20 Morator

ium&st=cse&adxnnl=1€oref=slogin&scp=1&adxnnlx=

1218560935-m58a960jOgjprPxNZT3aAQ (last visited Aug. 11,

2008).

13 See, e.g., Larry Rohter, Obama, in New Stand, Proposes

Use of Oil Reserve, N.Y. Times, Aug. 5, 2008 at Al4.

See, e.g., Press Release, More than 17,000 Protest BLM

Decision to Lease the Roan Plateau, available at http://

www.saveroanplateau.org (last visited Aug. 11, 2008).

19

has proceeded to issue leases in these controversial

areas, but some in Congress have sought to place certain

of these areas off limits to development.’®

Opening federally-managed lands onshore and

offshore to new or expanded oil and gas development is

critical to the vitality of the domestic oil and gas industry,

but the process is continually scrutinized. While

Congress and BLM have recently pursued leasing

certain new areas offshore and onshore, Congress or

the Executive could withdraw controversial areas from

further leasing and development, subject to VER. If this

were to occur and VER Plus were to apply to existing

oil and gas lessees who have expended billions of dollars

on bonuses, rentals, and exploration costs, they will not

be able to proceed with developing their leases if they

have not, in addition to possessing valid property rights

in the form of oil and gas leases, satisfied the additional

conditions imported by DOI, which in this case would

be obtaining all their permits.

If the ruling below stands, future BLM- and MMS-

sponsored lease sales could be significantly impacted.

If potential lessees should participate, they will risk less

money in bonus bids. The Federal Government thus

could receive fewer bids for leases and less revenue from

bonus bids because of legal uncertainties regarding the

sanctity of property rights conveyed by the lease.

Companies could divert more revenue to exploration and

development outside the United States, ultimately

6 See, e.g., http:/;Awww.markudall.com/page/s/SaveTheRoan

(last visited Aug. 11, 2008).

20

decreasing domestic reserves and increasing

dependence on foreign and less secure sources of supply.

In short, the risk that DOI could impose its VER Plus

interpretation on federal oil and gas leases will

undeniably make federally-managed lands less attractive

for oil and gas development, resulting in a possible

reduction in federal revenues and in domestic

production from federal lands.

“VER PLUS” IS UNREASONABLE AND NOT

ENTITLED TO DEFERENCE BECAUSE IT

CONFLICTS WITH THE SECRETARY OF

THE INTERIOR’S CONTEMPORANEOUS

APPLICATION OF VER TO FEDERAL MINERALS

Coal, hard-rock minerals (e.g., gold, silver, and

copper), and oil and gas are the three most significant

mineral regimes on federal lands. Between 1997 and

1999, OSM went through a rulemaking and adopted

VER Plus for coal. In the midst of the rulemaking

process, the Solicitor of the Department of the Interior

(“Solicitor”), who is the chief legal officer for all DOI

bureaus (including OSM), issued a formal! opinion

addressing VER in the hard-rock mining context. He

reached a conclusion consistent with the prevailing

definition of VER rather than VER Plus. This conflicting

and binding Opinion demonstrates that OSM’s

interpretation is arbitrary and capricious and not

entitled to deference as a legal matter, justifying this

Court’s grant of certiorarz to review the decision below.

Moreover, inconsistency in the administrative

interpretation of the same legal concept in two regimes

creates great uncertainty as to which interpretation

21

DOI will apply to the third mineral regime, oil and gas,

calling into question the sanctity of existing property

rights.

I. THE 1998 SOLICITOR’S OPINION RECOGNIZES

EXISTING PROPERTY RIGHTS

In a formal published opinion, “Patenting of Mining

Claims and Mill Sites in Wilderness Areas,” M-36994

(May 22, 1998) (“Solicitor’s Opinion”), concurred in by

the Secretary of the Interior, the Solicitor addressed

the rights of certain holders of mining claims located

pursuant to the Mining Law of 1872, 30 U.S.C. $§ 21

et seq., in areas within the National Wilderness

Preservation System'* withdrawn from further mineral

entry and leasing under the Wilderness Act, 16 U.S.C.

