Opposition Brief — Texas Oil & Gas Corp. v. Arkla Exploration Co.

No. 84-490 | OCT «9 1384

IN THE : eieeasiaiie

Supreme Court of the Cnited States

OCTOBER TERM, 1984

TEXAS O1L & GAs Corp.,

Petitioner,

Vv.

ARKLA EXPLORATION COMPANY,

STATE OF ARKA NSAS,

WILLIAM P. CLARK, SECRETARY OF THE INTERIOR,

Respondents.

On Petition For A Writ Of Certiorari To

The United States Court Of Appeals For

The Eighth Circuit

BRIEF FOR ARKLA EXPLORATION COMPANY AND

THE STATE OF ARKANSAS

IN OPPOSITION

STEVE CLARK Jim Guy TUCKER

Attorney General 1000 Savers Federal Building

Mary STALLCUP Little Rock, Arkansas 72201

Deputy Attorney ALAN S. NOVINS

General Counsel of Record

Counsel of Record LEE ELLEN HELFRICH

Justice Bu‘lding 1523 L Street, N.W.

Little Rock, Arkansas Washington, D.C. 20005

72201 (202) 628-0066

(501) 371-1967 RoBeErRT ROBERTS, III

Attorneys for P.O. Drawer 1126

State of Arkansas Shreveport, Lousiana 71163

Attorneys for Arkla

Exploration Company

PRESS OF BYRON S. ADAMS, WASHINGTON, D.C. (202) 347-8203

>S--S = S a

© BEST AVAILABLE COPY |

[on Supcne Govt US]

2)

QUESTIONS PRESENTED

1. Whether review by writ of certiorari should be

granted in this case in which there is no conflict among

the circuits because (a) the litigation in the District of

Columbia (i) proceeded with the explicit judicial recogni-

tion that that litigation excluded any issues dealing with

known geological structures {KGS) and (ii) proceeded

with the consent of the Petitioner here that KGS issues

could be addressed in subsequent litigation after the

D.C. Circuit had ruled, and (b) the litigation in the

Eighth Circuit was (i) exclusively concerned with the

KGS issue and (il) acquiesced in the entire substance ot

the D.C. Circuit’s ruling on the non-KGS issue?

2. Whether review by writ of certiorari should be

granted in this case in which the court below (a) enjoined

the Secretary from following a procedure which (i) was

inconsistent with the Secretary’s prior rulings and (il)

which the Secretary has subsequently conceded was

inconsistent with the controlling law, and (b) in which

the judgment affirmed below is in any event explictly

limited to the specific facts and specific parcel of real

estate in controversy?

PARTIES TO THE PROCEEDING IN THE COURT

WHOSE JUDGMENT IS SOUGHT TO BE REVIEWED

The list, under the heading “parties”, in the Petition for

a Writ of Certiorari omits the State of Arkansas, which

was a plaintiff in the proceedings before the United

States District Court for the Western District of Arkan-

sas and an appellee in the United States Court of

Appeals for the Eighth Circuit.

The list in the Petition also omits the State of Alaska,

which joined the brief amicus curiae before the Eighth

Circuit.

il

Since Rule 21.1(b) only requires a listing of parties “to

the proceeding in the court whose judgment is sought to

be reviewed,” Respondents do not here respond to the

reference in the Petition under the heading “parties”

which refers to the proceedings in various courts and

agencies whose judgments do not. appear to be the

subject of any petition for review.

Respondent Arkla Exploration Company is a wholly

owned subsidiary of Arkla, Inc. which has no subsidiaries

nor affiliates (except for wholly owned subsidiaries).

s ws

ill

TABLE OF CONTENTS

GUESTIONS PRESENTED .....................

PARTIES TO THE PROCEEDING IN THE COURT WHOSE

JUDGMENT IS SOUGHT To BE REVIEWED .....

pS

EE Tt ee er

1. No conflict exists between the decision of

the D.C. Circuit and the decision of the Eighth

a sae

2. The Eighth Circuit closely followed the well-

settled interpretation of the statute and the

Department’s own prior interpretation of the

I I Ce. eck k a ove eRe uk

APPENDIX:

A. BLM Instruction Memorandum No. 84-35 | Octo-

ber 14, 1983)

iv

o fF NW WO =

—

26

30)

iv

_TABLE OF AUTHORITIES

CASES Page

Abbott Laboratories v. Gardner, 387 U.S. 1386

I Se SO acs esse as fgg nm le 27

Arkla Exploration Co. v. Texas Oil & Gas Corp.,

734 F.2d 347 (8th Cir. 1964) .............. passim

Arkla Exploration Co. v. Watt, 562 F.Supp. 1214

Py <i sp RS wn ee a SA passim

Arkla Exploration Co. v. Watt, 548 F.Supp. 466

Far eS sp Drews bs kaw Os ee 1, 14, 16, 27

Atlantic Richfield v. Hickel, 303 F.Supp. 724

(D.Wyo. 1969) aff'd, 482 F.2d 587 (10th Cir.

eee eee re Or rw ts hak eK 25

California v. Udall, 296 F.2d 384 (D.C.Cir. 1961)... 25

Crown Cork & Seal Co. v. Parker, 462 U.S. 345,

ee SPEED fa RAs ewe chest os eo 28

Harrison v. Northern Trust Co., 317 U.S. 476

SE Ls SFr eA be ce eS 26

Keller v. Adams-Campbell Co., 264 U.S. 314

I a ne carne he Ca ac EK VER Os 21

Layne & Bowler Corp. v. Western Well Works,

a oe eee eK ek Ake ERS 16, 17, 18

Mountain States Legal Foundation v. Watt, 499

F Supp. $383 (D.Wyo. 1980) ............... 25

Teamsters v. Daniel, 439 U.S. 551 (1979)... 2.2... 26

Texas Oil & Gas Corp. v. Watt, 683 F.2d 427

I 3s. 5S nok so EUR ae ee passim

Texas Oil & Gas Corp. v. Andrus, 498 F.Supp. 668

Nes kt ee ae ata Waa passim

Tidewater Oil Co. v. United States, 409 U.S. 151

RT ae ee ie oe ee ee 26

Table Of Authorities (Continued)

CASES (Continued) Page

Western Electric Co. v. Burlington Truck Lines,

501 F.20 O68 (Oth Cir. 1974)... . 5 ook rsa. 28

DEPARTMENT OF INTERIOR DECISIONS AND ORDERS

BLM Instruction Memorandum No. 84-35 (Oct. 14,

EE Gk a os Rl CER A ee ee 14

John P. Dever, 67 1.D. 367 (1960)... oo ee es 24

John F. Richardson and Charles F. Consaul, 56 1.D.

Ben CGN ss nic Kok eee ee eee es 24

Mark J. Davis, Jr., 59 1.D. 65 (1945) .. 2... ...0... 24

Practice Applicable to the Issuance of Oil and Gas

Prospecting and Extensions of Teme for Com-

pliance with Drilling Procedures, 50 1.D. 546

NG i 5 55 Oe ei ee eee 24

Robert B. Ferguson, 9 IBLA 275 (1973) 2.2... 2... 26

U.S. Department of Interior, Geological Survey,

Circular 419, The Definition of Known Geo-

logical Structures of Producing Oil and Gas

PUT E 6 Sb as va eeko cewateee cl 23-24

Wilmer Jeanette, 47 1.D. 582 (1920)............. 24

STATUTES

UL ao ns ok we a er ee ee 2, 27, 28

DP A oak hk baebet easter eee 2, 27

SOU SE BOs ios oes ekki eee eee 22

SPR OME. Seeks 32S seeks eee eee 26

— LER. Tat | tS | Sehr tess ako A 26

eRe 3 5 oe cn wk end eee eee 26

SOUR EEE ox kkk i ess atten eee 2

ae te ES 6s s Sah 0 eee oe 3, 12

vi

Table Of Authorities (Continued)

CASES (Continued) Page

SUI BD vn vhs ce vcsed nude da cteeas 3, 12, 29

RID avis ccceccanisshanctw ean 2, 5, 25

SRE on vnc oscuncesntdsenewban 2, 27, 28

Federal Coal Leasing Act Amendments of 1975,

Pub. L. No. 94-377, $12, 90 Stat. 1090 (1976),

codified at 30 U.S.C. §3852 (1976)... 2... 4, 13, 16, 17

SOU SAL. Si ee ONE Bris vk wi 9 6 ER 25

REGULATIONS

43 C.F.LR. §8100.05(1) 2.00 ee ee

CONGRESSIONAL MATERIALS

Hearings Before the Subcommittee on Energy and

Mineral Resources of the Senate Committee

on Natural Resources, 97th Cong., Ist Sess.

