1. Recent Administrative and Judicial Decisions and Pending Cases
February 12, 2019
Matthew Collins, Michael Marchetti (ONRR)
Peter Schaumberg, James Auslander (Beveridge & Diamond, P.C.)

2. Disclaimer
The statements or opinions expressed in all ONRR presentations and panel discussions at the 2019 PASO-Tulsa Federal/Indian Royalty Compliance Workshop do not necessarily represent the views of ONRR or the Department of the Interior.

3. Overview Recent Decisions by and Notable Appeals to the ONRR Director
Recent Decisions by and Notable Appeals to the IBLA
Notable Appeals to Federal Court

4. ONRR Appeals Process 30 C.F.R. Part 1290:
An appeal may be filed from an Order.
An Order is a document:
“that contains mandatory or ordering language that requires the recipient to report, compute, or pay royalties or other obligations, report production, or provide other information.”
An Order does not include:
A non-binding request, information, or guidance, such as:
Advice or guidance on how to report or pay (unless it contains mandatory or ordering language);
Policy determination;
“Dear Payor,” “Dear Operator,” or “Dear Reporter” letter (unless it explicitly includes the right to appeal in writing);
Correspondence that does not include the right to appeal in writing.

5. ONRR Appeals Process (Cont.)
Common orders:
Order to report and pay additional royalties
Order to perform a restructured accounting (systemic error)
Order granting or denying a refund request
Order to report

6. ONRR Appeals Process (Cont.)
Time period for filing the
Notice of Appeal / Statement of Reasons
See 30 C.F.R. § 
ONRR cannot extend the time for filing a Notice of Appeal.
ONRR can extend the time for filing the Statement of Reasons.
Order to perform a restructured accounting for a federal oil and gas lease
Other orders
If issued by a Delegated State
If issued by ONRR’s Director
60 days
60 days (IBLA)
30 days
Matthew Collins

7. ONRR Appeals Process (Cont.)
ONRR, States, and Tribes
ONRR Director or BIA Director
ONRR Appeals Program
Appeals Coordinators (2)
Appeals Analysts (5)
Appeals Supervisor
Program Manager
Interior Board of Land Appeals (IBLA)
Solicitor’s Office
Federal Court
Department of Justice
Order
Order to Perform a Restructured Accounting issued by ONRR (not a State or Tribe) for a federal oil and gas lease
Note: Civil penalty notices follow a different process and are handled by ONRR’s Enforcement Program.

8. ONRR Appeals Process (Cont.)
Time Period for Final
Department of the Interior Decision
Royalty Simplification and Fairness Act (RSFA):
33 months total for ONRR and IBLA
ONRR and the Appellant may agree to extend the deadline
33 months applies to federal oil and gas leases (not solid minerals, geothermal, or Indian lands)

9. Time Limits for Orders and Refund Requests
Federal oil and gas leases
ONRR’s deadline to demand additional royalties:
7 years from when the royalties were due. See 30 U.S.C. § 1724.
Lessee’s deadline to request a refund:
Within a reasonable period of time and only during the adjustment period (the adjustment period is 6 years from when the royalties were due). See 30 U.S.C. § 1721a.
ONRR and the Appellant may extend these deadlines by written tolling agreement.

10. Recent Director Decisions
Shell Offshore Inc., ONRR OCS , et al. (Order Affirmed)
Issues:
Time period for refund requests
Accrual of interest on late royalty payments
Royalty Due Date
(3/31/2009)
Six Years (3/31/2015)
Valuation Agreement
(1/12/2012)
Production
(2/2009)
Refund Request
(2/29/2016)

11. Recent Director Decisions (Cont.)
BP Exploration & Production Co., ONRR OCS, et al
(Order Reversed in Part, Otherwise Affirmed)
ONRR and BP entered into tolling agreements.
BP’s Refund Requests sought refunds for new transportation costs.
Issue: Did the tolling agreements extend the time for BP to request refunds for new transportation costs?
1st Refund Request
11/13/2013
2nd Refund Request
2/12/2014
Audit Start
(2/2009)
Audit Close
7/13/2013
Production at Issue
( )

12. ISSUES IN PENDING DIRECTOR APPEALS
Non-arm’s-length gas processing filing requirements
(Indian lease)
30 C.F.R. § (b)(ii):
“You must submit the actual cost information to support the allowance to ONRR on Form ONRR–4109, Gas Processing Allowance Summary Report, within 3 months after the end of the 12–month period for which the allowance applies. ONRR may approve a longer time period.”
3 Months
(Form 4109 Deadline)
12 Month Reporting Period
Late Filing

13. ISSUES IN PENDING DIRECTOR APPEALS (Cont.)
Residue gas boosting
Calculation of Indian Oil Major Portion Prices (pre‑July 1, 2015 amendments)
Discrepancies between production and royalty volumes
Arm’s-length dedicated contract (Indian Index Zone)
Duty of a record title owner to file production reports
Gas used or lost in transportation
BSEE fees for offshore inspections
Others

