IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
January 12, 2009
No. 08-30069 Charles R. Fulbruge III
Clerk
KERR-MCGEE OIL AND GAS CORP
Plaintiff - Appellee
v.
UNITED STATES DEPARTMENT OF INTERIOR; C STEPHEN ALLRED,
Assistant Secretary, on behalf of Land & Minerals Management,
on behalf of United States Department of Interior
Defendants - Appellants
Appeal from the United States District Court
for the Western District of Louisiana, Lake Charles
Before KING, DENNIS, and ELROD, Circuit Judges.
KING, Circuit Judge:
The Outer Continental Shelf Deep Water Royalty Relief Act authorizes the
Department of the Interior to suspend the collection of oil and gas royalties from
all new and preexisting federal, deepwater leases and to impose price or volume
thresholds in order to determine when royalty payments should recommence.
Additionally, for new deepwater leases issued between 1996 and 2000 for specific
areas in the Gulf of Mexico, the act explicitly waives all royalty payments until
a specific volume of oil or gas is produced. Kerr-McGee Oil and Gas Corp.
obtained eight new deepwater leases that, in addition to waivers based on
volume, contained price thresholds set by the Department of the Interior. When
No. 08-30069
oil and gas prices moved above those price thresholds, the Department of the
Interior sought to collect royalties on these leases, despite the fact that the
congressionally set volume thresholds had not yet been met. Kerr-McGee
challenged the Department of Interior’s order to pay royalties in the district
court, which concluded on summary judgment that the agency did not have the
authority to impose price thresholds requiring the payment of royalties on
volumes less than the volume thresholds set by Congress. We agree and affirm
the district court’s decision for the following reasons.
I. FACTUAL AND PROCEDURAL BACKGROUND
The facts of this case are undisputed. Between 1996 and 2000, Kerr-
McGee Oil and Gas Corp. (“Kerr-McGee”) obtained eight deepwater, Gulf of
Mexico mineral leases subject to royalty relief. These leases stipulated, however,
that royalties would commence when certain price thresholds were met. Six of
these leases employ the following language to impose such price thresholds:
In any year during which the arithmetic average of the closing
prices on the New York Mercantile Exchange for light sweet crude
oil exceeds $28.00 per barrel, royalties on the production of oil must
be paid . . . and production during such years counts toward the
royalty suspension volume. In any year during which the
arithmetic average of the closing prices on the New York Mercantile
Exchange for natural gas exceeds $3.50 per million British thermal
units, royalties on the production of natural gas must be paid . . .
and production during such years counts toward the royalty
suspension volume.
The remaining two leases contain substantially similar language:
In any year during which the arithmetic average of the closing
prices on the New York Mercantile Exchange (NYMEX) for light
sweet crude oil exceeds $28.00 per barrel (threshold oil price),
royalties on the production of oil must be paid . . . and production
during such years counts toward the royalty suspension volume.
In any year during which the arithmetic average of the closing
prices on the NYMEX for natural gas exceeds $3.50 per million
British thermal units (threshold gas price), royalties on the
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production of natural gas must be paid . . . and production during
such years counts toward the royalty suspension volume.1
All eight leases are additionally subject to the volume thresholds
established by § 304 of the Outer Continental Shelf Deep Water Royalty Relief
Act (the “DWRRA”), which states:
For all tracts located in water depths of 200 meters or greater in the
Western and Central Planning Area of the Gulf of Mexico, including
that portion of the Eastern Planning Area of the Gulf of Mexico
encompassing whole lease blocks lying west of 87 degrees, 30
minutes West longitude, any lease sale within five years of the date
of enactment of this title, shall use the bidding system authorized
in section 8(a)(1)(H) of the Outer Continental Shelf Lands Act, as
amended by this title, except that the suspension of royalties shall
be set at a volume of not less than the following:
(1) 17.5 million barrels of oil equivalent for leases in water depths
of 200 to 400 meters;
(2) 52.5 million barrels of oil equivalent for leases in 400 to 800
meters of water; and
(3) 87.5 million barrels of oil equivalent for leases in water depths
greater than 800 meters.
Pub. L. No. 104-58, 109 Stat. 557 (uncodified, but present in a note to 43 U.S.C.
§ 1337).
In 2003, the average annual price of natural gas exceeded the leases’
inflation-adjusted price threshold. In 2004, the average annual prices of both oil
and gas exceeded the respective price thresholds for those commodities. Not one
of the leases, however, had enjoyed production that triggered the volume
thresholds imposed by § 304.
Based on the triggered price thresholds, the United States Department of
the Interior (“Interior”) issued a final agency order (the “Burton Decision”). The
Burton Decision informed Kerr-McGee that the oil and gas price thresholds had
1
Both leases adjust the triggering prices for inflation.
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been exceeded, concluded that Interior had authority to suspend royalty relief
based on price thresholds triggered before production exceeded § 304’s volume
thresholds, and directed Kerr-McGee to pay royalties.
