WILLSOURCE ENTERPRISE, LLC

190 IBLA 225 Decided May 31, 2017

United States Department of the Interior Office of Hearings and Appeals

Interior Board of Land Appeals 801 N. Quincy St., Suite 300

Arlington, VA 22203

703-235-3750 703-235-8349 (fax)

WILLSOURCE ENTERPRISE, LLC

2014-172 Decided May 31, 2017

Appeal from a decision by the Colorado State Office, Bureau of Land Management, upholding the denial of a request to suspend operations and production on Federal oil and gas leases. SDR

Affirmed.

1. Oil and Gas Expiration; Oil and Gas Leases: Suspensions

Applications to suspend operations and/or production on a Federal oil and gas lease must be filed before the lease expires. Lessees are presumed to know when their Federal oil and gas leases expire and are not entitled to notice prior to their expiration.

2. Estoppel

Estoppel is an extraordinary remedy that must be based upon affirmative misrepresentations or the concealment of material facts, upon which a party detrimentally relied. To establish estoppel, the appellant must show: BLM knew the true (2) appellant was ignorant of the true facts; (3) BLM intended its conduct to be acted upon or so acted as to give appellant reason to believe it was so intended; and (4) appellant detrimentally relied on BLM's conduct.

APPEARANCES: N. Cavanaugh, Esq. and Steven J. Lechner, Esq., Lakewood, Colorado, for WillSource Enterprise, LLC; Peter Hart, Carbondale, Colorado, for Wilderness Workshop,' Danielle DiMauro, Esq., Office of the Regional Solicitor, U.S. Department of the Interior, Lakewood, Colorado, for the Bureau of Land Management.

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OPINION BY ADMINISTRATIVE JUDGE JACKSON

WillSource Enterprise, LLC (WillSource) appeals from an April 10, 2014, decision by the Deputy State Director (DSD), Colorado State Office (CSO), Bureau of Land Management (BLM). In his decision, the DSD upheld on director review (SDR) a decision by the Colorado River Valley Field Office (CRVFO) that denied WillSource's request to suspend operations and production on Federal oil and gas leases -58840, and -58841. By Order dated October 26, 2015, the Board granted a motion to intervene by the Wilderness Workshop and denied WillSource's Motion to Consolidate this appeal with its appeal in IBLA 2014-104, which we decided in WillSource Enterprise, LLC

190 IBLA 138 (2017).

An application to suspend operations and production (SOP) on a Federal oil and gas lease must be filed with BLM before the lease expires.1 Since the leases at issue expired on November 11, 2011, and WillSource did not apply for an SOP until September 10, 2012, the DSD properly upheld the denial of WillSource's application for an SOP on these leases. We therefore affirm the decision on appeal.

Background

Federal leases and were issued for 10-year terms in 1996 and are located in the White River National Forest, Mesa County, Colorado. The leases were committed to the Willow Creek Unit (WCU), COC67101X, under the Willow Creek Unit Agreement (WCUA). WillSource executed the WCUA as the unit operator and a co-lessee of these leases.2 The initial obligation well for the WCU under the WCUA was completed on November 11, 2004, with the Little Beaver 1-20 well.3 The successful completion of that well extended the primary term of all leases in the WCU for so long as they remained committed to the WCU.4

By letter dated November 30, 2009, WillSource requested that BLM determine Little Beaver 1-20 to be capable of producing unitized substances in paying quantities and approve a participating area for that well.5 BLM made

43 C.F.R. § 3165.1(b). BLM approval of WCUA dated July 30, 2003. BLM Memorandum dated May 16, 2005. BLM Notice dated Nov. 8, 2005. See WillSource Request dated Nov. 30, 2009; WCUA, § 9 Drilling to Discovery

("Until the discovery of unitized substances capable of being produced in paying

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that determination and established the 440-acre Initial Mesaverde Formation Participating Area on September 21, 2010, "effective as of November 11, 2004."6

However, the WCUA expressly provides that any lands not in or entitled to be in a participating area within five years of the effective date of the WCU's initial participating area "shall be eliminated automatically from this agreement, effective as of said fifth anniversary, and such lands shall no longer be a part of the unit area."7 Since Federal leases 58840, and 58841 were not in an approved participating area by the fifth anniversary of the effective date for the unit's initial participating area, they were automatically eliminated from the unit, effective November 11, 2009. Although eliminated from the WCU, each lease received an automatic 2-year extension under 43 C.F.R. § 3107.4. 8

Consequently, each of the leases at issue automatically expired when its extension by rule expired on November 11, 2011.

