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Minard Run Oil Co. v. United States Forest Service

December 15, 2009

MINARD RUN OIL COMPANY, PENNSYLVANIA OIL AND GAS ASSOCIATION, ALLEGHENY FOREST ALLIANCE, AND WARREN COUNTY, PLAINTIFFS,
v.
UNITED STATES FOREST SERVICE, ET AL., DEFENDANTS.



The opinion of the court was delivered by: McLAUGHLIN, Sean J., J.

MEMORANDUM OPINION

INTRODUCTION

Presently pending before the Court is a Motion for Preliminary Injunction filed on behalf of Plaintiffs Minard Run Oil Company, the Pennsylvania Oil and Gas Association ("POGAM"), the Allegheny Forest Alliance ("AFA"), and County of Warren, Pennsylvania (collectively "Plaintiffs"). In this action, Plaintiffs seek to enjoin the United States Forest Service's implementation of the terms of a settlement agreement ("Settlement Agreement") reached between the United States Forest Service ("Forest Service"), the Forest Service Employees for Environmental Ethics ("FSEEE"), and the Sierra Club in Forest Service Employees for Environmental Ethics v. U.S. Forest Service, 08-cv-323-SJM (W.D.Pa. May 12, 2009) ("FSEEE"). Pursuant to the Settlement Agreement, the Forest Service agreed, in part, to analyze all future drilling proposals on split mineral estates in the ANF pursuant to the National Environmental Policy Act ("NEPA") prior to issuing Notices to Proceed.

Plaintiffs contend that the Settlement Agreement and its subsequent implementation by Leanne Marten ("Marten"), the current Forest Supervisor for the Allegheny National Forest ("ANF"), which requires the application of NEPA to the processing of "Notices to Proceed" ("NTPs") in connection with the exercise of privately held oil and gas rights in the ANF, is both substantively contrary to law and procedurally deficient. Plaintiffs further contend that they are suffering irreparable harm as a result of the Forest Service's refusal, with the exception of a handful of grandfathered wells, to permit access to privately held mineral rights in the ANF since January of 2009. They characterize the Settlement Agreement as a dramatic and arbitrary change in the manner in which the Forest Service and oil and gas drillers had historically interacted in the ANF in dealing with issues concerning private mineral rights.

The Forest Service counters that it retains the power to reasonably regulate the exercise of private oil and gas rights in the ANF and that the application of NEPA to individual oil and gas drilling requests, including the present ban on drilling, represents a reasonable and lawful exercise of the Forest Service's regulatory authority and stewardship of the ANF.

Defendants initially assert a jurisdictional challenge to Plaintiffs' action. Specifically, they contend that each Plaintiff has failed to prove a demonstrable injury in fact as a result of the actions taken by the Forest Service and, therefore, lack standing. They also contend that the action is essentially premature in that there has been no "final agency action" within the meaning of the Administrative Procedure Act, 5 U.S.C. §§ 551 et seq. ("APA").*fn1

A hearing on the Plaintiffs' request for a preliminary injunction was conducted on August 24th through August 26th, 2009. Post-hearing submissions were filed by the parties on September 22nd and 23rd, 2009. The following represents the Court's Findings of Fact and Conclusions of Law.

FINDINGS OF FACT

A) The Parties

1. Plaintiff Minard Run Oil Company ("Minard Run") is a Pennsylvania corporation headquartered in Bradford, Pennsylvania. Minard Run is in the business of crude oil and natural gas drilling and production, operating primarily in western Pennsylvania. (Complaint ¶ 1). Minard Run is the owner of various oil and gas interests in the ANF.

2. Plaintiff POGAM is a Pennsylvania non-profit organization headquartered in Harrisburg, Pennsylvania. POGAM is a trade association comprised of Pennsylvania's independent oil and gas producers and serves to promote the interests and general welfare of Pennsylvania's crude oil and natural gas industry. (Complaint ¶ 2). The membership of POGAM consists of oil and gas drillers, producers and refiners who own or lease oil and gas interests in the ANF or who rely upon oil and gas from the ANF in their business.