(REED ons ccc vacnaeasabesueeauaaes 12, 13

Hearings Before the House Committee on Public

Lands, 65th Cong., 2d Sess. (1918) (H.R. 3232,

BOT ww cccncucecunnaccsbenereca 22

Hearings Before the House Committee on Pub-

lic Lands, 68rd Cong., 2d Sess. (1914)

te

|. 8. a | | rere nenennenreerererne 4.1". 5: 22, 25

H. Rep. No. 563, 65th Cong., 2d Sess. (May 14,

PED nce ccc sinvess eens haan debe 25

127 Cong. Rec. H 8026 (Nov. 4, 1981) 2.20.22... 14

58 Cong. Rec. 4118 et seg. (Aug. 21, 1919) 2... 2... 25

56 Cong. Rec. 642 et seg. (Jan. 7, 1918) 2.2... 2... 22

56 Cong. Rec. 7052 et seg. (May 24, 1918) ........ 22

MISCELLANEOUS

a Sy er rr ee ae 15

Vil

Table Of Authorities (Continued)

CASEs (Continued) Page

Sup. ae ING ¢ o's a 6 aura tes ee ak ii

Ekberg, Federal Oil and Gas Leasing: Developments

in Selected Problems and Issues, 29 Rocky

i ae 19, 26

Jaffe, Judicial Control of Administrative Action

SRE asa ke kX Cua ee CE Eee 27

No. 84-490

IN THE

Supreme Court of the Anited States

OcTOBER TERM, 1984

Texas Om & Gas Corp.,

Petitioner,

V.

ARKLA EXPLORATION COMPANY,

STATE OF ARKANSAS,

W:!LuiAM P. CLARK, SECRETARY OF THE INTERIOR,

Respondents.

On Petition For A Writ Of Certiorari To

The United States Court Of Appeals For

The Eighth Circuit

BRIEF FOR ARKLA EXPLORATION COMPANY AND

THE STATE OF ARKANSAS

IN OPPOSITION

OPINIONS BELOW

The opinion of the United States Court of Appeals for

the Eighth Circuit which is sought to be reviewed here

(Pet. App. Ex. 6) is reported at 734 F.2d 347. The Eighth

Circuit’s denial of petitions for rehearing and suggestion

for rehearing en banc, dated July 3, 1984, is unreported.

The opinion affirmed the opinions of the United States

District Court for the Western District of Arkansas (Pet.

App. Ex. 4,5), which were reported at 548 F.Supp. 466

and 562 F.Supp. 1214.

GROUNDS FOR JURISDICTION

Respondents are satisfied with the presentation of the ©

grounds on which jurisdiction of this Court is invoked, as

set forth in the Petition.

STATUTES INVOLVED

The pertinent provisions of 30 U.S.C. §$189, 226, and

226-2, and 43 C.F.R. 3100.05( 1) are set forth at Pet. 7-8.

In addition, the Administrative Procedure Act, as

codified, provides in pertinent part at 5 U.S.C. §702,

that:

Right of Review.

A person sutfering legal wrong because of agency

action, or adversely affected or aggrieved by agency

action within the meaning of a relevant statute, is

entitled to judicial review thereot.

The Administrative Procedure Act, as codified, also

provides in pertinent part at 5 U.S.C. $706, that:

Scope of Review.

To the extent necessary to decision and when

presented, the reviewing court shall decide all rele-

vant questions of law, interpret constitutional and

statutory provisions, and determine the meaning or

applicability of the terms of an agency action. The

reviewing court shall —

* * *

(2) hold unlawful and set aside agency action,

findings, and conclusions found to be —

(A) arbitrary, capricious, an abuse of discre-

tion, or otherwise not in accordance with law;

, * a *

(C) in excess of statutory jurisdiction, author-

ity, or limitations, or short of statutory right;

(D) without vbservance of procedure required

by law;

* * *

In making the foregoing determinations, the court

shall review the whole record or those parts of it

cited by a party, and due account shall be taken of

the role of prejudicial error.

In addition, the Mineral Leasing Act, as amended,

provides in pertinent part at 30 U.S.C.A. §355, that!

Disposition of Receipts.

. all receipts derived from leases on lands

acquired for military or naval purposes ... shall be

paid into the Treasury of the United States and

disposed of in the same manner as provided under

Section 35 of the Act of February 25, 1920, in the

case of receipts from saies, bonuses, royalties, and

rentals of the public lk: nds under that Act.

Section 35 of the Act of February 25, 1920 (the Mineral

Leasing Act), referred to, is currently found at 30

U.S.C.A. §190, and provides in pertinent part that:

Disposition of Moneys Received.

All money received from sales, bonuses, royalties

... and rentals of the public lands ... shall be paid

into the Treasury of the United States; 50 percentum

thereof shall be paid by the Secretary of the Treasury

to the State ... within the boundaries of which the

leased lands or deposits are or were located; said

moneys paid to any of such States ... to be used by

such State and its subdivisions, as the legislature of

the State may direct giving priority to those subdi-

visions of the State socially or economically impacted

1 The quoted portion of 30 U.S.C.A. §355 was added by Pub.L.

97-94, 95 Stat. 1205 (Dec. 17, 1981), which provided that it take

effect “with respect to leases entered into after January 1, 1981.”

by development of minerals leased under this chap-

ter, for (1) planning, (ii) construction and mainte-

nance of public facilities, and (iii) provision of public

service. ...

STATEMENT OF THE CASE

Prior to 1976, the Secretary of the Interior was

generally precluded by statute from issuing oil or gas

leases on federal lands, such as those at Fort Chaffee

Military Reservation, which had been acquired for mili-

tary purposes. In 1976 the Congress, in the course of

amending federal coal mining statutes, removed the

prohibition on leasing acquired military iands,* although

neither the Secretary of the Interior (“the Secretary”)

nor Arkla Exploration Company (“Arkla”) was aware

that the congressional action was self-executing, i.e.,

that lands at Fort Chaffee could be leased prior to

publication of new regulations in the Federal Register.’

In 1977, Texas Oil & Gas Corp. (“TXO”) filed applica-

tions for non-competitive, one dollar per acre oil and gas

leases on Fort Chaffee lands. Processing of the TXO

lease applications was delayed and it was not until June

1979 that the Bureau of Land Management office, doing

the paperwork in the suburbs of Washington, D.C., had

reached the point where it was necessary to seek the

2 Federal Coal Leasing Amendments Act of 1975, Pub. L. No.

94-377, $12, 90 Stat. 1090 (1976) codified at 30 U.S.C. §352 (1976).

3 The Secretary's position is discussed in some detail in Texas

Oil & Gas Corp. v. Watt, 683 F.2d 427 (D.C. Cir. 1982), reversing,

Texas Oil & Gas Corp. v. Andrus, 498 F.Supp. 668 (D.D.C. 1980).