§ 1133(d)(3). The Wilderness Act was enacted in 1964,

but allowed for continued location of mining claims, and

issuance of federal mineral leases, until December 31,

1983. It then provides:

Subject to valid rights then existing, effective

January 1, 1984, the minerals in lands

designated in this Act as wilderness areas are

withdrawn from all forms of appropriation

under the mining laws and from disposition

under all laws pertaining to mineral leasing

and all amendments thereto.

Id. Thus, for covered areas, the Wilderness Act allowed

the location of mining claims under the Mining Law of

‘6 Areas within the National Wilderness Preservation

System are also expressly included in SMCRA § 522(e).

22

1872, and issuance of federal leases for oil and gas, coal

and other minerals pursuant to the Mineral Leasing Act,

30 U.S.C. §§ 181 et seg., until December 31, 1983.

Thereafter, subject to “valid rights then existing,”

further mineral dispositions were prohibited.

The Solicitor’s Opinion addressed whether, under

a different provision of 16 U.S.C. § 1133(d)(3)" that

specifically addressed valid existing rights to a patent,!*®

claims where the claimant properly located a

mining claim and made a discovery of a

valuable mineral deposit before the land in

question was designated as wilderness, but for

which the claimant had not established a right

to a patent before the land was designated as

wilderness . . . should be patented without a

reservation of the surface estate.

Solicitor’s Opinion at 4-5. In analyzing this issue, the

Solicitor reviewed all the VER provisions within

§ 1133(d)(3), including the provision quoted above. The

Solicitor opined: “[ijn short, nothing in the language of

section 4(d)(3) .. . affects a claimant’s ability to continue

“ “(Ajnd hereafter, subject to valid existing rights, all

patents issued under the mining laws of the United States

affecting national forest lands designated by this Act as

wilderness areas [including BLM lands, see Solicitor’s Opinion

at 2 n.4} shall convey title to the mineral deposits within the

claim...”

'® The Mining Law, 30 U.S.C. § 29, provides the procedure

by which a mining claimant may apply for a patent, i.e., fee title

to a validly located claim.

23

to develop the valuable minerals on a preexisting

unpatented mining claim, so long as a valid claim had

been established as of the time the land was withdrawn

from further appropriation under the mining laws.”

Id. at 8.

This conclusion reached by DOI’s chief legal officer

and the Secretary in 1998, in the midst of the rulemaking

adopting the VER Plus interpretation, diverges 180

degrees from OSM’s unique permits-plus interpretation.

While OSM interprets VER as requiring more than just

the legal entitlement to mine, the Solicitor and the

Secretary concluded that the existence of property

rights embodied in a valid mining claim alone was

adequate to establish VER, thereby protecting those

rights from the consequences of a later withdrawal of

the affected lands. OSM’s departure from the latter,

accepted VER interpretation would be further

pronounced if applied to withdrawals from oil and

gas development given that vested property rights

even more clearly predominate in the leasing context.

‘See Laitos, The Nature & Consequence of “Valid

Existing Rights” at 416-17.

II. OSM’S INTERPRETATION IS NOT ENTITLED

‘TO CHEVRON DEFERENCE BECAUSE

OF DOI’S ARBITRARY AND CAPRICIOUS,

CONFLICTING INTERPRETATIONS OF VER

While an agency’s construction of the laws it is

charged to implement is entitled to substantial

deference, Martin v. Occupational Safety & Health

Review Comm’n, 499 U.S. 144, 150 (1991), the agency’s

interpretation must not be arbitrary or capricious,

24

Chevron U.S.A., Inc. v. NRDC, Inc., 467 U.S. 837, 844

(1984). Here, the D.C. Circuit did not find OSM’s

interpretation to be unlawful, even though it had

changed its interpretation over the years since

SMCRA’s passage, with OSM ultimately concluding that

VER must be limited by the all permits-plus standard.