3. Plaintiff AFA is a Pennsylvania non-profit with its principal place of business located in Kane, Pennsylvania. AFA is a coalition of public school districts, municipalities, and businesses that have interests connected to the ANF and which rely upon multiple-use management of the ANF's resources. (Complaint ¶ 3).

4. Plaintiff County of Warren, Pennsylvania ("Warren County") is a governmental entity located in northwestern Pennsylvania. Warren County is one of four Pennsylvania counties in which the ANF is located. (Complaint ¶ 4).

5. Defendant Forest Service is an agency of the United States Department of Agriculture. (Complaint ¶ 5). The Forest Service is the owner of the surface estate of the land comprising the ANF.

6. Defendant Abigail R. Kimbell is the Chief of the Forest Service. Defendant Kent P. Connaughton is the Regional Forester of the Eastern Region of the Forest Service. The ANF is within the supervisory authority of both Kimbell and Connaughton. (Complaint ¶¶ 6-7). Defendant Marten is the current Forest Supervisor of the ANF, having held that position since January, 2008. (Complaint ¶ 8; Transcript p. 318).

7. Defendant Eric H. Holder is the Attorney General of the United States and the head of the U.S. Department of Justice. Attorney General Holder has control over the conduct of litigation involving the United States, including the authority to settle claims against the same. (Complaint ¶ 9).

8. Defendant FSEEE is a non-profit corporation headquartered in Eugene, Oregon. (Complaint ¶ 10).

9. Defendant ADA is a Pennsylvania non-profit corporation headquartered in Kane, Pennsylvania. (Complaint ¶ 11).

10. Defendant Sierra Club is a national non-profit organization principally located in San Francisco, California. (Complaint ¶ 12).

B) Treatment of Split Estates in the ANF Prior to the Settlement Agreement

11. In 1859, Colonel Edwin L. Drake struck oil in the Allegheny Plateau region of Pennsylvania, pioneering a new method of oil extraction that would eventually lead to rapid oil and gas development throughout the Allegheny Plateau and world-wide.

12. Prior to the start of the 20th century, the vast majority of lands comprising the ANF were privately owned and subject to state property laws. Beginning in 1891, Congress began to authorize federal acquisition of lands suitable for timber production and watershed protection in order to ensure a continuous national supply of these valuable resources. See 16 U.S.C. § 471, 26 Stat. 1103 (repealed); 16 U.S.C. § 475. In order utilize limited funds to acquire as much acreage for timber and watershed management as possible, the National Forest Reservation Commission deliberately sought to purchase large tracts of surface estate without acquiring the valuable mineral rights contained therein.

13. The 1911 Weeks Act established funding and procedures for acquiring the privately held property interests that became the ANF and other eastern national forests. 16 U.S.C. §§ 511-21. The government acquired the vast majority of ANF surface estates prior to 1937. (Mayer Decl. ¶¶ 31, 40). The ANF, part of the Eastern Region of the National Forest System, was established by presidential proclamation in 1923. 43 Stat. 1925 (1923).

14. As a result of the federal government's decision to forgo the acquisition of mineral rights, over 93% of the mineral estates in the ANF are privately owned. (Id). These private mineral estates exist in two distinct categories: "reserved" mineral rights, and "outstanding" mineral rights.

15. Reserved mineral rights were created when the fee owner transferred the surface estate to the federal government and retained the mineral estate. Approximately 48% of the mineral estates in the ANF are "reserved" estates. (U.S. Forest Service, July 2009 ANF Draft Supplemental Environmental Impact Statement ("SEIS"), Plaintiffs' Ex. S-46, App. C, p. 1). Under the Weeks Act, reserved private mineral rights are subject to federal control only to the extent set forth in "rules and regulations . . . expressed in the written instrument of conveyance." 16 U.S.C. § 518.

16. Reserved mineral rights are categorized by the set of Secretary of Agriculture Rules and Regulations in effect at the time of federal acquisition and are typically referred to as 1911, 1937, 1947 or 1963 reserved rights. (U.S. Forest Service, July 2009 ANF Draft SEIS, Plaintiffs' Ex. S-46, App.C, p. 1). The vast majority of the reserved mineral estates in the ANF are "1911 reserved rights." These typically incorporate the following standard seven paragraph version of rules adopted by the Secretary of Agriculture in 1911 in the instruments of conveyance relative to those mineral estates:

1. Every person claiming the right to prospect for minerals, oil or gas, or the products thereof, or to mine, drill, develop or operate in or upon lands acquired by the United States under the provisions of the Act of March 1, 1911 (36 Stat. 961), with a reservation to the grantor of mineral rights, including oil and gas, must, on demand, exhibit to the Forest Officer in charge satisfactory written evidence of the right or authority from, through or under the said grantor.

