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Shell Oil Co. v. Babbitt

September 19, 1997

SHELL OIL COMPANY, APPELLANT

v.

BRUCE BABBITT; THE UNITED STATES DEPARTMENT OF THE INTERIOR



On Appeal from the United States District Court for the District of Delaware

(D.C. Civ. No. 95-00492)

BEFORE: STAPLETON, GREENBERG, and COWEN, Circuit Judges

GREENBERG, Circuit Judge.

Filed September 19, 1997

Argued August 14, 1997

(Filed: September 19, 1997)

OPINION OF THE COURT

This case is before this court on an appeal by Shell Oil Co. ("Shell") from an order of the district court which sustained an order of the Department of the Interior Minerals Management Service ("MMS") requiring Shell to produce certain documents. The district court had jurisdiction under 28 U.S.C. Section(s) 1331, and we have jurisdiction under 28 U.S.C. Section(s) 1291. This appeal turns on issues of statutory and regulatory interpretation.

I. FACTUAL AND PROCEDURAL HISTORY

Congress has empowered the Department of the Interior to enter into and administer leases to develop oil and gas resources on federal lands. Congress enacted the Federal Oil and Gas Royalty Management Act ("FOGRMA") in 1983, to strengthen the ability of the Secretary of the Interior ("Secretary") to collect oil and gas royalties by developing a comprehensive system of royalty management in order properly to collect and account for all royalties. 30 U.S.C. Section(s) 1701 et seq. FOGRMA authorizes the Secretary to "audit and reconcile, to the extent practicable, all current and past lease accounts for leases of oil and gas and take appropriate actions to make additional collection or refunds as warranted." Section 101(c)(1), 30 U.S.C. Section(s) 1711(c)(1). Section 103(a) of FOGRMA, 30 U.S.C. Section(s) 1713(a), deals with maintenance of information and production of records:

A lessee, operator, or other person directly involved in developing, producing, transporting, purchasing, or selling oil or gas subject to this chapter through the point of first sale or the point of royalty computation, whichever is later, shall establish and maintain any records, make any reports, and provide any information that the Secretary may, by rule, reasonably require for the purposes of implementing this chapter or determining compliance with rules or orders under this chapter. Upon the request of any officer or employee duly designated by the Secretary or any State or Indian tribe conducting an audit or investigation pursuant to this act, the appropriate records, reports, or information which may be required by this section shall be made available for inspection and duplication by such officer or employee, State, or Indian tribe.

Section 3(12) of FOGRMA defines "person" as "any individual, firm, corporation, association, partnership consortium, or joint venture." 30 U.S.C. Section(s) 1702(12). Thus, Shell as a corporation can be a person within section 103(a) and its implementing regulations.

The Secretary has delegated royalty enforcement responsibilities to the Director of the MMS. MMS regulations require "each lessee, operator, revenue payor or other person [to] make and retain accurate and complete records necessary to demonstrate that payments of rentals, royalties . . . and other payments . . . are in compliance with lease terms, regulations, and orders." 30 C.F.R. Section(s) 212.51(a). The "lessee, operator, revenue payor, or other person required to keep records" must maintain them for six years and make them available for inspection. 30 C.F.R. Section(s) 212.51(b)-(c).

Shell Western E & P, Inc. ("Shell Ex") is primarily a producer of oil and is a wholly owned subsidiary of Shell, which primarily markets oil. App. at 175, 181. Shell Ex produces oil from land within 32 federal leases in California issued under the Mineral Lands Leasing Act, 30 U.S.C. Section(s) 181, and pays royalties to the federal government on the oil produced. *fn1 App. at 181. Shell Ex sells much of this oil to Shell pursuant to an agreement dated January 1, 1985, under which Shell pays its posted prices for that ...


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