Kerr-McGee challenged the Burton Decision in federal district court, and,
on summary judgment, the court ruled that Interior did not have the authority
to suspend royalty relief for production at volumes less than those established
by Congress. Interior brought this timely appeal, arguing that the DWRRA does
not alter the agency’s discretionary authority to vary royalty relief by imposing
price thresholds that suspend royalty relief before § 304’s volume thresholds are
exceeded.
II. STANDARD OF REVIEW
We review de novo a grant of summary judgment, applying the same legal
standards that the district court applied. Kornman & Assocs., Inc. v. United
States, 527 F.3d 443, 450 (5th Cir. 2008). Summary judgment is proper when
the evidence reflects “no genuine issue as to any material fact and that the
movant is entitled to judgment as a matter of law.” FED. R. CIV. P. 56(c).
An agency’s interpretation of its statutory authority is reviewed according
to the two-step inquiry established in Chevron U.S.A., Inc. v. Natural Resources
Defense Council, Inc., 467 U.S. 837 (1984). Med. Ctr. Pharmacy v. Mukasey, 536
F.3d 383, 393 (5th Cir. 2008). First, we “must give effect to the unambiguously
expressed intent of Congress” if Congress has, indeed, “directly spoken to the
precise question at issue.” Id. (internal quotation marks omitted). If we
determine that the statute is ambiguous, then we proceed to Chevron’s second
step and “‘reverse [an] agency’s decision only if it [is] arbitrary, capricious, or
manifestly contrary to the statute.’” Id. (quoting Tex. Coal. of Cities for Util.
Issues v. FCC, 324 F.3d 802, 807 (5th Cir. 2003)) (alterations in original).
III. DISCUSSION
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Under Chevron’s first step, we must consider whether Congress
unambiguously granted Interior the authority to suspend royalty relief at
production volumes less than those established by § 304. To interpret the
statute, we begin by looking at its plain text. Wheeler v. Pilgrim’s Pride Corp.,
536 F.3d 455, 458 (5th Cir. 2008). The DWRRA contains three operative
sections, and, because “it is a cardinal rule that a statute is to be read as a
whole,” In re Supreme Beef Processors, Inc., 468 F.3d 248, 253 (5th Cir. 2006) (en
banc), we describe each section in turn. The first section applies only to leases
in existence prior to the act’s effective date and states:
(i) [N]o royalty payments shall be due on new production . . .
from any lease or unit located in water depths of 200 meters or
greater in the [same geographic region of the Gulf of Mexico
specified in § 304] until such volume of production as determined
pursuant to clause (ii) has been produced by the lessee.
(ii) Upon submission of a complete application by the lessee, the
Secretary [of Interior] shall determine . . . whether new production
from such lease or unit would be economic in the absence of the
relief from [royalties] . . . . If the Secretary determines that such
new production would be economic in the absence of the relief from
[royalties] . . . the Secretary must determine the volume of
production from the lease or unit . . . in order to make such new
production economically viable; except that for new production . . .
in no case will that volume be less than 17.5 million barrels of oil
equivalent in water depths of 200 to 400 meters, 52.5 million barrels
of oil equivalent in 400–800 meters of water, and 87.5 million
barrels of oil equivalent in water depths greater than 800
meters. . . .
* * *
(v) During the production of volumes determined pursuant to
clause[] (ii) . . . in any year during which the arithmetic average of
the closing prices on the New York Mercantile Exchange for light
sweet crude oil exceeds $28.00 per barrel, any production of oil will
be subject to royalties . . . .
(vi) During the production of volumes determined pursuant to
clause[] (ii) . . . in any year during which the arithmetic average of
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No. 08-30069
the closing prices on the New York Mercantile Exchange for natural
gas exceeds $3.50 per million British thermal units, any production
of natural gas will be subject to royalties . . . .
DWRRA § 302, 43 U.S.C. § 1337(a)(3)(C). The DWRRA’s next section authorizes
a new bidding method that Interior may use in leasing any of the submerged
lands of the Outer Continental Shelf. It provides that bidding may be on the
basis of a:
cash bonus bid with royalty at no less than 12 and 1/2 per centum
fixed by the Secretary in amount or value of production saved,
removed, or sold, and with suspension of royalties for a period,
volume, or value of production determined by the Secretary, which
suspensions may vary based on the price of production from the
lease . . . .
Id. § 303, 43 U.S.C. § 1337(a)(1)(H). The DWRRA’s final section, set forth in full
above, specifically addresses new, deepwater leases sold in a specific region of
the Gulf of Mexico between 1996 and 2000. The pertinent language of that
section states that “the suspension of royalties shall be set at a volume of not
less than the following” specifically established volume thresholds. Id. § 304,
Pub. L. No. 104-58, 109 Stat. 557 (uncodified, but present in a note to 43 U.S.C.
§ 1337).