2. In prospecting for, and in mining and removing minerals, oil and gas, and in manufacturing the products thereof, only so much of the surface shall be occupied, used or disturbed as is necessary for the purpose.

3. In underground operations all reasonable and usual precaution shall be made for the support of the surface and to that and tunnels, shafts and other working shall be subject to inspection and examination by the Forest Officers, Mining Experts or Inspectors of the United States.

4. Payment of the usual rates charged in the locality for sales of National Forest timber, and timber products of the same kind or species shall be made to the United States for all timber, undergrowth or young growth, cut, destroyed or damaged in prospecting, mining, drilling or removing minerals, oil or gas, or in manufacturing products therefrom, and in the location and construction of buildings or works of any kind for use in connection therewith. All slash resulting from such cutting or destruction shall be disposed of as directed by the Forest Officer, when inflammable in his judgment. No timber, undergrowth or reproduction shall be unnecessarily cut, destroyed or damaged.

5. All buildings, camps, equipment and other structures shall be removed from the Forests within six months after the completion or abandonment of the operations, otherwise such buildings, camps, equipment and other structures shall become the property of the United States.

6. All destructible refuse caused by the operations hereunder, which interferes with the administration of the forest growth shall, within six months after the completion of said operations, be disposed of.

7. While operations are in progress, the operators, contractors, subcontractors and employees of contractors and subcontractors at work on the National Forest shall use due diligence in the prevention and suppression of fires, and shall be available for service in the extinguishment and suppression of all fires within the particular locality.

(Mayer Decl., ¶ 37). These deeds do not require a "permit" for "surface use, occupancy or disturbance." (1984 ANF Handbook, Ch. 1, p.3; Ch. 2, p. 14).

17. The July 2009 ANF Draft SEIS reiterates that "[t]he major difference[] between the 1911 rules and regulations and the others are that the 1911 do not require a permit, bond or reclamation." (U.S. Forest Service, July 2009 ANF Draft SEIS, Plaintiffs' Ex. S-46, App.C, p. 1).

18. Outstanding mineral rights, on the other hand, were created when the surface estate and the mineral estate were severed from one another in a transaction between private parties prior to the federal government's acquisition of the surface estate. Federal purchase of surface estates subject to outstanding mineral rights took place pursuant to a 1913 amendment to the Weeks Act authorizing such acquisitions. 37 Stat. 828, 855 (1913). Approximately 52% of the private oil and gas mineral estate in the ANF are outstanding estates. (U.S. Forest Service, July 2009 ANF Draft SEIS, p. 1).

19. With regards to outstanding estates, the 1984 ANF Handbook provides three examples of the language used in a typical deed to severe the mineral and surface estate: Example: Typical Deeds on the ANF When the Forest Service began to acquire land, much of the oil, gas and minerals were owned by operators by right of severance conveyances made before the turn of the century. Under these exceptions, the subsurface was separated from the surface by wording within deeds, such as the following:

1. Excepting and reserving from the operation of this conveyance and out of the premises hereinbefore described, all of the petroleum oil, gas, and minerals, in, under and upon and which may be produced from said premises; also, all oil wells and gas wells with their equipment, lines, etc., and buildings, structures and dwellings used in connection herewith, at the present time located on said premises; together with the right to enter there-on at all times for the purpose of drilling, mining, exploring for and producing, removing and transporting such petroleum oil, gas, mineral, and water; and also the right to erect, maintain, repair and remove such houses and other buildings on said premises as may be required for the use of the employees engaged in any of such operations.

