Wyoming Supreme Court Punts on Potential BLM “First in Time, First in Right” Interpretation of Competing Mineral Developers

A recent case before the Wyoming Supreme Court failed to clarify what, if any, remedies are available to conflicting developers of federal mineral rights on overlapping lands. Rather, the Court’s ruling in Berenergy Corporation v. BTU Western Resources, Inc.; School Creek Coal Resources, LLC; and Peabody Powder River Mining, LLC, and BTU Western Resources, Inc.; School Creek Coal Resources, LLC; and Peabody Powder River Mining, LLC v. Berenergy Corporation¹ stated it could not decide the issue, while not so subtly asking the Secretary of the Interior and Bureau of Land Management (BLM), which could decide, to no longer “sit this one out.”

Berenergy Corporation (Berenergy) owned three oil and gas leases granted by the BLM. Berenergy originally filed for a declaratory judgment that the rights under its leases were superior to those under coal leases on overlapping lands that the BLM had issued later to affiliates of Peabody Energy Corporation (Peabody). Berenergy sought to prevent Peabody from shutting down Berenergy’s wells for fifteen to twenty years while Peabody mined areas in the overlapping land, and to prevent interference with Berenergy’s operations, including plans to water-flood oil-bearing formations covered in its leases.

Ruling on cross-motions for partial summary judgments, the district court stated that either party could block production of the other resource so long as the restriction was reasonable. Following trial, the district court sought to develop a plan for concurrent operations based on if the parties “could concurrently produce without materially reducing the quantity or value of the oil and coal produced.”²

The district court ruled that concurrent production under Berenergy’s proposal was economically infeasible, based on the value of the coal to be mined vastly exceeding the value of the oil wells. Berenergy’s well should be shut down, with Peabody compensating Berenergy $878,021 for doing so, and Peabody would additionally pay $13,051,084, to be held in escrow by the district court, for increases in the cost of water-flooding operations from a new well outside the area to be mined.

Both Berenergy and Peabody appealed portions of the district court’s ruling. Berenergy challenged the district court’s order allowing Peabody to mine, while Peabody appealed the order for more than $13,000,000 to be held in escrow.

The Supreme Court began by noting that Congress provided no guidance as to the allocation of rights and privileges where two mineral lessees operate in a single tract, or how to prioritize conflicting operation needs. However, the Court mentioned the Secretary of the Interior’s “broad discretionary authority over not only the imposition of lease terms and conditions, but over the allocation and management process as a whole.”³

Examining the language of Berenergy’s leases, the Court noted that the priority of Berenergy’s interests over those of subsequent lessees, seemingly granted by its leases, is subject to certain administrative rules and regulations. The most pertinent of those regulations is 43 C.F.R. §3000.7, which provides in relevant part that granting a permit for any one mineral “shall not preclude the issuance of other permits or leases for the same lands for deposits of other minerals with suitable stipulations for simultaneous operation.”⁴

An opinion letter dated August 3, 1992, from the Interior Department’s Office of the Solicitor to the BLM’s state director in Wyoming discussed this rule and adopted a “first in time, first in right” doctrine. This doctrine, based on the idea that “an earlier-issued mineral lease gives the associated lessee operating rights superior to those holding a later-issued lease,” can be altered by including “suitable stipulations” in a second lease if such stipulations would make it possible for the second lessee to operate simultaneously with the first without unreasonably interfering with the recovery of the first-leased mineral.⁵ If such stipulations are not included in the second lease, the BLM should not issue that lease. If such a lease issues, the first lessee retains his superior right to operate.⁶

The Court ultimately chose not to decide whether the Peabody lease provisions were sufficiently detailed or specific to constitute a proper stipulation. However, the Court noted that the provisions “appear to place decision-making authority over the operations rights conveyed by leases to conflicting mineral rights squarely and solely in the hands of the Secretary of the Interior and his designees.”⁷

The Court, rather than deciding the merits of the appeal, chose to frame its decision on the question of “[d]oes this case present a justiciable issue when this Court cannot render a decision binding on a federal agency, and can only offer an advisory opinion which may or may not ultimately bind the parties?”⁸ The Court held it “will not offer advisory opinions, which appears to be what is sought in light of the Secretary’s authority to disregard it and make a different decision.”⁹ Noting that the balancing of competing rights to mineral production in the public’s interest “is in part an intensely policy-driven matter committed to the Secretary” and that “[f]ederal resource policy is not our province,” the Court held that Congress intended the issues raised by Berenergy be decided by the Secretary of the Interior or its BLM designees, not the courts in Wyoming.¹⁰

Further, the Court could not render a truly binding judgment without the participation of the United States, and an agency of the United States probably cannot be joined. The Court remanded the case to district court to determine if the Secretary or other federal agency can be joined as a party. Failing that, the district court was directed to vacate its previous judgment and dismiss the case.

While the issue remains unresolved in the courts, the BLM’s review of the decision may lead to an administrative solution, and further clarification of the “first in line, first in right” policy.¹¹

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¹2018 WY 2 (2018)
²Id. at ¶ 10.
³Id. at ¶ 18.
⁴Id. at ¶ 20.
⁵Id. at ¶ 22.
⁶Id. at ¶ 32.
⁷Id. at ¶ 34.
⁸Id. at ¶ 4.
⁹Id. at ¶ 36.
¹⁰Id. at ¶ 42.
¹¹Heather Richardson, Wyoming Supreme Court weighs competing rights of oil and gas and coal leases, CASPER STAR-TRIBUNE, Jan. 7, 2018; http://trib.com/business/energy/wyoming-supreme-court-weighs-competing-rights-of-oil-and-gas/article_c7e0da63-4629-5d16-b409-72695f103a9d.html