Looking to Santa Fe Snyder Corp. v. Norton, 385 F.3d 884 (5th Cir. 2004),
the district court concluded that Interior did not have the authority to suspend
royalty relief for new leases at production volumes less than those set by
Congress in § 304. In Santa Fe Snyder, we considered whether Congress
granted Interior the authority to limit the application of § 304’s royalty relief to
only those new leases that resulted in new production from a field. Id. at
889–90.2 Under Chevron’s first step, we stated that the question was “whether
2
A “field” is “an area consisting of a single reservoir or multiple reservoirs all grouped
on, or related to, the same general geological structural feature and/or stratigraphic trapping
condition.” Id. at 889 (internal quotation marks omitted). The new production prerequisite
required a lessee to show that no oil or gas had yet been produced from anywhere in the field
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Section 304 of the [DW]RRA unambiguously provides that royalty suspensions
apply in full to each [n]ew [l]ease qualifying under its terms,” which we
answered affirmatively. Id. at 890, 892. In doing so, we juxtaposed the economic
justification required for existing leases to obtain royalty relief under § 302—the
new production requirement—with the limited, objective requirements to obtain
royalty relief for new leases under § 304—water-depth and location. See id. at
892–93 (“Congress clearly imposed a New Production Requirement on [e]xisting
[l]eases. It did not do so for [n]ew [l]eases.”).
The current case is the logical and inevitable extension of Santa Fe
Snyder, as the district court correctly reasoned. Here, as in that case, Interior
seeks to employ a royalty-relief limitation present in § 302 (which applies to
leases existing prior to the DWRRA’s enactment) in order to limit the royalty
relief granted to new leases by § 304. Interior asserts that § 304’s reference to
§ 303’s bidding process nonetheless grants Interior the discretion to “vary” the
suspension of § 304’s royalty relief based on the prices of oil and gas.3 But the
plain language of the statute does not bear Interior’s interpretation. Section 304
states that “the suspension of royalties shall be set at a volume not less than”
the stated production volumes. Interior’s reading would render § 304’s
mandatory language meaningless: if price thresholds trigger royalty payments
before § 304’s production volumes are exceeded, then the royalty payment
suspension is being set at a volume less than § 304’s specified production levels.
before obtaining royalty relief. See id. at 889–90.
3
We note that, below, Interior raised the affirmative defense that Kerr-McGee should
be estopped from challenging the legality of the price thresholds because the company bid on
and signed leases containing these provisions. The district court ruled that this defense was
unavailable because government officials cannot enforce by estoppel a contract that they were
not legally authorized to make. See LaBarge Prods., Inc. v. West, 46 F.3d 1547, 1552 (Fed. Cir.
1995). In its briefs to this court, Interior does not contend that any such affirmative defense
applies; therefore, it has abandoned this argument. See Fuzy v. S&B Eng’rs & Constructors,
Ltd., 332 F.3d 301, 302 (5th Cir. 2003).
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While § 303 grants Interior discretion to “vary” royalty relief for all new leases
of submerged lands on the Outer Continental Shelf based on the price of
production, § 304 “immediately excepts and replaces Interior’s discretion with
a fixed royalty suspension for [n]ew [l]eases on a volume basis” where those new
leases are located in the geographic region specified by § 304. Id. at 892. Had
Congress intended to impose price thresholds on the royalty relief for these new
leases, it certainly knew how to do so. See, e.g., DWRRA § 302 (specifically
setting price thresholds on royalty relief for existing leases that qualify for
royalty relief); see also Royalty Relief for American Consumers Act of 2006, H.R.
4749, 109th Cong. § 2(a) (2006) (proposed legislation seeking to suspend all
royalty relief if specified price thresholds are met). However, Congress
refrained from specifically establishing such price thresholds, and we refuse
Interior’s invitation to read this royalty-relief limitation into the statute.
Thus, the plain language of § 304 dictates our conclusion in this case just
as it did in Santa Fe Snyder. The statement that “the suspension of royalties
shall be set at a volume not less than” the specific production levels means just
that: royalty payments shall be suspended up to the production volumes
established by Congress. Section 304 is unambiguous in this regard, and it does
not grant Interior the authority to impose price thresholds that suspend royalty
relief at production volumes less than those established by Congress in § 304.
Therefore, we need not extend our analysis to Chevron’s second step.
Finally, Interior makes the same argument that it made in Santa Fe
Snyder regarding the DWRRA’s legislative history. See Federal Defendants-
Appellants’ Opening Brief at 27–29, Santa Fe Snyder, 385 F.3d 884 (No. 03-
30648); Federal Defendants-Appellants’ Reply Brief at 14–16, Santa Fe Snyder,
385 F.3d 884 (No. 03-30648). Kerr-McGee points to competing passages in the
legislative history in support of its position. But as we stated in Santa Fe
Snyder, “[b]ased on our conclusion that the statutory language is unambiguous,
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we need not follow the Interior’s suggestion to look to legislative history as a
guide in interpreting the [statute].” 385 F.3d at 893.
IV. CONCLUSION
For the foregoing reasons, we AFFIRM the judgment of the district court.
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