2. Also excepting and reserving from the lands hereby conveyed to the said party of the first part, its successors and assigns, all oil, gas and minerals lying and being in and under the said two tracts of land above, described with the right to the party of the first part, its successors and assigns, to at all times enter upon said lands for the purpose of drilling, boring, mining and operating for the production of oil, gas and minerals with the right to erect and maintain all derricks, buildings, tanks, and structures necessary or convenient for the purpose of mining for, producing, storing and transporting oil, gas, minerals and water to, from over and across the premises with the right to lay, maintain, keep, repair and remove all necessary oil lines, gas lines, steam lines and water lines for the transportation of oil, gas and minerals and water and steam in, through, over and across said premises. The party of the second part further covenants and agrees for himself and all persons claiming under him that in cutting and removing the timber and bark on the lands above described he will do the same in such manner as not to injure the wells, rigs, pipelines and steam boxes of the party of the first part of those claiming under it and that he will in cases of any such injury, promptly pay to the party of the first part or those claiming under it the whole amount f the damage occasioned by such injury.

3. Excepting and reserving from the force and effect of this conveyance, all the oil and gas in, on, under or upon said several tracts, parcels or lots of land and every part and parcel thereof, together with the right of ingress, egress, and regress in and to and from and upon the same and every part and parcel thereof to said first parties, their heirs, executors, administrators, lessees, vendors and assigns, with the right to drill, dig, bore, obtain, store, transport and remove any and all oil or gas, in or under the same and the right to do in the ordinary manner all things usual, necessary and proper to be done, to have the full and proper use of this reservation and the full benefit and enjoyment thereof and also the right to have and use timber and wood for drilling, for rigs or fuel if such be then on the land. (1984 ANF Handbook, Ch. 1, p. 15).

20. The respective property rights of the ANF surface owner and the private owners of outstanding mineral rights were addressed in United States v. Minard Run Oil Co., 1980 U.S. Dist. Lexis 9570 (W.D. Pa. 1980). In Minard Run, the court held that the owner of mineral rights had an "unquestioned right" to enter the property to access and extract his minerals. Id. at *13. Recognizing that the owner of the dominant estate had an obligation to reduce unnecessary disturbance of the surface estate, the Court prescribed what it characterized as "minor restrictions which . . . should not seriously hamper the extraction of oil and gas." Specifically, the Court ordered oil and gas drillers to provide the following details "no less than 60 days in advance" of commencing drilling operations:

(1) A designated field representative

(2) A map showing the location and dimensions of all improvements including but not limited to well sites and road and pipeline accesses.

(3) A plan of operations, of an interim character if necessary, setting forth a schedule for construction and drilling.

(4) A plan of erosion and sedimentation control . . .

(5) Proof of ownership of mineral title.

Id. at *19-20.

21. The 1984 ANF Handbook provides guidance for Forest Service personnel in handling oil and gas proposals. With respect to outstanding and reserved mineral rights, the Handbook incorporates each of the requirements set forth in Minard Run, including the requirement that the Forest Service receive 60 days advance notice from the oil and gas operators. The Handbook notes that those conditions "are now standard operating procedures on the ANF and in the Eastern Region of the USFS." (Plaintiffs' Ex. A-15).

22. The 1984 ANF Handbook states that the "Forest Service is a resource-management agency, not a regulatory agency." (Plaintiffs' Ex. A-15, Ch. 1). The Handbook acknowledges that no permit is necessary for surface disturbance or occupancy under the 1911 Weeks Act regulations. (Plaintiffs' Ex. A-15).

23. Chapter 2 of the Handbook states that "The Forest Service must review all proposals and prepare an Environmental Assessment of the surface disturbance activity regardless of mineral ownership." (Plaintiffs' Ex. A-15, Ch. 2). The Handbook makes no reference to preparation of an Environmental Impact Statement. (Plaintiffs' Ex. A-15).

24. The Handbook contains a disclaimer that "direction provided by law, regulation, or the Forest Service Manual always takes precedence over direction in this Handbook." (Plaintiffs' Ex. A-15).

