Maureen Lorenzetti
Washington Editor
WASHINGTON, DC, Dec. 5 -- California state officials asked a federal court Thursday to reinstate a case connected with controversial oil valuation rules issued by the US Department of the Interior's Minerals Management Service in 2000.
California State Controller Steve Westly asked Judge Royce C. Lamberth of the US District Court for Washington, DC, to reactivate the lawsuit, arguing that California needs to intervene before DOI takes legal and regulatory action that benefits industry alone.
"Given MMS's failure to disclose to the public the connection between its rulemaking and this case, the state controller can not responsibly assume that this is not an effort to sandbag the public and that he will not be forced into a lawsuit challenging new federal oil valuation regulations," Westly said in his request to the court.
The American Petroleum Institute and the Independent Petroleum Association of America are expected to respond to Westly's request within 10 days; DOI's Minerals Management Service and the US Department of Justice declined comment.
Some industry officials familiar with the case said they were "puzzled" at California' motion to reinstate the lawsuit. They noted that the cases in question were dismissed without prejudice in late November; neither industry not government have sought reinstatement. Industry representatives also said they were perplexed that California was asserting that MMS and industry were less than candid about oil valuation talks to the court. The idea that some agreement exists outside the public regulatory process" is simply untrue," said an industry official involved with the case.
The court dismissed the case Nov. 21 but the judge could reopen the matter if he chooses.
New administration, choices
California officials suggested that under the administration of President George W. Bush, DOI officials are now willing to reject MMS's past legal successes defending the rule.
In 2000, the American Petroleum Institute and the Independent Petroleum Association of America filed suit in federal court after DOI finalized oil valuation rules pegged to spot prices instead of company posted prices. The new rule also directed producers to shoulder postproduction costs associated with transporting crude to market centers. Industry maintained in the 2000 lawsuit and related legal action that its "duty to market" was narrower than what the government claimed it should be.
In September 2000, the DC court accepted industry's position that federal lessees had no cost-free duty to market. The following January, IPAA and API both filed motions for summary judgment in the two related cases. The government appealed the decision in April 2001, filed a cross-motion for summary judgment in the above-captioned cases. Since then, the cases have idled.
An appeals court later ruled in favor of the government on the duty to market issue; IPAA and API failed in subsequent appeals to have their position prevail.
Nearly 2 years later, IPAA and API notified the DC district court that MMS was conducting workshops on the 2000 rule and there was the "potential" to resolve some or all of the issues before the court.
Westly alleged to the court that MMS misrepresented the changes it was contemplating to the disputed rule.
"It is obvious from the filings with this court that the MMS rulemaking is intertwined with resolution of this case. What is equally obvious, however, is that the parties to this case do not want that connection publicly known," he said. "MMS's notice of workshops, published Feb. 12, made no reference to this litigation, let alone that its administrative efforts had any potential of resolving the plaintiffs' claims herein.
Instead, MMS represented to the public that it was recommending mere technical changes, which it had identified as a result of its experience under the 2000 rules and its royalty in-kind programs," Westly said.
But that experience has been limited to a General Accounting Office report criticizing the RIK programs for being inefficient; a malfunctioning computer compliance system, including the loss of hundreds of company reports; and incomplete, unprofessional, and fabricated audits, California officials alleged.
MMS Aug. 20 proposed industry-supported changes to its 2000 oil valuation rule that the agency characterized as technical adjustments. Industry generally has concurred with MMS's view that shifting from spot prices to New York Mercantile Exchange adjusted prices for quality and location was a "workable refinement" of the current oil valuation rule. The proposal also expands transportation cost deductions, and rates of return on oil pipeline investment (OGJ Online, Nov. 13, 2003).
California rebuttal
Westly however maintains that the rules do not require major changes.
"If there was any indication that MMS's proposed rule was, in reality, an attempt to improve the 2000 oil rules based upon particular flaws that its "experience" exposed, the state controller would not take the extraordinary measure of seeking to intervene based upon the inadequacy of the federal government's representation—particularly in cases that the court recently dismissed without prejudice," Westly said.
"But there is no such indication—indeed as a delegate of the Secretary under the Federal Oil and Gas Royalty Management Act, 30 USC § 1735, the state controller would know and, indeed, would be entitled to know of any "technical" problems. The 2000 Oil Rules are not perfect. But they are also not arbitrary, capricious or contrary to law in the particulars claimed by the plaintiffs in this case," Westly said.
"Clearly, the initial strategy adopted by IPAA and API to challenge the 2000 oil rules failed and they have now regrouped and are presenting to MMS a 'kinder and gentler' approach aimed at achieving their same goal," he said.
Contact Maureen Lorenzetti at [email protected].
