United States District Court, D. Montana, Billings Division
FINDINGS AND RECOMMENDATIONS OF U.S. MAGISTRATE
TIMOTHY J. CAVAN, UNITED STATES MAGISTRATE JUDGE
Fidelity Exploration & Production Company
(“Fidelity”) filed this action against the
above-named Federal Defendants seeking judicial review of a
decision of the Department of the Interior
(“DOI”) Interior Board of Land Appeals.
case has been referred to the undersigned pursuant to 28
U.S.C. § 636(b)(1)(A). Presently before the Court are
the parties' cross-motions for summary judgment. (Docs.
25, 28.) The motions are fully briefed and ripe for the
reasons set forth herein, and after careful consideration of
the parties' arguments and submissions, the Court
RECOMMENDS that Fidelity's motion for
summary judgment be DENIED, and
Defendants' motion for summary judgment be
is a corporation involved in the business of natural gas
exploration and extraction. Defendant Bureau of Land
Management (BLM) is an agency within the DOI that manages
public lands, including oil and gas leases on federal lands
within its jurisdiction. The BLM makes decisions regarding
the oil and gas leases through its various field offices.
Those decisions are reviewable by BLM State Directors. 43
C.F.R. § 3165.3(b). A State Director's decision may
be administratively appealed to the DOI's Interior Board
of Land Appeals (“IBLA”). 43 C.F.R. §
3165.4(a). The IBLA's decision becomes the final agency
action. In 1999, Fidelity began a coal bed natural gas
development in Big Horn County, Montana. (Doc. 30 at ¶
1.) To obtain authority for the project, Fidelity submitted
two plans of development to the BLM. Id. at ¶
2. Both of the proposed plans of development included a mix
of federal, state, and private lands, and specified how the
federal lease wells would be managed. Id. at ¶
3. One project provided for the drilling and completion of
178 wells, including 86 federal wells, 72 fee wells, and 20
state wells. (Doc. 30 at ¶ 11.c.) The second project
contemplated the drilling and completion of 210 wells,
consisting of 132 federal wells, 16 state wells, and 62 fee
wells. (Doc. 30 at ¶ 11.d.) The BLM approved the plans
in 2004 and 2005, and Fidelity drilled and began operation of
the gas wells. Id. at ¶ 12.
2010, the BLM Miles City Field Office (“Field
Office”) began conducting inspections of Fidelity's
gas wells. (Doc. 32 at ¶ 29.) On February 25, 2011, the
Field Office sent a letter to Fidelity detailing potential
violations in Fidelity's gas production reports.
Id. First, Fidelity was advised it was improperly
reporting volumes from a master sales meter, rather than from
individual well meters. (Doc. 32 at ¶ 30.) The master
sales meter included gas volumes which were commingled from
multiple wells. Fidelity was told that the “Federal
Measurement Point” is the meter for each individual
well, prior to commingling with gas from other wells.
Id. Fidelity was directed to either begin reporting
the gas volumes for the individual well meters, or to submit
an application for authorization to report the comingled
volumes from the master sales meter. Id.
Fidelity was advised it was improperly reporting BTU value
from the commingled gas stream, rather than conducting a gas
analysis from each individual well. Id.
Fidelity was told that it was improperly reporting gas as
“used on lease.” Gas used on a lease to operate
production equipment for the benefit of the federal lease
(“beneficial use”) is not subject to royalty
fees. But Fidelity was advised that once gas is downstream
from the Federal Measurement Point and has left the lease or
communitized area, it is generally not considered beneficial
use and not given that royalty-free benefit. Id.
April 9, 2012, the Field Office sent another letter to
Fidelity identifying the same concerns, and directing the
same corrective actions. (Doc. 32 at ¶ 31. Fidelity
responded that it was in compliance with federal
requirements, and claimed that BLM had authorized its
procedures when it approved Fidelity's plans of
development. (Doc. 32 at ¶ 32.)
Field Office then issued an order to Fidelity on October 25,
2012 to address these alleged violations. (Doc. 30 at ¶
16.) Fidelity was ordered to report gas volumes from the
individual wells prior to commingling, and to submit amended
production reports to the DOI Office of Natural Resources
Revenue (“ONRR”) for the previous six years.
Id. The ONRR is tasked with auditing lease payments
to determine accurate calculation and payment of royalties.
Id. at ¶ 18. See also, 30 U.S.C.
§ 1711(a), (c); 30 C.F.R. § 1201.100.
was also ordered to discontinue reporting gas used downstream
of the Federal Measurement Point as “used on
lease” for beneficial use purposes. (Doc. 30 at ¶
16.) It was further directed to submit amended reports to the
ONRR for the last six years, eliminating unauthorized
beneficial use deductions. Id.
requested a State Director review of the Field Office order
on November 15, 2012. (Doc. 30 at ¶ 20.) The State
Director affirmed the order, and Fidelity appealed to the
IBLA. Id. at ¶ 21, 22. On appeal, the BLM
requested a remand of the matter back to BLM. The agency
explained that, while the BLM had the authority to require
Fidelity to submit corrected volumes to the Field Office,
only the ONRR had the authority to order amended production
reports. Id. at ¶ 22; AR 668-69.) In accordance
with the request, the IBLA set aside the State Director's
decision and remanded the case to the BLM. Id. at
remand, the State Director modified the Field Office order by
replacing the demand that Fidelity file amended production
reports with the ONRR, with the demand that Fidelity submit
corrected volumes to the Field Office for verification.
Id. at ¶ 25. In all other relevant respects,
the modified order mirrored the initial Field Office order.
Id.; AR 674, 684. On appeal, the IBLA affirmed the
State Director's modified order. Fidelity Exploration
& Production Co., 188 IBLA 302 (2016.)
subsequently brought this action under the Administrative
Procedure Act (APA), seeking judicial review of the
IBLA's decision. (Doc. 1.) Fidelity alleges that the IBLA
wrongfully affirmed the State Director's order modifying
and upholding the Field Office's order. Fidelity requests
that this Court issue a declaratory ruling finding the State
Director's modified order invalid, set aside and vacate
the IBLA decision, declare the Field Office order invalid,
and enjoin further enforcement of the order. (Doc. 2 at 30.)
presents three issues for review: (1) whether the BLM may
modify an order that was previously set aside and remanded by
the IBLA; (2) whether the BLM enforced an order in violation
of the limitations periods set forth in Federal Oil and Gas
Royalty Simplification and Fairness Act (30 U.S.C. §
1724(b)); and (3) whether BLM authorized the measurement and
beneficial use of commingled gas when it approved
Fidelity's plans of development.
Defendants deny Fidelity's claims and argue the IBLA
correctly found that the BLM acted within the scope of its
authority. (Doc. 29.) The Defendants insist BLM never
authorized Fidelity to measure gas after commingling; BLM
appropriately issued findings of violation and ordered
corrective actions; and ...