25. The policies, practices and procedures of the Forest Service, including those relevant to oil and gas activities, are governed by the 1986 Allegheny National Forest Forest Plan. (Transcript pp. 248-49, 297-98). The 1986 Forest Plan was accompanied by an Environmental Impact Statement which was adopted through a public notice and comment procedure and which assessed the cumulative impacts of oil and gas activities on the ANF.*fn2 (Id.) In relevant part, the 1986 Forest Plan provides:

Land management decisions must not preclude the ability of private mineral owners to make reasonable use of the surface, as defined by deed and public law. The Forest Service will protect the rights of the federal government, respect private mineral rights, and insure that private mineral owners and operators take reasonable and prudent measures to prevent unnecessary disturbance to the surface.

Forest Service administration of outstanding and reserved mineral rights will be in accordance with deeds, mineral reservations, and state and federal laws.

(Plaintiffs' Ex. O). The 1986 Forest Plan does not require a forest-wide EIS to be prepared pursuant to NEPA before private oil and gas projects may go forward. (Transcript pp. 249-50).

26. The 1990 Forest Service Manual, Chapter 2830, provides Forest Service personnel with "applicable direction in those situations where the United States does not own the minerals and/or rights to minerals underlying lands in the National Forest System." (Transcript p. 306; Plaintiffs' Ex. A-5).

27. Subchapter 2830.1 states that reserved mineral rights are subject to "[t]he appropriate rules and regulations in effect at the time of the mineral reservation" which "were incorporated as part of the deed by which the United States acquired the surface." (Plaintiffs' Ex. A-5).

The "specific terms of the deeds by which the surface and subsurface owners acquired their interests also provide the Forest Service authority to administer mineral reservations and outstanding mineral rights." (Id.) The Manual acknowledges that "the Forest Service does not have authority to deny the exercise of a mineral reservation or outstanding mineral right." (Id.)

28. In 1992, Congress codified the directives set forth in Minard Run in § 2508 of the Energy Policy Act of 1992. That provision requires the Forest Service to issue rules for private oil and gas estates in the ANF that are limited to the following terms and conditions:

(2) The terms and conditions referred to in paragraph (1) shall require that reasonable advance notice be furnished to the Secretary of Agriculture at least 60 days prior to the commencement of surface disturbing activities.

(3) Advance notice under paragraph (2) shall include each of the following items of information:

(A) A designated field representative.

(B) A map showing the location and dimensions of all improvements, including, but not limited to, well sites and road and pipelines accesses.

(C) A plan of operations, of an interim character if necessary, setting forth a schedule for construction and drilling.

(D) A plan of erosion and sedimentation control.

(E) Proof of ownership of mineral title.

Nothing in subsection shall be construed to affect any authority of the State in which the lands concerned are located to impose any requirements with respect to such oil and gas operations.

30 U.S.C. §226(o), 106 Stat. 3108 (1992).

29. From 1981 through approximately 2008, the Forest Service and oil and gas drillers relied upon the framework set forth in Minard Run to define their respective rights and obligations. (Transcript p. 255). After receiving a drilling proposal from a private operator, the Forest Service reviewed the proposed operating plan and conducted a brief analysis as to potential impact on the surface estate. (Transcript p. 257). The Forest Service would then work cooperatively with the drillers to address any concerns prior to issuing a "Notice to Proceed." (Id.) NTP's were issued by the Forest Service to acknowledge that they had reviewed the proposal and had no objections to the drilling project. (Id.)

30. Ernest Rozelle testified to his employment in the ANF as a "land staff officer" from 1986 to 1999. (Transcript p. 254-55). Rozelle's duties included oversight of oil and gas activities in the forest. (Id. at 245-46). Rozelle viewed Minard Run as "a landmark decision, which actually helped both the oil and gas operators and the Forest Service because it defined our roles." (Id. at 255).

31. Following Minard Run, the Forest Service developed a relationship of "cooperation" and "trust" with the private oil and gas industry operating in the ANF. Activities in the ANF were managed on a "cooperative" basis. (Transcript p. 246). The Forest Service officials in the ANF also interacted continuously with Pennsylvania regulatory authorities. (Transcript pp. 246-248).

32. During Rozelle's tenure, the Forest Service viewed the 60 day timeframe set forth in Minard Run as a target for completion of their analysis relative to individual drilling requests. (Transcript p. 256). In his experience, 90 to 95 percent of the drilling requests were processed within 60 days. (Id.)

