SUSPENSION OF OPERATIONS ON OIL AND GAS LEASES

Outer Continental Shelf Lands Act: Generally

Under his conservation authority the Secretary (or his delegate) may suspend operations on an OCS oil and gas lease while legislation is pending where such operations might lead to results inconsistent with the purpose of the legislation.

Under his conservation authority the Secretary (or his delegate) may suspend operations on an OCS oil and gas lease to permit the preparation of an environmental impact statement on exploratory drilling which will assist him in the determination of any special stipulations to be imposed on drilling permits.

When the regional oil and gas supervisor of the Geological Survey directs the suspension of operations on an OCS lease in the interest of conservation, the lease will be extended for a period equal to the period of suspension.

M-36831

To: SECRETARY

July 21, 1971

SUBJECT: APPEALS OF UNION OIL COMPANY OF CALIFORNIA, MOBILE OIL CORPORATION, GULF OIL CORPORATION, AND TEXACO INC.; HUMBLE OIL AND REFINING COMPANY AND ATLANTIC RICHFIELD COMPANY; AND STANDARD OIL COMPANY OF CALIFORNIA, FROM ORDERS SUSPENDING OPERATIONS ON OIL AND GAS LEASES IN THE SANTA BARBARA CHANNEL.

You have asked us to review the appeals by these seven oil companies from the suspension of operations imposed on April 21, 1971, on forty-seven of their oil and gas leases in the Santa Barbara Channel. All leases were issued under section 8 of the Outer Continental Shelf Lands Act (43 U.S.C. sec. 1337), hereafter called the OCS Act. The suspension orders were issued by the regional oil and gas supervisor of the Geological Survey under 30 CFR 250.12 (d) (1) which provides that “*** in the interest of conservation the supervisor may direct *** the suspension of operations ***." Another regulation (43 CFR 3305a.4) provides: "In the event that under the provision of 30 CFR 250.12 (c) or (d) (1), the regional oil and gas supervisor of the Geological Survey directs the suspension of either operations or production, or both, with respect to any lease, the term of the lease will be extended by a period equivalent to the period of suspension.'

Legislation to cancel thirty-five of these leases has been submitted to the Congress by the Department. Operations on these leases were suspended from April 21, 1971, to January 2, 1973, to give the Congress an opportunity to pass the termination bill. On the other twelve leases

July 21, 1971

(and on two others not involved in these appeals) operation were suspended for ninety days from April 21, 1971, to permit the Department to complete the preparation of an environmental impact statement on exploratory drilling on the Santa Barbara Channel. The appellants have challenged the authority of the Department in these circumstances to issue a suspension of operations on these leases in the interest of conservation and to grant an equivalent period of

extension.

Four principal legal questions are raised in these appeals:

1. Does the regional oil and gas supervisor, as a representative of the Secretary, have authority to suspend operations on an OCS lease in the interest of conservation?

2. Were the suspensions of operations on the leases involved in these appeals made in the interest of conservation?

3. If the regional oil and gas supervisor has authority to suspend operations on a lease in the interest of conservation, does the Secretary have authority to extend the lease for a period equal to the period of suspension!

4. Does the National Environmental Policy Act affect the Secretary's and lessee's rights in the Santa Barbara situation?

The particular provisions of the OCS Act under which these questions arise have not been tested in the courts nor have they been significantly construed in administrative decisions of the Department. Consequently, guidance must come primarily from the legislative history of the OCS Act.

Although the appeal is only from the orders of suspension issued by the regional oil and gas supervisor on April 21, 1971, the appellants also allege that their leases were in effect suspended for periods prior to the April 21 orders and request the Secretary to grant extensions and rental relief for those periods of de facto suspension.

I

Section 5(a)(1) of the OCS Act (43 U.S.C. sec. 1334 (a)(1)) authorizes the Secretary to issue rules and regulations to carry out the provisions of the Act and states that "the rules and regulations prescribed by the Secretary *** may provide ***, in the interest of conservation, for *** suspension of operations or production***." Pursuant to this statutory authority the Secretary has issued a regulation (30 CFR 250.12 (d) (1)), which authorizes the supervisor to direct a suspension of operations or production, or both,

in the interest of conservation. It is under this regulatory provision that the suspensions in this case were issued.

This regulation was issued in 1969 after the issuance of the leases which are the subject of these appeals.1 Section 5 (a) (1) provides that the Secretary

may at any time prescribe and amend such rules and regulations as he determines to be necessary and proper in order to provide for the prevention of waste and conservation of the natural resources of the outer Continental Shelf, and the protection of correlative rights therein, and, notwithstanding any other provisions herein, such rules and regulations shall apply to all operations conducted under a lease issued or maintained under the provisions of this Act. *** Consequently, the revised regulation, as a regulation providing for the conservation of the natural resources of the outer Continental Shelf, became, upon promulgation, applicable to all existing leases, including the leases involved in these appeals.

The answer to the first question is thus that the Secretary and, by delegation, the regional oil and gas supervisor, have authority to suspend operations in the interest of conservation on the forty-seven OCS leases involved in these appeals.