The Secretary's lack of awareness was commented on by the

District Court in this case. Arkla Exploration Co. v. Watt, 562

F.Supp. 1214, 1216 (W.D.Ark. 1983).

ORI te IO ok, HAM ee

es endo Pea dheta biases AOR 4 Nd See

opinion of the U.S. Geological Survey (now the Minerals

Management Service) as to whether or not the lands

applied for were within a “known geological structure of

a producing oil or gas field”, 30 U.S.C. §226, (hereinafter

frequently referred to as “KGS”). If the Geological

Survey (USGS) found that the lands were not within a

KGS, they could be leased non-competitively for one

dollar per acre. If the USGS concluded that the lands

were within a KGS, they could only be leased competi-

tively, after public announcement had been made of the

opportunity to bid. The decision of the USGS was to be

made by its Area Geologist in Tulsa, Oklahoma, Mr.

Edward L. Johnson.

Because of the long delay while TXO’s applications

had been processed, TXO requested and was given

permission to hand carry the relevant documents from

the Bureau of Land Management in Silver Spring, Mary-

land, to Mr. Johnson in Tulsa. Two TXO executives

arrived in Mr. Johnson’s office with the documents on

the morning of June 29, 1979.

Although Mr. Johnson, as Area Geologist, was respon-

sible for, inter alia, federal lands in the State of Arkan-

sas, he was not aware that Congress had changed the

statute and was not aware that Fort Chaffee lands were

available for leasing. He told the TXO officials that he

could not approve their applications for that reason.

They pointed out that he was in error. (Johnson dep.

42).4

4 Mr. Johnson’s testimony was received below by deposition

taken on September 15, 1982, and is cited here as “Johnson dep.”

Other record citations are to the record in the district court.

Within the next three and a half hours Mr. Johnson

determined that some 33,510 acres applied for did not lie

within any KGS and he approved, or “clearlisted”, the

dollar per acre leasing by applying a rubber stamp to the

applications.

The “clearlisting” process by which Mr. Johnson deter-

mined whether lands applied for were within or without

a KGS was very. simple. He held the applications up to a

map on the wall of his office. If the lands applied for fell

within areas marked as KGS, he would disapprove the

application, in whole or in part. If the lands applied for

fell outside such areas, he would rubber-stamp his

approval and the lands would be eligible for one dollar

per acre leasing.

Mr. Johnson’s map no longer exists and, as he testi-

fied, it was not possible to recreate it for use in this

litigation because it could have contained some mistakes.

(Johnson dep. 77). But he was able to describe in some

detail the system employed in its construction, at least

as he understood it.

The map consisted of a standard base map containing

no geological features. On the map, a draftsman in his

office was supposed to indicate, or “spot,” new oil or gas

wells. The draftsman, in turn, received her data (well

number, production and total depth, Johnson dep. 80)

from a commercial reporting service, the Petroleum

Information Co. (Johnson dep. 44-48).

At some time after a new well had been spotted, Mr.

Johnson would determine whether it indicated the pres-

ence of or the need to extend the existing boundaries of a

KGS. The procedure he would employ was based on his

own personal rule, referred to at the trial as the “one

mile rule” because he never went more than one mile

igs BAB Hat Bo Bd RM HASES. Se tb AS PARI ve Sm

a eee eee mE Le eee

from a sezcion in which a well was located regardless of

inv @vlogical facts which might suggest otherwise.°

The map contained none of the geological data which the

government officials testified was desirable or even

necessary, and it did not contain the current geological

data about structural analysis which TXO’s own oil and

gas law expert told the district court normally would be

expected.®

The lease applications, after having been rubber-

stamped in Tulsa, were then, three and a half hours

later, handed back to the TXO executives who carried

them back to Maryland. Some days later in July (at a

time and on a date as to which there is no record in the

Department’s files), the leases were signed and back-

dated to July 1, 1979. (Holdren dep. 15-19).

Not until after the TXO leases had been issued did the

public, including Arkla, become aware of the foregoing.

Thereafter, a series of events took place in rapid

succession —Arkla filed an administrative Protest with

the Department of the Interior on September 17, 1979,

and filed suit against the Secretary on September 21,

1979. TXO, fearing that the Secretary might act on

Arkla’s protest, if not simply on the basis of the growing

> The one mile measure, or “step out”, was adopted by Mr.

Johnson from a State of Arkansas well-spacing regulation.

‘ Statement to the district court by Craig R. Carver, Esquire,

Transcript, Aug. 16, 1982, pp. 84-85. It is at least equally

significant that Mr. Johnson’s map contained no indication that

the Arkansas Oil & Gas Commission had designated most of the

lands in issue in this litigation, including, in particular, the

Biswell Hill Anticline, as Known Geological Structures in 1968 in

correspondence with the U.S. Geological Survey. Arkla Ex. 1-6,

Tr. 25-34.

public concern erupting from the apparent give-away of

valuable public resources, sued to restrain the Secretary

from acting to cancel the leases, and on November 1,

1979, the day TXO filed its action, the Secretary can-

celled the leases.‘ These events, in turn, formed the

backdrop for Texas Oil & Gas Corp. v. Watt, 683 F.2d 427

(D.C.Cir. 1982), reversing, Texas Oil & Gas Corp. v.

Andrus, 498 F.Supp. 668 (D.D.C. 1980).

The litigation in the District of Columbia Circuit —

both at the trial and appellate level—was characterized

by an awareness and general agreement among the

parties that the issues raised by TXO in its litigation

(i.e., the propriety of the Secretary’s cancellation of the

TXO leases under his procedural regulations) did not

involve the “KGS” issues raised by Arkla (i.e., the issue

of whether the land had lawfully been leased on a

non-competitive, as opposed to a competitive, basis).

Thus, for example, on July 24, 1980, in the course of a

hearing before District Judge Green, counsel for TXO

explained that TXO preferred to go ahead with its

litigation (challenging the Secretary’s cancellation on

7 On September 20, 1979, the Secretary requested the U.S.

Geological Survey to review Mr. Johnson's KGS determinations.

That review, known as the Girard Report, concluded that, while

its author was of the opinion that the decision was “correct in a

legal sense,” (a) more comprehensive use could have been made

of the available geological data, (b) the determination was not

within “the letter of the law” with respect to lands offsetting

producing gas wells, and (c) because of the “very unusual

circumstances regarding the lands in question,” notably the high

degree of exploration interest shown by competitors in the

industry, Johnson “would have been more prudent” to have had

the determination reviewed in light of the “controversial nature

of the lands in question.

Arkla’s motion to intervene in TXO’s case in the District of

Columbia was successfully opposed by TXO.

‘yaa ©

procedural grounds) and, if TXO could successfully estab-

lish its contentions that the Secretary’s cancellation

order was invalid, only then should the court turn to

Arkla’s KGS issues. As counsel for TXO argued to the

District Court (Tr. 6-7):

On behalf of the defendant, Texas Oil & Gas, we

do not feel that this case, at this point, is moot, the

Arkla case, because we have substantial confidence

that the Court will hold that the Secretary acted

improperly in cancelling the leases.

Now, should the Court hold that—with our posi-

tion, that the leases were improperly cancelled on

November list, then the Ark/a suit and the Arkla

claims would continue to be, in effect, a lien, a green

cloud on our title.

We agree at the present time this case, we feel,

should have a lower priority, in the pecking order;

wget from a pure logical standpoint, it would be

est to ignore the fact that the Arkla case was, in

fact, filed first, and for the Court and counsel to

direct their attention first of all to what we call the

TXO versus Andrus case, which is the suit we filed

November lst, trying to set aside the Secretary's

order cancelling the leases.

So it would be our position at this point, at least,

with the Court still having retained jurisdiction over

the Secretary’s action in cancelling the leases, that

while the Arkla case, perhaps, should be put on the

back burner, that it should not be dismissed.

