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Cibola Energy Corp. v. United States Department of Interior

United States District Court, D. New Mexico

May 23, 2018

CIBOLA ENERGY CORPORATION, Plaintiff
v.
UNITED STATES DEPARTMENT Of INTERIOR,, Defendant.

          MEMORANDUM OPINION AND ORDER

          M. CHRISTINA ARMIJO UNITED STATES DISTRICT JUDGE

         THIS MATTER is before the Court on Plaintiff Cibola Energy Corporation's action for judicial review of a decision by the United States Department of the Interior's Board of Land Appeals (IBLA), filed with this Court on October 24, 2012. [Doc. 1] The appeal is pursuant to the Administrative Procedures Act, 5 U.S.C. §§ 701-706, which provides for judicial review of final agency decisions. The parties provided the Court with briefing. See Opening Brief of Cibola Energy Corporation [Doc. 18]; Answering Brief of Federal Defendants [Doc. 21]; Plaintiff's Reply Brief [Doc. 24]. Having considered the parties' arguments, the Administrative Record, the relevant law, and being otherwise fully advised of the premises, the Court AFFIRMS the IBLA decision. The Court is persuaded that the IBLA's decision is well supported by evidence in the record and that the IBLA considered all of the facts before it, provided reasoned bases for its conclusion, and was not otherwise arbitrary and capricious.

         BACKGROUND AND PERTINENT REGULATIONS

         43 C.F.R. § 3162.4-2 is part of the Regulations Relating to Public Lands under which the Bureau of Land Management (BLM) operates. It relates to onshore oil and gas operations and regulates samples, tests, and surveys of wells. § 3162.4-2. Subsection (b) provides that “[a]fter the well has been completed, the operator shall conduct periodic well tests which will demonstrate the quantity and quality of oil and gas and water. The method and frequency of such well tests will be specified in appropriate notices and orders. When needed, the operator shall conduct reasonable tests which will demonstrate the mechanical integrity of the downhole equipment.” § 3162.4-2(b).

         Cibola is the operator of Ysletano Canyon Federal No. 1 Well (Well). The Well is located on lease NMNM-38313, which Cibola holds by assignment. This action requires the Court to determine whether the IBLA acted arbitrarily and capriciously when it affirmed the BLM's decision ordering Cibola, pursuant to § 3162.4-2(b), to conduct casing integrity (CIT) and production tests on the Well under the following facts.

         Generally, to maintain an oil and gas lease, a well must be in production. See 43 C.F.R. § 3107.2-3; 43 C.F.R. § 3162.3-4. Categorizing a well as “temporarily abandoned” (TA) allows a lessee to avoid the termination of a lease, even when a well is not currently producing. § 3162.3-4; Coronado Oil Co., 164 IBLA 309, 321-23 (2005). Even a well that is not producing must be capable of producing in paying quantities to avoid the termination of its lease. Coronado Oil Co., 164 IBLA at 324.

         This Well was completed in 1990 and has never produced. [AR 98, AR 85, Doc. 18 at 3] It was last tested for production in 1990[1] and was shut in thereafter. [AR 98, AR 85] The initial test indicated that production was “marginal.” [AR 85] These facts are not contested by the parties. Cibola did not apply for TA status until March 2002. [AR 72] On March 11, 2002, Cibola performed a casing integrity test, which was witnessed by the BLM. [AR 72, AR 77]. The Well was granted TA status for the period of one year. [AR 72] ¶ 2003, Cibola again applied for TA status, and it was granted for a 12-month period ending on March 11, 2004. [AR 70] Between 2004 and 2011, Cibola did not again apply for TA status, but it is undisputed that Cibola continued to pay shut in royalties to the government throughout that time. [Doc. 18, pg. 4; Doc. 21, pg. 4; AR 522; AR 247]

         In May 2011, the BLM sent Cibola a letter. [AR 58] It had reviewed its files and, noting that the Well had not produced since it was completed on February 19, 1990, informed Cibola that to maintain its lease, the lease must contain a well capable of producing oil or gas in paying quantities. [AR 58] The BLM stated that it had determined the “lease [wa]s not capable of production in paying quantities.” [AR 58] This letter was rescinded on June 20, 2011, after counsel for Cibola met with the BLM and after Cibola filed a notice of staking for an oil well on the same lease. See [AR 51, 46-50] In a June 20, 2011 letter, the BLM indicated that Cibola was to prepare a Sundry Notice requesting TA status for the Well. [AR 51]

         On June 23, 2011, Cibola prepared a Sundry Notice seeking TA status for the Well. [AR 36] On September 13, 2011, the Las Cruces District Office (LCDO) issued a decision noting that the Well had been shut-in since its casing integrity was last tested in 2002 and explaining that “[t]he Authorized Officer requires testing in order to determine if the Temporary Abandonment can be continued.” [AR 10] The LCDO thus deferred its decision on Cibola's Sundry Notice until the testing could be completed. [AR 10] The LCDO's decision was accompanied by a Notice of Written Order which stated that the Well had been in TA status since 2002 and was last tested in that same year and that a “significant number of years had passed by without any further testing of the casing integrity or the well's capability of being a paying well.” [AR 12] It ordered Cibola to conduct a CIT test and, if that test was positive, to conduct a production test. [AR 12] Both the Decision and Written Order cited § 3162.4-2(b). [AR 10, 12]

         Cibola requested State Director Review of the Decision and Order. [AR 1] The State Director issued a decision (SDR) on February 15, 2012. [AR 364] The SDR upheld the Decision and Written Order on the ground that federal regulations provide the BLM with authority to require testing in order to determine whether a well's TA status should be continued and cited to § 3162.4-2(b) and 43 § 3107.2-3.[2] [AR 365] It noted that the most recent production and CIT tests on the Well were 20 and 10 years ago respectively, and reasoned “[a]s many years have passed, the LCDO is meeting its obligation to properly administer oil and gas leases by requiring the current testing prior to making a decision on whether to approve Cibola's Sundry Notice.” [AR 365]

         Cibola appealed the SDR to the IBLA. [AR 360] The IBLA held a hearing on December 16, 2011. Mr. Harvey Yates of Cibola Land Corporation (previously Cibola Energy Corporation) was the only witness to testify. See Transcript [AR 550-565] His testimony largely related to his plans for oil and gas development in Otero County and the reasons this Well had not been developed. There was no testimony specifically about the condition of the reservoir, although Mr. Yates testified that no gas was being produced in Otero County and it was established no other leases in the area had been granted since at least 1997. [AR 555, p. 20 ln. 25 - p. 21 ln. 1; AR 558 p. 31 lns 17-20] Regarding the condition of the Well, Mr. Yates offered to have the well casing tested, and explained the procedure required to test the production capability. However, given that the Well would not be producing, Mr. Yates stated that he did not know what additional production testing would accomplish. [AR 556, p. 22, ln. 1-9]

         On June 25, 2012, the IBLA issued its Order upholding the SDR decision. Cibola Energy Corporation, IBLA 2012-110. [AR 519] Cibola commenced this action for judicial review of the IBLA decision on October 24, 2012. [Doc. 1]

         The parties agree that the BLM has the authority to order testing pursuant to the regulation, but Cibola contends that to do so on the facts in the record was arbitrary and capricious. It asks this Court to reverse the IBLA decision and allow the Well to continue in TA status without further testing. [Doc. 24 at 14]

         STANDARD ...


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