II

Although the statute authorizes the Secretary to issue regulations for the suspension of operations in the interest of conservation of natural resources, the term "conservation" is not defined in the statute, nor is there any explicit definition of the term in the legislative history of the Act. However, conservation is defined in the dictionary as: "1. A conserving, preserving, guarding, or protecting; a keeping in a safe or entire state; preservation. 2. Official care or keeping and supervision, as of a river or forest ***." Webster, New International Dictionary (2d ed. 1943). Even if the term "conservation" should be limited to its use in the mining industry, a similarly broad definition would be applicable: "conservation: conserving, preserving, guarding, or protecting; keeping in a safe or entire state; using in an effective manner or holding for necessary uses, as mineral resources." U.S. Department of the Interior, Bureau of Mines, A Dictionary of Mining, Mineral, and Related Terms (1968).

The legislative history of the OCS Act clearly indicates that "conservation" was used in the broadest sense and not merely in the sense of attaining maximum production or of protecting only the mineral

1 In 1968 the comparable regulations were 30 CFR 250.12(b), 30 CFR 250.20, and 43 CFR 3383.5.

July 21, 1971

resource itself. When S. 1901 was introduced, the term "conservation" appeared alone, but the Senate Committee on Interior and Insular Affairs reported S. 1901 with the addition of "prevention of waste." S. Rep. No. 411, 83d Congress, 1st Sess. 17, 24 (1953). The present text of section 5(a) (1) was recommended by Secretary of the Interior McKay in his letter of June 8, 1953, to Senator Cordon of the Senate Interior Committee. S. Rep. No. 411, 83d Cong., 1st Sess. 26, 27, 29 (1953). In that letter, at page 27, Secretary McKay referred to the expansion of the authority under section 5 to cover "prevention of waste."

Mr. Duncan, Chief of the Conservation Division, Geological Survey, testified in support of the Department's position before the Senate Committee on May 21, 1953. Mr. Duncan discussed conservation in general and gave examples of the conservation regulations of the Department, one of which was the regulation of "pollution and surface damage.” Thus it was clear to the Senate Committee considering the bill that the Department deemed conservation to be a term denoting the protection of other interests as well as the attainment of maximum production. Nothing was written by the Committee or said in Congressional debate to indicate that the meaning of conservation of natural resources was to be limited or that the term was to be interpreted in any way other than that used by the Department.

Secretary McKay, in his letter of June 8, 1953, supra, stated, at page 28, that broad authority in the field of conservation was needed by the Department so that it would be free to modify its regulations "as circumstances peculiar to operations and actual experience in administering a leasing program in the submerged lands made appropriate.” The Department's conservation authority was to be broad and not to be restricted in its actions in the new areas of the outer Continental Shelf. Secretary McKay's recommendation was adopted. The eventual terms of section 5(a) (1) were largely evolved from the recommendations of the Department.2

We hold that the Secretary's authority to issue regulations for the suspension of operations in the interest of conservation is broad and

2 Under any circumstances the determination of the meaning of a term in a statute by the officer charged with the administration of that statute is given great weight; "An administrative official charged with the duty of administering a specific statute has a duty to determine as an initial and administrative matter the meaning of terms in that statute.” * * * California Company v. Udall, 296 F. 2d 384, 388 (D.C. Cir. 1961). The role played by the Department in proposing statutory language to the Committee gives increased importance to the Secretary's interpretation of section 5(a) (1).

embraces all aspects of the protection of the natural resources of the Shelf, and that this was the construction intended by the Congress. The Secretary's authority is sufficient to permit suspension of operations in the interest of conservation in the two situations with which these appeals are concerned.

(1) Operations were suspended on fourteen leases to permit the completion of an environmental impact statement on exploratory drilling. Until the statement is completed, the Department will not know what particular terms and conditions will have to be imposed on exploratory drilling permits to protect natural resources of the Shelf. There is no intention, we understand, to prevent exploratory drilling, but merely an intention to surround it with the safeguards necessary to protect other resources. This is a clear example of conservation.

3

(2) Operations were suspended on the thirty-five other leases to give the Congress time to consider legislation to establish a National Energy Reserve in which oil and gas and other resources would be protected for the future. This legislation is a conservation measure. Operations on these leases while the legislation is pending might have effects that would frustate the purpose of the legislation. The following were the possible effects specified by the Geological Survey: (a) exploratory drilling may inadvertently lead to a situation where the only sound conservation practice would be continued extraction; (b) a plugged well is usually quite safe, but it is not as safe as if no drilling at all had been conducted, and consequently there may be a loss of fluids or damage to the environment after the drilling and plugging of a well; (c) whenever there is drilling for oil and gas, a blowout or loss of well control is always possible. The Geological Survey said that, although none of these events is likely, all three are possible. In the proper exercise of conservation authority, these possibilities must be recognized and dealt with. Any one of these results would be completely inconsistent with the determination to place the oil and gas deposits in the proposed National Energy Reserve. Consequently, the only way in which the Secretary or his delegate may be certain of protecting the natural resources while the legislation is pending is by suspending all operations on the leases which he recommends be terminated. The legislation, if enacted, will provide just compensation for all that is taken. If the legislation fails of enactment, the leases will,

3 For example, on the Dos Cuadras structure it has proved impossible to stop the developmental process once begun. As a result of drilling an oil leak developed. The only way in which to control that leak has proved to be continued extraction. The Department does not expect that, with its improved controls, a similar situation would occur again, but the possibility remains.