Similarly, counsel for the Secretary agreed to litigate

TXO’s procedural claims to their ultimate end, and only

then turn to Arkla’s KGS claims, if the leases were ever

to be reinstated in the TXO litigation in the District of

Columbia. By written stipulation filed with the District

Court on October 10, 1980, in the Arkla case, with

specific reference to the future of the TXO litigation,

counsel for the Secretary, seeking to defer judicial

10

consideration of Arkla’s KGS claims until after final

decision on the procedural issues, agreed:

In the event that the Judgment of this Court of

September 25, 1980, in Civil Action No. 79-2976 [the

TXO litigation] is finally affirmed by the United

States Court of Appeals or by the Supreme Court of

the United States, as the case may be, this Civil

Action No. 79-2501 [the Arkia litigation] may be

dismissed without prejudice.

Thus both counsel for TXO and counsel for the Secre-

tary contemplated, and agreed, that the KGS issues

raised by Arkla were distinct from the procedural issues

raised by TXO and could appropriately be given judicial

consideration after TXO’s claims had been resolved.

Only then, after counsel for both the Secretary and

Petitioner TXO had agreed that Arkla’s KGS claims

could be addressed at a later date, did the district judge,

sua sponte, dismiss Arkla’s case without prejudice.

The courts in the District of Columbia litigation went

out of their way to preserve the distinction between

TXO’s procedural claims {which the courts addressed)

and Arkla’s KGS claims (which the courts did not

address). As the district court stated in its opinion:

“although the validity of the United States Geological

Survey’s determination that the lands on Ft. Chaffee for

which plaintiff was granted leases were not within a

known geological structure has coine under attack both

before the agency and before this Court, that issue ts not

presented in this litigation.” Texas Oil & Gas Corp. v.

Andrus, 498 F.Supp. 668, 670-71 n.1 (D.D.C. 1981)(cita-

tion omitted, emphasis supplied). Nor was the issue

argued before or decided by the D.C. Circuit.

Arkla’s interest in these developments was consider-

able. It had for over a decade been requesting that the

oth lh WAL ae OB Aa Mt pS RODD Be PS es -

he ihr cne iti Debacoal

11

government act to put lands at Fort Chaffee up for oil

and gas leases. Arkla’s interest stemmed from its posi-

tion as the principal developer and producer of natural

gas in northwest Arkansas, the principal operator of the

wells in the vicinity of Fort Chaffee and the single most

successful bidder in the competitive sales held for

drainage leases on the boundaries of Fort Chaffee

(drainage lease were the only exception to the former

prohibition against leasing lands acquired for military

purposes.)* Even as the TXO lease applications were

being processed, Arkla was being told by the Depart-.

ment of the Interior that Fort Chaffee lands were not yet

available for leasing. Tr. 163-164, 181, 185.

The entire affair, as suggested above, had attracted a

considerable degree of public attention, in the course of

which a number of members of Congress, including in

particular the Arkansas delegation, became aware that

the financial receipts from oil and gas leases on acquired

military lands—unlike similar leases on public domain

lands—were not, under then existing law, shared between

the federal Treasury and the State within which the

lands were located. This became a matter of more than

academic concern when the very first competitive sale of

gas leases under the new statuté€ on acquired military

lands was held in January 1981. That sale—which took

place, as it happens, at Fort Chaffee, on the 24,000 acre

parcel immediately adjacent to the lands at issue in the

instant case—produced bids in some cases of over four

thousand dollars per acre (Tr. 155); the total amount bid

was almost forty-three million dollars ($42,983,000), for

8’ A detailed history of Arkla’s continuing efforts to obtain

competitive leases at Fort Chaffee was admitted at trial in Arkla

Ex. 10, Tr. 140-141.

12

an average price of approximately $1,790.95 per acre.°®

Arkla Ex. 11, Tr. 142-151.

Shortly thereafter, the Arkansas delegations in the

Senate and House introduced bills to amend the statute

and provide for States to share the revenues. The bills

resulted in the statutory enactment, Pub. L. No. 97-94,

95 Stat. 1205 (1981) codified at 30 U.S.C.A. §§190,355,

set out at pp. 3-4 supra. The hearings before both the

Senate and the House committees focused on the specific

factual situation at Fort Chaffee. Thus, for example, the

primary Senate sponsor of the bill, Senator Bumpers,

observed in his testimony that:

Even though this bill will cover all military reser-

vations, the one that immediately comes to mind is

Fort Chaffee, Ark., which is only two miles from my

home.

Hearings Before the Subcommittee on Energy and Min-

eral Resources of the Senate Committee on Natural

Resources, 97th Cong., Ist Sess. at 4 (1981)(S.859)

(emphasis supplied).

Of course, at the time in 1981 that congressional

hearings were being held the TXO leases at issue here

did not exist—the Secretary had cancelled them in

November 1979; the D.C. district court had upheld that

cancellation in September, 1980; no appellate action had

taken place. Thus, the Deputy Assistant Secretary of the

Interior, on behalf of the executive branch of the gov-

ernment, had no hesitation in asking the Congress to

* That average price, applied to the 33,510 acres at issue in the

instant case, would produce initial revenues to be shared by the

federal Treasury and Arkansas of over sixty million dollars

($60,014,734.50), instead of the $33,510 which Petitioner TXO

would have this Court approve.

13

rely on his categorical assurance that the only leases

issued on Fort Chaffee lands were those issued competi-

tively (in the January 1981 competitive lease sale which,

as observed earlier, brought some forty-three million

dollars for twenty-four thousand acres adjacent to the

lands at issue in the present case.) In response to an

inquiry from Senator Warner, Deputy Assistant Secre-

tary Russell confirmed this:

Senator Warner. Is the oil and gas lease sale that

occurred this year at Fort Chaffee the first such

leasing on the part of the Department of the Interior

for acquired land used on military reservations?

Mr. Russell. The Fort Chaffee lease sale brought

in $43 million in bonus. The bill before you today

would make retroactive the sharing of revenue for that

lease sale. It was the first lease sale on acquired

military lands for oil and gas.

Id. at 15 (emphasis supplied).

Thus, the legislation, which became effective December

17, 1981, was made retroactive to cover leases entered

into at any time after January 1, 1981 because of the

Department’s assurances that the 1981 competitive sale

of Fort Chaffee lands was the first sale of any lands

acquired for military purposes.

Congress, responding to the position of the Depart-

ment of the Interior that the first lease sale of acquired

military lands under the 1976 enactment of the Federal

Coal Leasing Amendments Act was the January 1981

competitive offering at Fort Chaffee, made its intention

to cover all such lease sales clear beyond any doubt. As

Congressman Trible explained, Congress intended to

share the proceeds from all sales under the 1976

amendments:

14

The 1976 amendments to the Minera! Leasing Act

for acquired lands should have included a provision

for the sharing of proceeds with State and local

overnments. H.R. 4591 corrects this omission, and

urge its approval by the House.

127 Cong. Rec. H 8026 (Nov. 4, 1981).

Ultimately, Teras Oil & Gas Corp. v. Andrus, supra,

was reversed. Teras Oil & Gas Corp. v. Watt, 683 F.2d

427 (D.C.Cir. 1982). The mandate of the D.C. Circuit

came. down on July 30, 1982 and on August 4, 1982 Arkla

filed the instant action. Arkansas promptly moved to

intervene as a plaintiff and its motion was granted in

Arkla Exploration Co. v. Watt, 548 F.Supp. 466 (W.D.Ark.)

on September 20, 1982.!"

Following trial in the western district of Arkansas,

final judgment was rendered at 562 F.Supp. 1214 on

April 19, 1983. The decision was appealed; argument was

heard before the Eighth Circuit on September 15, 1983.