33. Rozelle was unaware of the Forest Service ever applying NEPA to private oil and gas interests in the ANF and "viewed the Forest Service as a resource agency [rather than] a regulatory agency." (Transcript p. 249-50, 257).

34. David Fredley testified as to his employment with the Forest Service from 1981 through 1997. Fredley served as a mineral specialist in the Southern Region of the Forest Service, then held the position of Assistant Director for Minerals and Geology Management in the Washington Office of the Forest Service. (Transcript p. 275). In his capacity as a mineral specialist, Fredley was responsible for mineral management in 13 southeastern states, all containing National Forest land, the vast majority having been acquired pursuant to the 1911 Weeks Act. (Transcript pp. 276-77). As Assistant Director for Minerals and Geology, Fredley was responsible for developing policies and management practices with regard to minerals estates on Forest Service land. (Id.)

35. During Fredley's tenure in the Southern Region, it was the Forest Service's position that NEPA did not apply to the oversight of privately held mineral estates on National Forest land. (Transcript p. 277).

36. While working in the Forest Service headquarters in Washington, Fredley assisted in the development of the 1990 Forest Service Manual in cooperation with the staff in the Office of General Counsel. As noted previously, the Manual states that "the Forest Service does not have authority to deny the exercise of a mineral reservation or outstanding mineral right" and makes no reference to the applicability of NEPA to the exercise of private mineral estates. (Plaintiffs' Ex. A-5; Transcript p. 277-78). (Id.)

37. Fredley referenced examples of other National Forests in the United States where the Forest Service had taken the position that NEPA did not apply to the administration of private mineral activities. (Transcript pp. 280-84). For instance, the 2006 Land and Resource Management Plan for the Shawnee National Forest states that the "use of federal surface for [private] mineral activities shall be governed by the legal instrument, deed or similar conveyance document that identifies the reserved and outstanding rights. Land management decisions must not preclude the ability of private mineral owners to make reasonable use of the surface as defined by deed and law." (Transcript p. 282). Similarly, the Final Environmental Impact Statement and Revised Land and Resource Plan for the Ouachita National Forest in Oklahoma and Arkansas states that "Outstanding mineral rights are subject to the terms of the severance deed . . . [and] state law. The Forest Service reviews the plan and negotiates the operation condition for mitigation of surface disturbance with the operator and has no recourse to disallow the project, except through acquisition of the mineral estate." (Transcript pp. 282-83).

38. During Fredley's tenure, he was unaware of any instance where the Forest Service attempted to preclude access to privately held mineral rights, either outstanding or reserved, during the pendency of a forest-wide EIS. (Transcript p. 284).

39. David Wright, a 38 year employee of the Forest Service and the Forest Supervisor of the ANF from 1987 through 1992, viewed the 60 day time frame set forth in Minard Run as "a commitment between [the Forest Service] and the industry to accomplish both of our needs during that time frame." (Transcript pp. 294-95, 303-04). Wright's instruction to Forest Service officials during his tenure as Supervisor was to process mineral applications within 60 days or to "negotiate for more time . . . with the oil and gas operators." During his tenure, "well over 90 percent" of drilling proposals were processed within 60 days. (Transcript p. 304).

40. In 1991, Wright, in his capacity as ANF Supervisor, gave testimony at an Oversight Hearing before the Subcommittee on Energy and Environment of the U.S. House Committee on Interior and Insular Affairs. (Transcript pp. 303-04; Plaintiffs' Ex. N). During the hearing, Wright explained to the Chairman of the Subcommittee the basis for the Forest Service's position that NEPA did not apply to the processing of individual private oil and gas proposals:

MR. KOSTMAYER: Well, tell me how you implement the National Environmental Policy Act which you are charged with under the law in that particular area?

MR. WRIGHT: The NEPA applies to all activities that we have in that area outside of oil and gas. . . . It does not apply to oil and gas operations.

MR. KOSTMAYER: And what do you cite as your legal basis for that statement?

MR. WRIGHT: Mr. Chairman, this issue -- the circumstances surrounding . . . [these] third party operations are being looked at, explored right now by the attorneys for the USDA General Counsel. It is our position at this time that there is no Federal action that triggers a NEPA ...


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