14. IBLA Appeals Process
Notice of Appeal/Statement of Reasons/Administrative Record/Answer Record/Answer
Deadline to file notice of appeal with ONRR or BIA Director and Office of the Solicitor
43 C.F.R. §§ 4.411(a)(2), 4.413
No extensions
Deadline to appeal federal oil and gas restructured accounting orders
30 C.F.R. § (a)(2)
Deadline to file Statement of Reasons after Notice of Appeal filed
43 C.F.R. § (a)
Can be extended
Deadline for ONRR to file Administrative Record
43 C.F.R. § 4.411(d)
Deadline for ONRR to file Answer after Statement of Reasons filed
30 C.F.R. § (b)
30 days
60 days
“promptly”
Peter Schaumberg

15. Pending Before the IBLA
29 total ONRR cases
12 of 29 - royalty-in-kind cash out appeals
5 of 29 - non-oil/gas minerals
12 pending ONRR oil/gas cases

16. Pending Oil/Gas IBLA Cases
7 “unbundling” cases similar to ConocoPhillips (D. N.M.) and Devon (D. Wyo.)
2 NARMs cases similar to Continental (D.D.C.)
1 “Takes vs. Entitlements” case
1 Data Mining case (volume differences between OGORs and 2014s)
1 Production Reporting Verification case

17. Recent IBLA Decisions Energy Resources Technology GOM, Inc. (2015)
Priority Energy, LLC (2015)
Chevron U.S.A., Inc. (2017)   
XTO Energy, Inc. (2017)

18. Recent IBLA Decisions (Cont.)
Energy Resources
Offshore lease required an exploratory well “within the first 5 years of the term to avoid lease cancellation”
No automatic cancellation of lease when no exploratory well
Rent still owed after year 5

19. Recent IBLA Decisions (Cont.)
Priority
Condition of approval (COA) to measure off-lease expired
Properly valued production using higher of two reasonable volume estimates

20. Recent IBLA Decisions (Cont.)
Chevron
Royalties in lieu of severance tax case
Lessee did not show error of law or material error in ONRR’s factual analysis
Lessee did not show ONRR failed to give “due consideration to all relevant factors and based its decision on a rational connection between the facts found and the choice made”
Michael Marchetti
Chevron U.S.A., Inc., 191 IBLA 95 (2017)
“In challenging ONRR's requirement to report and pay royalties in lieu of State severance tax owed on production from Federal Outer Continental Shelf leases, an appellant must show error in ONRR's decision. An appellant may show error by demonstrating that ONRR committed an error of law or a material error in its factual analysis, or that ONRR's decision is not supported by a record showing that ONRR gave due consideration to all relevant factors and based its decision on a rational connection between the facts found and the choice made. This burden is not carried by merely expressing disagreement; instead, the appellant must show an error of law or demonstrable error of fact.”

21. Recent IBLA Decisions (Cont.)
XTO
Buyback volumes for fuel and gas-lift
Heating value wet-to-dry conversion
Restructured Accounting under 30 U.S.C. 1724(d)(4)

22. Pending in Federal Courts
California v. DOI (N.D. Cal.)
Repeal of Valuation Rule

23. Statoil USA E&P Inc. v. DOI (S.D. Tex.)
Federal Courts (Cont.)
Statoil USA E&P Inc. v. DOI (S.D. Tex.)
Knowing or willful civil penalty assessment for “maintenance” of inaccurate information
Appeal pending (5th Cir.)

24. Quinex Energy Corporation v. Zinke (D. Utah)
Federal Courts (Cont.)
Quinex Energy Corporation v. Zinke (D. Utah)
Index and Major Portion prices
Factors in setting civil penalty amount
Penalties assessed at $25 per line per day

25. Federal Courts (Cont.) U.S. v. Somont (D. Mont.) False Claims Act case
How to avoid being in OIG/DOJ’s cross-hairs

26. BP America Prod. Co. v. U.S. (Fed. Cl.)
Federal Courts (Cont.)
BP America Prod. Co. v. U.S. (Fed. Cl.)
Denial of overpayment interest under Fixing America’s Surface Transportation Act (FAST Act)
Does the U.S. Court of Federal Claims have jurisdiction?

27. W&T Offshore, Inc. v. Zinke (E.D. La.)
Federal Courts (Cont.)
W&T Offshore, Inc. v. Zinke (E.D. La.)
Refund request case
Cost to remediate paraffin plug in offshore transportation line
Reasonableness of transportation allowances

28. Continental Resources, Inc. v. Jewell (D.D.C)
Federal Courts (Cont.)
Continental Resources, Inc. v. Jewell (D.D.C)
NARMs gas valuation
Gas sold prior to processing - 30 C.F.R. § or §

29. Questions? Michael Marchetti Regulations Supervisor ONRR
(303)
Peter J. Schaumberg
Principal
Beveridge & Diamond, P.C.
(202)
Matthew Collins
Appeals Supervisor
(303)
James M. Auslander
(202)