Following appellate argument, the Department of the

Interior finally addressed in a direct, unambiguous fashion

the practice, described earlier at pp. 6-7, of Mr. Johnson

when he stepped out at most a one-mile section from

producing wells to determine KGS boundaries in order

to clearlist the TXO application. In BLM Instruction

Memorandum No. 84-35 (October 14, 1983)( Appendix A),

the Department emphatically declared:

The simple procedure of taking the spacing unit of

the producing well and the adjacent spacing units as

In addition to the KGS issues, Arkansas’ complaint raised

claims as to the State’s ownership of some of the minerai

interests at Fort Chaffee which the Secretary had purported to

lease to TXO. Arkansas’ title claims have been deferred pending

final disposition of this present action.

| athid saeninds,

15

a KGS is not sufficient. Although this procedure

may be a good start, it does not meet the definition

of a KGS either under the intent of the Mineral

Leasing Act of 1920, nor does it accord with estab-

lished practice prior to the last decade.

On May 7, 1984, the Eighth Circuit affirmed the

judgment of the western district of Arkansas. 734 F.2d

347. The Secretary of the Interior has not sought review

of that decision in this Court.

ARGUMENT

1. No Conflict Exists Between the Decision of the D.C.

Circuit and the Decision of the Eighth Circuit.

It should not be suprising when petitioners seek to

persuade this Court to grant certiorari by invoking one

of the grounds stated in Rule 17, especially when the

alleged ground is a conflict in the circuits. Sup. Ct. R.

17.1(a). Not only is the existence of a conflict one of the

most frequent reasons for granting certiorari, it also

underscores the importance of maintaining uniformity in

the resolution of important issues of federal law.

What is suprising, however, is that Rule 17.1(a) has

been invoked by the Petitioner in this case. In order to

bring this case within the purview of Rule 17, the

Petitioner has manufactured a “conflict” between the

decisions of the D.C. Circuit and the Eighth Circuit that

is neither apparent nor real.

As noted in the Statement of the Case, the issue

before the D.C. Circuit in Teras Oil & Gas Corp. v. Watt

was whether the Secretary of Interior had the power to

cancel leases for lands acquired for military purposes

which Congress had subsequently opened for leasing by

statute. The D.C. Court held that the mandate of the

16

Federal Coal Leasing Amendments Act of 1975 was

self-executing, and therefore, the Secretary cou!d not

cancel the leases on the ground that the lands in question

were not open for leasing under the Department’s

unrevised regulations prohibiting leasing of acquired

military lands.

Neither the District Court nor the Eighth Circuit in

Arkla Exploration Co. v. Watt considered the issue of

whether the Federal Coal Leasing Amendments Act of

1975 repealed the regulatory prohibition on the leasing

of acquired military lands. Not only was the issue not

presented to those courts, but also both courts assumed

the validity of the D.C. Cireuit’s decision. See 548

F.Supp. at 469 (Pet. App. Ex. 4 at 8); 562 F.Supp. at 1216

(Pet. App. Ex. 5 at 5); 734 F.2d at 350 (Pet. App. Ex. 6 at

8). Rather, the question before those courts was whether,

assuming that the Fort Chaffee lands were open for

leasing, the geological character of the lands was arbi-

trarily and capriciously classified as non-KGS by the

Department of Interior under the Mineral Leasing Act of

1920 and departmental regulations and prior practice.

Thus the two cases involved completely different and

unrelated issues under completely different and unre-

lated regulatory and statutory provisions. The only

similarity between the two cases is that they involved

the leases for Fort Chaffee lands.

Rather than constituting a case of “conflict” under

Rule 17(a), the Court here is faced with a situation

similar to that in Layne & Bowler Corp. v. Western Well

Works, 261 U.S. 387 (1923). In Layne & Bowler, both the

fifth and ninth circuits had rendered decisions in dif-

ferent cases alleging infringements of the same patent.

As to the 20th claim under the patent, the fifth circuit

17

held that the device at issue did infringe and the ninth

circuit found that the specific device before it did not

infringe. Certiorari was initially granted on the basis of a

conflict in the circuits. Upon closer inspection of the

decisions, however, the Court found that, although the

two circuits did reach different ultimate conclusions as to

infringement on the 20th claim, their conclusions were

based upon different devices, and, more importantly,

different issues of law and fact. Chief Justice Taft,

writing for a unanimous Court in dismissing the petition

as improvidently granted, stated:

It is manifest from this review of the conclusions in

the two circuits ... that they were really in har-

mony, and not in conflict, and that there was no

ground for allowing the writ of certiorari to add to

an already burdened docket. If it be suggested that

as much effort and time as we have given to the

consideration of the alleged conflict would have

enabled us to dispose of the case before us on the

merits, the answer is that it is very important that

we be consistent in not granting the writ of certio-

rari except in cases involving principles the settle-

ment of which is of importance to the public as

distinguished from that of the parties, and in cases

where there is a real and embarrassing conflict of

opinion and authority between the circuit courts of

appeals. The present case certainly comes under

neither head.

261 U.S. at 392-292 (emphasis supplied)

Like the situation in Layne & Powler, this case involves

different legal issues as applied to different factual

circumstances. Texas Oil & Gas Corp. v. Watt involved

whether the Secretary, given the Federal Coal Leasing

Amendments Act, could cancel leases applied for and

issued prior to revision of the regulatory prohibition on

18

leasing acquired military lands. Arkla Exploration Co. v.

Watt involved whether it was arbitrary and capricious

under the Mineral Leasing Act and departmental policy

to determine the geological character of land available

for leasing by inaking mileage measurements from pro-

ducing wells. In fact the lack of a conflict in this case is

even more apparent than in Layne & Bowler. Here, even

the ultimate conciusions of the two court of appeals’

decisions do not conflict.

Petitioner argues that the Secretary of Interior, by

virtue of the decisions of the two courts of appeals, is

faced with inconsistent mandates. How this supposed

quandry faced by the Secretary of Interior affects

Petitioner, a private oil and gas corporation, is difficult

to fathom. Yet, assuming petitioner can legitimately

raise this issue, it is pertinent that the Secretary is not

seeking certiorari and, thus, presumably does not feel

threatened with “conflicting” responsibilities. The Sec-

retary’s silence with regard to the two decisions is most

probably due to the fact that “conflicting” mandates do

not exist. Because the issue was not before it, the D.C.

Circuit proceeded to resolve the cancellation issue on the

assumption that the Fort Chaffee lands were not within a

known geological structure and thus available for non-

competitive bid. The district court in the District of

Columbia explicitly noted that it was not deciding that

issue. 498 F.Supp. 668, 671 n.1. The Eighth Circuit held

that the process used by the Department of Interior in

classifying the lands as non-KGS was arbitrary and

ordered the Secretary to evaluate the geological char-

acter of the lands. If after that review the lands or a

portion thereof are legitimately classified as non-KGS,

Petitioner, per the D.C. Circuit’s decision, may be enti-

tled to the non-competitive leases because it was the

19

first to file. This would be the case even if the leases had

been reissued betore the Eighth Circuit decision. The

Secretary still retains the power to cancel leases that

have not been issued in accordance with law. This latter

power includes the power to cancel leases because of an

incorrect KGS determination. “If an offer which should

be rejected in whole or in part is not rejected, and a lease

is issued covering lands determined to be within a known

geological structure after the determination, the lease is

subject to cancellation as to those lands.” Ekberg, Fed-

eral Oil and Gas Leasing: Developments in Selected

Problems and Issues, 29 Rocky Mtn. L. Inst. 589, 634

(1983). Thus, not only did the issues differ in the two

circuits, but also the conclusions are in harmony.

