WillSource Enterprise, LLC sought judicial review of two decisions of the Interior Board of Land Appeals (IBLA) concerning federal oil and gas leases which it was the operator and lessee. In August 2020, the U.S. Federal Court of Colorado found in favor of the IBLA. It concluded its was neither arbitrary nor capricious, and its refusal to apply equitable estoppel to the government’s actions was consistent with Tenth Circuit case law.
The Willow Creek Unit Agreement (Agreement) encompassed three leases approved by the Bureau of Land Management (BLM). The Agreement required the operator of Willow Creek to drill a well within six months of the effective date of January 2004, and an additional well every six months thereafter. Delta Petroleum Corporation, the original unit operator, obtained an extension to the deadline and completed the first well by November 2004. Delta and WillSource collectively requested and obtained five extensions of time up until November 2009. WillSource submitted an additional request in October 2009 which was denied in December 2009.
In November 2011, BLM informed WillSource that any lands outside the approved participating area were eliminated as of November 2009, although any lease outside the participating area would be automatically extended for two years. WillSource requested a “one-year lease extension” for three leases that had been a part of the Willow Creek Unit (Three Leases) but were not included in the participating area. BLM concluded the Three Leases were eliminated from the Willow Creek Unit. It noted the Three Leases were automatically extended by two years and expired in November 2011.
In June 2012, BLM requested WillSource submit a description of the lands eliminated within 30 days. WillSource subsequently sought administrative review (WillSource I). In September 2012, it filed a request to “suspend the leases BLM identified as having expired in its June 2012 decision. BLM stated the leases were already expired and could not be “suspended.” It denied the request.
In WillSource’s second appeal, (WillSource II), it argued against BLM’s denial of its request to “suspend” the Three Leases. It noted BLM granted it a “stay” of the BLM Colorado State Director’s review of an order in 2012, allowing it to gather supporting documentation in furtherance of its appeal. WillSource argued this allowed the stay of the expiration of the Three Leases as well. BLM Colorado State Director and the IBLA rejected this argument. WillSource sought judicial review after IBLA rejected both appeals. It argued IBLA’s decisions were arbitrary and capricious. It asserted it was “entitled to the two-year statutory extension that it lost when the BLM concealed that the status of the Three Leases changed.”
Granting of a Stay
WillSource argument for a “stay” was based on BLM’s decision granting WillSource’s stay request in June 2012. It argued the “stay” meant BLM would not consider whether the Three Leases were expired until after the BLM State Director issued a decision. The U.S. District Court held the stay hand no effect on the expired leases. It was intended to allow WillSource more time “to gather documents from the Forest Service and BLM to submit prior to the requested oral presentation for the BLM State Director Review.” The court noted the leases expired in November 2011 pursuant to the Unit Agreement and regulations. The U.S District Court concluded BLM had no legal authority to revive the expired leases based on a request for additional time to submit documents.
WillSource claimed the government should be equitably estopped from “retroactively contracting” the Willow Creek Unit. It argued the government caused the Three Leases to expire without notice. The federal court noted equitable estoppel is “rarely available against the government.” In F.D.I.C. v. Hulsey, 22 F.3d 1472 (10th Cir. 1994), the tenth circuit stated, “it is far from clear that the Supreme Court would ever allow an estoppel defense against the government under any set of circumstances.” It noted in F.D.I.C. v. Hulsey, 22 F.3d 1472, 1490 (10th Cir. 1994) the Tenth Circuit stated a party must clear a “high hurdle” by showing affirmative misconduct on the part of the government as well as the elements for estoppel. The federal court found BLM’s conduct did not “rise to the level of affirmative misconduct necessary for equitable estoppel to apply.” BLM promised to notify WillSource “the status of Will Creek Unit and the leases within the Unit” once BLM processed the participating area application but failed to do so. The court noted “at best” WillSource claimed BLM failed to describe what happen to its other leases under the Agreement. It did not find the failure to inform WillSource of “what is in its unit agreement as affirmative misrepresentation or concealment of material facts.”
Absent the question of misconduct on the government, the federal court found WillSource did not establish all the elements of estoppel. It noted WillSource was required to show: BLM knew or should have known of the facts; BLM intended its conduct would be acted on in a way that WillSource had the right to believe it was intended; WillSource was ignorant of the facts; and WillSource relied on BLM’s conduct to its detriment. The federal court found WillSource did not establish the last two elements. It noted the provisions of the Agreement were available to WillSource. It could not claim to be misled by the misrepresentations of the BLM.
WillSource asserted the IBLA’s decision was arbitrary and capricious. It argued the Three Leases were eliminated prior to the approval of the participating area was “factually impossible.” The application was approved in September 2010, but the BLM deemed the Three Leases was eliminated from the Willow Creek Unit in November 2009.
The Agreement stated the “effective date” of a participating area was “the date of completion of a well in the unit area. The well was completed in November 2004. The Agreement indicated that leases in the unit that were not approved in the participating area would expire on the fifth anniversary of the effective date of the participating area, which was November 2009. The federal court concluded the BLM correctly identified the expiration date. It held that it was not “factually impossible” for the leases to expire before BLM’s approval of the WillSource application.
The U.S. District Court noted that the Three Leases were automatically extended. According to 43 C.F.R. § 3107.4, any lease eliminated from a unit is automatically extended by two years after its elimination. The Three leases did not expire prior to BLM’s September 2010 approval of the participating area. The court concluded there was no “factual impossibility” because the “Three Leases did not expire until more than a year after BLM approved WillSource’s application for approval of a participating area.
The U.S. District Court of Colorado held in favor of IBLA.
If you feel that the government has errored in its decisions regarding your land lease/s, contact Whitcomb Selinsky PC at (866) 476-4558. We have a team of government contract experts ready to help you file for a review.