512 F.3d 702, 712 (D.C. Cir. 2008).

DOI policy states that the Solicitor’s formal legal

opinions, or “M-Opinions,” are “binding on all other

Departmental offices and officials and . . . may be

overruled or modified only by the Solicitor, the Deputy

Secretary, or the Secretary.” DOI Departmental Manual,

Part 209, Chapter 3.2A(11) (209 DM 3.2A(11)).'® The

Acting Assistant Secretary of the Department of the

Interior, who signed the Final Rule establishing VER

Plus, does not qualify as an agency official entitled to

depart from or otherwise alter the Solicitor’s Opinion.

OSM’s interpretation is therefore entitled to no

deference. See, e.g., INS v. Cardoza-Fonseca, 480 U.S.

421, 446-47, n.30 (1987) (rejecting agency interpretation

of statute on ground that interpretation was not

consistent with congressional intent, and finding

agency’s interpretation was not entitled to heightened

deference because it had been inconsistent over time).

OSM sought to justify its cramped interpretation

of VER by relying on Congress’ interest in protecting

'® See http://elips.doi.gov/app_home/index.cfm?f useaction

=home (last visited Aug. 11, 2008). This policy was recently

reaffirmed in a 2001 agency Memorandum, issued by the same

Solicitor responsible for the 1998 Solicitor’s Opinion described

above. “Binding Nature of Solicitor’s M-Opinions on the Office

of Hearings and Appeals” (Jan. 18, 2001).

25

sensitive areas, like national parks and wildlife refuges,

from the impacts of surface mining. See, e.g., Valid

Existing Rights, Final Rule, 64 Fed. Reg. 70,766 (Dec.

17, 1999)

Congress did not define VER, and the

legislative history of section 522(e)

emphasizes that, with certain exceptions,

Congress intended to prohibit new surface

coal mining operations on the lands listed in

that section. . . . We believe that these facts

argue against adoption of a rule that defines

VER solely in terms of property rights.

In OSM’s view, the concept of VER may be limited when

the resources that Congress is seeking to protect have

particularly significant values to the public. However,

OSM’s attempt at this distinction fails. The Solicitor’s

Opinion addressed VER in the National Wilderness

Preservation System — the very same federal lands

included within the scope of the protections provided

under SMCRA § 522(e) — and provides no basis to

diverge from the standard interpretation of VER.

III. INCONSISTENT DOI OPINIONS REGARDING

VER UPSET THE DELICATE BALANCE

BETWEEN DEVELOPMENT AND CONSER-

VATION

That OSM and the Solicitor, within a year, could

reach such divergent opinions about the scope of VER

demonstrates the fallacies of the D.C. Circuit’s opinion

subject to the pending petition for certiorari. The long-

standing VER policy of the Department of the Interior

26

acts as the “glue” that preserves the balance between

the competing interests of protecting pre-existing

property rights in the development of minerals on public

lands and preserving interests in conservation of the

same lands. Allowing the agency to subject the VER

standard to dramatically different interpretations

threatens the core of oil and gas exploration on federal

lands. The Supreme Court should grant certiorari in

this matter to prevent the D.C. Circuit’s decision from

dissolving that glue.

CONCLUSION

For the foregoing reasons, amici urge this Court

to grant N MA’s petition for a writ of certiorari.

Respectfully submitted,

PETER J. SCHAUMBERG

Counsel of Record

FRED R. WAGNER

BEVERIDGE & D1AMonD, PC.

1350 I Street, NW, Suite 700

Washington, DC 20005

(202) 789 6000

Harry M. Ne

ERIK MILITO

AMERICAN PETROLEUM INSTITUTE

1220 L Street, NW

Washington, DC 20005

(202) 682 8253

Counsel for Amici Curiae