The Petitioner attempts to buttress its claim of “con-

flict” by asserting that the Eighth Circuit sat in review

of the D.C. Circuit decision. This argument rests on an

assumption not based in fact. What Petitioner assumes is

that the D.C. Circuit, by holding that the Federal Coal

Leasing Amendments Act made acquired military lands

available for leasing, also sub silentio decided that the

lands in issue were not within a known geological

structure. Nowhere in the D.C. Court’s decision is the

latter issue considered or resolved. In effect, by

illegitmately stretching the effect of the D.C. Court's

decision, the Petitioner in actuality has accused that

court of an abuse of the review power, rather than

establishing, as it attempts, that the Eighth Circuit

overreached its authority. It is an elementary proposi-

tion of appellate review that a court does not reach out to

answer issues not presented to it for review or issues, as

in this case, which were in no way involved or raised in

the lawsuit under review by the D.C. Circuit.

20

A close inspection of Petitioner’s argument in this

regard indicates that it is based upon the dictionary

interpretation of one word, “supersede”, in the Eighth

Circuit decision. Besides Petitioner’s overbroad reading

of the D.C. Circuit’s decision, it is useful to note that in

the ordinary course of leasing federal mineral lands, a

KGS determination is inade prior to lease issuance. If the

KGS determination in this case had been properly made

or the D.C. district court had reached the merits of

Arkla’s lawsuit first, Petitioner’s argument would evap-

orate. Petitioner should not now be permitted to seize on

the fortuity of the timing of two separate litigations

involving different issues—of which it was continuously

aware—to construct a semantical abuse of review

argument.

Even assuming that under a strained analysis and

dictionary approach to reading the two court of appeals’

decisions some sort of ephemeral contlict can be con-

jured, the “conflict” is so tied to the unique factual

circumstances that surrounded the two lawsuits that it is

unlikely —in fact, improbable —that the “conflict” will at

all affect the course of federal court decisionmaking

either on the review of KGS determinations or on

Secretarial power under recently enacted statutes. In

fact the only way this “conflict” could affect subsequent

decisions is if by some trick of history an identical

pattern of factual and procedural events recurred.

2. The Eighth Circuit Closely Followed the Well-settled

Interpretation of the Statute and the Department's

Own Prior Interpretation of the Statute.

The Petitioner asserts that the Eighth Circuit’s deci-

sion invalidates “a regulation describing administrative

procedures in use for over 50 years. ...” Pet. at 14.

iit sea ees an Net arnt be a feeb ladinence

eine ne NAN CN NL

21

Through a misreading of the Eighth Circuit decision, the

petitioner seeks to persuade this Court to review an

issue that in no way formed the basis of the Eighth

Circuit’s decision. In other words, petitioner seeks to

obtain review on the basis of what it views as ill-advised

dicta. See, e.g. Keller v. Adams-Campbell Co., 264 U.S.

314 (1923)(certiorari dismissed as improvidently granted

because issue presented based on dicta).

Although both the district court and the Eighth Cir-

cuit stated that the Department’s regulatory definition

of KGS as a “trap” appeared to be inconsistent with

Congressional intent,'! their statements to that effect

did not constitute the reason underlying their invalida-

tion of the KGS determination made for the Fort Chaffee

lands. Rather than striking down the Department’s

regulations, the courts proceeded on the much narrower

basis that the particular KGS determinations made tor

the specific Fort Chaffee lands under the regulations

were arbitrary and capricious.

On this latter, narrower issue, the courts were

undoubtedly correct. As described in the Statement of

the Case, the KGS determination was made by a USGS

employee, Mr. Edward L. Johnson, who merely went to

a map on his office wall, pin-pointed an existing well and

sometimes designated the one-mile sections surrounding

the well as KGS. He wouid then compare the lease with

the lines on the map, and rubberstamp his determina-

tion. This perfunctory process of determining the

geological character of federal lands was not based on

technical expertise or geological data. Rather, it was

1! 734 F.2d at 359 (Pet. App. Ex. 6 at 26), 562 F.Supp. at 1225

(Pet. App. Ex. 5 at 26).

22

based upon the fact that Mr. Johnson once “had been

criticized” by a superior for going beyond one mile.

(Johnson dep. 197).

The capriciousness of the process employed by Mr.

Johnson in determining the KGS status of the Fort

Chaffee lands was exacerbated by the fact that the

mileage system employed was directly contrary to the

legislative intent behind adoption of the KGS language.

Even a cursory review of the legislative history leading

up to the enactment of the Mineral Leasing Act reveals

that Congress emphatically rejected a mileage-based

system for determining KGS in favor of one based on the

geology of the land.!°

The Petitioner further argues that the Eighth Circuit’s

affirmance of the District Court’s judgment imposes on

the Department of Interior a burdensome procedure for

‘2 In the years leading up to the enactment of the Mineral

Leasing Act of 1920, 30 U.S.C. $181 et seyg., Congress extensively

considered two different methods for distinguishing between

valuable and high risk lands. One was to determine the boundary

by miles, variously proposed at 50, 20 and 10 miles. See, H.R.

14094 reprinted in Hearings Before the House Committee on

Public Lands, 63rd Cong. 2d Sess. at pp. 3-4 (1914) (50 miles);

H.R. 3232 reprinted in Hearings before the House Committee on

Public Lands, 65th Cong., 2d Sess. at p. & (1918)(10 miles); 56

Cong. Rec. 657 (Jan. 7, 1918) (20 miles; Statement of Senator

Kendrick). The second alternative was to authorize the Secre-

tary to make such determinations on the basis of geological

structures. The latter alternative was adopted specifically because

the “mileage” system was viewed not only as arbitrary but also

because it was viewed as contrary to Congress’ desire to foster

incentive exploration in high risk areas. See Hearings before the

House Committee on Public Lands on H.R. 3232 and 8.2912, 65th

Cong., 2d Sess. at 131-132, 238-240, 350-351 (1918); 56 Cong. Rec.

642, 657 (Jan. 7, 1918); 56 Cong. Rec. 7052 (May 24, 1918).

23

determining the KGS status of the Fort Chaffee lands.

Yet again, Petitioner, on behalf of the Department, is

objecting to a judgment that has not compelled the

Secretary to seek review from this Court. In fact, the

Secretary has recently issued a guideline implementing

the suggestions of the District Court, and condemning

the process for determining KGS used in this case as

contrary to Congressional intent. (Appendix A).

Petitioner’s argument, in this regard, is also based on

a misreading of the lower courts’ judgments. The district

court, in sum. has merely required the Department of

the Interior t:: consider all the available geological data

before categorizing lands as KGS or non-KGS—a man-

date which, as indicated above, is in compliance with

Congressional intent.

Petitioner attempts io obfuscate what the lower

courts required by pointing its finger at a list of geo-

logical data that the District Court ordered the Secretary

to consider in determining the KGS status of only the

Fort Chaffee lands. However, in so doing, Petitioner fails

to inform the Court of the factual background for the

list. That list does not constitute set-in-stone criteria that

the Department must follow in every KGS determina-

tion. Rather, it represents specific data pertaining to the

geology of the specific Fort Chaffee lands; data which

the evidence established was clearly available to the

employee who made the KGS determination, but who

shunned it in favor of a simple mileage-based process.

Contrary to the claims of Petitioner, the Department has

continuously required that such data be considered when

available as to a particular parcel of land. See U.S. Depart-

ment of the Interior, Geological Survey,Circular 419, The

24

Definition of Known Geologic Structures of Producing Oil

and Gas Fields (1958)(Ad Rec. #1). See also e.g. John P.

Dever, 67 I.D. 367 (1960)(relying on Circular 419 to

support policy of USGS that “the procedure [of Circular

419] demonstrated why most [KGS] determinations must

be made without maps”). Thus, the courts did not cast

aside departinental policies, regulations or rules. Rather,

the lower courts merely told the Department to follow

its own historic practice.

Both Petitioner and amicus also condemn the lower

courts for requiring the Department to consider the

exploration or competitive interest in lands before leas-

ing. Rather than being innovative, however, the courts

were again merely requiring the Secretary to follow in

the case of Fort Chaffee lands, a process followed by the

Department with regard to other public lands. See e.g.

Mark J. Davis, Jr. 59 1.D. 65 (1945); John F. Richardson

and Charles F. Consaul, 56 I.D. 354 (1938); Practice

Applicable to the Issuance of Oil and Gas Prospecting

Permits and Extensions of Time for Compliance with

Drilling Procedures, 50 1.D. 546 (1924); Wilmer Jeanette,

47 I.D. 582 (1920). In fact, the administrative record in

this case indicates that the KGS determination at issue

was criticized by the person appointed by the Secretary

to review it for the failure to consider the substantial

exploration interest in leasing Fort Chaffee lands. (Ad.

Rec. 13a).

Consideration of exploration interest is also clearly

confirmed by the legislative history. The very reason

that Congress chose a non-competitive bidding system

for lands outside a KGS was because it would stimulate

exploration of high risk territory. For lands within a

25

KGS, Congress felt that no such stimulation was neces-

sary and accordingly instituted a competitive system in

order to realize the highest return for the public. See e.g.

Hearings Before the House Committee on Public Lands,

63rd Cong., 2d Sess. at p. 61 (1914); 58 Cong. Rec. 4113

(Aug. 21, 1919).'° This intent was confirmed as recently

as 1979 in the Department of Energy Organization Act."

Petitioner and amicus, however, would condemn the

lower courts for looking at “65 year old” legislative

history as an exercise in “judicial legislation.” Pet. at 17;

Brief Amicus Curiae at 7-8. Under their approach, the

courts should always confine the interpretation of Con-

gressional statutes exclusively to the “plain meaning” of

the words, no matter how ambiguous those words may

be. Thus, Petitioner and amicus suggest that the courts

13 Contrary to the suggestions of Petitioner and amicus, the fact

that an “incentive” or exploration interest underlies the mandate

of §17 of the Mineral Leasing Act, 30 U.S.C. §226, has been well

recognized by the Courts. See Atlantic Richfield v. Hickel, 303

F.Supp. 724 (D.Wyo. 1969) affd., 432 F.2d 587 (10th Cir. 1970);

California v. Udall, 296 F.2d 384 (D.C.Cir. 1961); Mountain States

Legai Foundation v. Watt, 499 F.Supp. 383 (D.Wyo. 1980).

l4 42 U.S.C. §7101 et seg. Sec. 7112 specifically provides that:

.. It is the purpose of this chapter —

> .

(12) to foster and assure competition among parties engaged

in the supply of energy and fuels. .

The above is in line with the fact that from the very beginning of

federal leasing under the Mineral Leasing Act, Congress has

taken the position that one of the purposes of the Act was “to

insure competition”. H.Rep. No. 563, 65th Cong.., oa at p. 13

(May 14, 1918).

26

abandon a historic method of statutory interpretation’

for one whereby courts are confined to determining the

meaning of ambiguous terms without resort to any of the

available aids. In other words, the courts will, unaided,

give substance to Congress’ words. The approach that

more nearly constitutes “judicial legislation” is obvious.

3. The Decision in No Way Clouds Titles

Raising the dreaded hobgoblin of flocdgate litigation,

Petitioner contends that the effect of the Eighth Circuit

decision will result in continuous contests over the

leasing of public lands and jeopardize the title to lands

already leased. Again, Petitioner has not only overstated

its argument, but it has overstated both the history and

the impact of this litigation.

Underlying the overdramatic verbiage of Petitioner's

argument are two basic concerns: (1) that security of

title is threatened by subsequent cancellation by the

Secretary or the courts, and (2) that the Eighth Circuit's

decision dispenses with the 90 day statute of limitations.

The first concern is easily addressed. The Secretary

has always had the right to cancel leases for a variety of

reasons, '* including incorrect KGS determinations.'* The

manner by which the Secretary exercises that power is

15 See, e.g. Teamsters v. Daniel, 489 U.S. 551, 565-66 (1979);

Tidewater Oil Co. v. United States, 409 U.S. 151, 157 (1972);

Harrison v. Northern Trust Co., 317 U.S. 476 (1942).

6 See, e.g. U.S. $$ 183, 184(h) (i), 188.

\v E.g. Robert B. Ferguson, 9 IBLA 275 (1973)icancellation of

non-competitive lease issued 5 years earlier because of incorrect

KGS determination). See also Ekberg, Federal Oil and Gas

Leasing: Developments in Selected Problems and Issues, 29

Rocky Mtn. L. Inst. 589, 684 (1983).

27

certainly subject to judicial review.'* To the extent that

this long-standing power has caused panic in the industry

over title to leases, its concerns are better addressed to

Congress.

The Petitioner's statute of limitations concern is equally

overinflated. The Eighth Circuit did not portend to

dispense with the 90 day statute of limitations in 30

U.S.C. §$226-2. That statute was applied even in this

unusual case of lengthy, complicated litigation where all

relevant parties were aware of the contested issues in

each lawsuit from the very beginning.

‘8 As the district court noted it has been held repeatedly that

courts can review decisions of the Department of Interior under

the Administrative Procedure Act, 5 U.S.C. $§$702, 706. 548

F.Supp. at 472 (Pet. App. Ex. 4 at 15). This is clearly in line with

this Court’s statements to the effect that there is a presumption

in favor of review. E.g. Abbott Laboratories v. Gardner, 387 U.S.

136 (1967).

Petitioner contends that there exists no cause of action or

review power because (1) no private rights of action exist under

the Mineral Leasing Act and (2) KGS determinations are com-

mitted to agency discretion.

With regard to the former claim, 30 U.S.C. §$226-2 clearly

contemplates judicial review. The cases relied upon by Petitioner

(Pet. at 21-22), as the Eighth Circuit correctly noted, involved

private rights of action for damages against private defendants

and not judicial review of an agency decision. 734 F.2d at 354

(Pet. App. Ex. 6 at 17).

In support of its latter claim, petitioner cites two cases decided

prior to the APA. See 734 F.2d at 355n11 (Pet. App. Ex. 6 at

18n11). It also refers to one ambiguous comment by a con-

gressman in the legislative history. Pet. at 16. “The right to

review is too important to be excluded on such slender and

indeterminate evidence of legislative intent.” Abbott Laborato-

nies, 387 U.S. at 141 quoting Jaffe, Judicial Control of Adminis-

trative Action at 357 (1965).

28

Petitioner attempts to suggest otherwise by ignoring

the procedural and factual history of this lengthy litiga-

tion. When Arkla first filed suit on September 21, 1979,

there was conceded compliance with the statute of

limitations (the leases were executed as of July 1, 1979).

Yet, after that suit was filed, the Secretary cancelled

Petitioner’s leases. After that action was taken, as the

Eighth Circuit correctly noted, “there did not exist a

situation adverse to Arkla.” 734 F.2d at 356 (Pet. App.

Ex. 6 at 20). Under both §226-2 and the APA, 5 U.S.C.

$702, an adverse tinal decision is necessary in order to

trigger the ability to sue and the statute of limitations.

See, e.g. Western Electric Co. v. Burlington Truck Lines,

501 F.2d 928, 935-936 (8th Cir. 1974). This latter situation

existed for Arkla until the D.C. Court of Appeals on July

30, 1982 reversed the Secretary's cancellation order and

transmitted notice to the District Court of its action.

Arkla again filed suit 4 days later.

Even under generally accepted equitable principles,

the Eighth Circuit’s decision was far from novel and

clearly correct. “Limitations periods are intended to put

defendants on notice of adverse claims and to prevent

plaintiffs from sleeping on their rights.” Crown Cork &

Seal Co. v. Parker, 462 U.S. 345, 76 L.Ed. 2d 628, 635

(1983). At every turn, Arkla diligently pursued its

claims. Petitiener, during the entire period of this litiga-

tion, was on notice of Arkla’s claims that the leases were

unlawful. In fact, counsel for Petitioner admitted before

the D.C. district court that even if it ultimately suc-

ceeded in Texas Oil & Gas Corp. v. Watt, further

hearings would be appropriate on Arkla’s KGS claims.

See supra pp. 8-9.

The suit by the State of Arkansas also clearly was

within the lette: and spirit of 30 U.S.C. §226-2. Arkansas

29

was not granted any interest in the proceeds from

military lands until January 1, 1981. 30 U.S.C. §355. See

also discussion, supra pp. 11-14. The impetus for the Act

of Congress was specifically due to the leasing contro-

versy surrounding the Fort Chaffee lands. Yet, at the

time that statute was passed, Petitioner's leases had

been cancelled and that action had been upheld by the

D.C. District Court. In fact, Congress proceeded on the

assumption that Petitioner's leases were cancelled. Thus,

Arkansas“was not injured by the erroneous KGS

determination which deprived it of substantial revenues

until the date of the D.C. Court of Appeals decision. Like

Arkla, there existed no outstanding order adverse to the

interests of the State of Arkansas. Arkansas filed suit on

August 18, 1983 and, therefore, filed well within the 90

day period.

Petitioner's concern that the Eighth Circuit's decision

means that states will not be bound by the limitations

period is therefore in error. Not only was Arkansas’ suit

timely filed, but also, given the unique set of tacts and

surrounding circumstances presented by this litigation,

a situation like that faced by Arkansas will never recur.

30

CONCLUSION

The decision below did not give rise to any conflict

among the circuits; nor did it strike down an agency

regulation. The decision below merely applied long-

standing rules of law and administrative practice. In

addition to complying with the law, the decision was fair

and represented sound, congressionally recognized public

policy. The petition for writ of certiorari should be

denied.

STEVE CLARK

Attorney General

Mary STALLCUP*

Assistant Attorney

General

Justice Building

Little Rock, Arkansas

72201

(501) 371-2007

Attorneys for

State of Arkansas

*Counsel of Record

Respectfully submitted,

Jim Guy TUCKER

MITCHELL, WILLIAMS, SELIG,

JACKSON & TUCKER

1000 Savers Federal Building

Little Rock, Arkansas 72201

(501) 376-3151

ALAN S. Novins*

LEE ELLEN HELFRICH

LoBEL, NovINs & LAMONT

1523 L Street, N.W.

Suite 200

Washington, D.C. 20005

(202) 628-0066

RoBerT Roserts, III

BLANCHARD, WALKER,

O’QuIN & RoBerRTS

P.O. Drawer 1126

Shreveport, Lousiana 71163

(318) 221-6858

Attorneys for Arkla

Exploration Company

la

APPENDIX A

UNITED STATES DEPARTMENT OF THE INTERIOR

BUREAU OF LAND MANAGEMENT

WASHINGTON, D.C. 20240

October 14, 1983

Instruction Memorandum No 84-35

Expires 9/30/84

To: All State Directors

From: Director

Subject: Procedures for Delineating the Area to be

Included Within Known Geological Structures

of Oil and Gas Fields

A known geologic structure of a producing oil or gas

field is defined as “the trap, whether structural or

stratigraphic, in which an accumulation of oil or gas has

taken place. The limits of such structure according to

Geological Survey Circular 419 include all acreage that is

presumptively productive”. In the Geological Survey

Circular 419, it is stated: “On April 16, 1936, a decision

by the Secretary of the Interior (Columbus C. Mabry, 55

I.D. 530) held (syllabus):

The defining of the boundaries of the geologic

structures of producing oil and gas fields, under

authority of section 32 of the Leasing Act, is for

administrative purposes and is not a guaranty of

geologic character. Accordingly, such boundaries

are not to be taken as absolutely and accurately

showing the extent in each instance of the geological

structure producing oil or gas, but they may later be

extended or reduced to accord with the facts.

This premise recognizes that structural traps or

“known geologic structures’ can be more extensive

2a

than the pools of cil or gas they may contain. Known

geologic structure definitions are made after evalu-

ation of all controlling fractures, and such defini-

tions are made conformable to the dominant

structural feature involved.”

Due to the priority of other programs, it has not been

possible to dedicate.sufficient personnel to make KGSs

based on extensive geologic interpretation. The simple

procedure of taking the spacing unit of the producing

well and the adjacent spacing units as a KGS is not

sufficient. Although this procedure may be a good start,

it does not meet the definition of a KGS either under the

intent of the Mineral Leasing Act of 1920, nor does it

accord with established practice prior to the last decade.

The following procedure should now be followed in

determining the extent of a KGS:

1. Have current maps available or construct maps

showing location of wells and their status, distri-

bution of Federal lands, structure on one or more

key productive horizons, and oil or gas water

contacts where know.

2. For structurally controlled accumulations, the

boundary of the KGS is made concordant with a

contour somewhat below the oil-water or gas-

water interface, but not below the spill point of

the trap. If an oil or gas water contact is not

known, a closed structure such as an anticline or

fault trap may be assumed to be presumptively

productive to the spill point, and the KGS should

be determined by the lowest known closing con-

tour. Complex traps exhibiting both structural

and stratigraphic control should be treated in the

same way if it can be resonably inferred that the

stratigraphic conditions necessary for entrapment

occur throughout the structure under considera-

tion. It should be noted that this type of KGS

may be fully defined very early in the exploration

3a

process. Prudhoe Bay, the largest oil field in

America was fully defined and its resources were

calculated using geophysical maps and the first

three wildcat wells.

3. For stratigraphically controlled accumulations

occuring with no structural closure rely first on

the geological interpretation of the nature of the

trap. A pinchout of a major sandstone such as the

Woodbine of East Texas can be demonstrated to

be very extensive with very few drill holes.In

some areas, geological seticns occur in which

small porous sand bodies are found which contain

gas or oil on a very predictable basis such as in

the Green River Basin of Utah, Delaware Basin

of New Mexico, and certain areas in Wyoming.

These areas should be delineated on the basic net

pay, net sandstone or other applicable map. It

should be noted that these areas may be large,

sometimes covering many townships.

4. As a general rule, the minimum size for a new

KGS is the spacing unit and the surrounding

spacing units, unless there is good geologic reason

that one or more of those units have no potential

for oil production, such as occurring on an

upthrown block of granite.

5. All participating areas must be included in KGS.

6. All shows and reservoirs left behind pipe must be

considered in KGS determinations.

Further reference on KGS determinations which should

be available to all personnel working on them include:

The Definition of Known Geologic Structures of

Producing Oil and Gas Fields, U.S. Geological Survey

Circular 419 (1959), Emmett A. Finley

Branch of Mineral Classification Handbook of

Instructions, U.S. Geological Survey (1960) Chapter

V—Classifications—Oil and Gas Classification,

Known Geologic Structure, pp. 120-128.

Geological Survey —Conservation Division Manaul,

Chapter 3—Known Geologic Structure (KGS)

Determinations, Part 620.3.1 (1980)

4da

Hillary Orden will be contacting a number of you to set

up meeting with your appropriate minerals personnel

during the week of October 17. At the meeting Hillary

and others from this office will field any questions on

these procedures and discuss any necessary personnel

re-allocation to accomplish the task. He will also discuss

the necessary clearlisting process and procedures to

which you will be required to certify.

For further information, please call Gary Horton

(653-2269) or Robert Schrott (653-2279).