By Order dated June 22, 2012 (June 2012 Order), BLM required WillSource to describe the lands that had been automatically eliminated from the WCU.9 Rather than comply, WillSource requested SDR and an extension of time to supply supporting documents.10 The DSD granted that extension

quantities, the Unit Operator shall continue drilling one well at a time . . . until a well capable of producing unitized substances in paying quantities is completed to the satisfaction of the [BLM]."). BLM Determination dated Sept. 21, 2010 (citing WCUA, § 11); see WCUA,

§ 11 Participation After Discovery ("Upon completion of a well capable of producing unitized substances in paying quantities, . . . the Unit Operator shall submit for approval by [BLM], a schedule . . . of all land then regarded as reasonably proved to be productive of unitized substances in paying quantities. These lands shall constitute a participating area on approval of [BLM], effective as of the date of completion of such well."). WCUA, § 2, Unit Area; see WillSource, 190 IBLA at 141. 43 C.F.R. § 3107.4 (Extension by elimination) ("Any lease eliminated from any

approved . . . unit plan . . . shall continue in for 2 years after its elimination from the plan or . . , and for so long thereafter as oil or gas is produced in paying quantities."); see 30 § 226(m) (2012) ("Any lease which shall be eliminated from any such approved . . . plan . . . shall continue in

for not less than two years, and so long thereafter as oil or gas is produced in paying quantities."). June 2012 Order at 1 (citing WCUA, § 2(e)); see WCUA, § 2(e) ("The Unit

Operator shall, within 90 days after the effective date of any elimination hereunder, describe the area so eliminated to the satisfaction of the [BLM Authorized Officer] and promptly notify all parties in interest.").

Request for SDR of June 2012 Order dated July 24, 2012.

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request: "The stay is granted due to the time needed to submit the supporting documentation and the scheduling of the oral presentation once the supporting documentation is He then added that BLM would not take action for any noncompliance with its June 2012 Order while it was on SDR.12 The DSD upheld the June 2012 Order, which was appealed to and affirmed by the Board in WillSource.

While its request for SDR of the June 2012 Order was still pending, WillSource requested an SOP of Federal leases 58840, and 58841 on September 10, 2012 (SOP Request).13 Although these leases were eliminated from the WCU and had expired, WillSource claimed its SOP request should be granted "until the SDR and potential IBLA reviews are concluded."14 CRVFO denied its request because an SOP is "not available to expired leases" and "these leases have expired."15 WillSource timely sought SDR of that denial, and the State Director upheld the denial by decision dated April 10, 2014 (SDR Decision). The DSD found his stay on SDR of the June 2012 Order "had no effect on the expiration of the leases" because it "simply granted additional time requested by WillSource 'to gather documents . . . prior to the requested oral presentation for the He therefore concluded that CRVFO had properly denied WillSource's SOP request. WillSource timely appeals from the SDR Decision.

Discussion

A decision on appeal must have a rational basis that is stated in the decision and supported by the record.17 An appellant challenging such a decision has the burden to demonstrate, by a preponderance of the evidence, that the decision is based on an error of law, a demonstrable error of fact, or that it is not supported by a record showing BLM gave due consideration to all relevant

Stay Request Granted, dated Aug. 23, 2012, at 1. See id. ("Any resultant termination actions for the leases, and the required

actions and potential assessments and civil penalties stemming from CSO directives will be held in abeyance."),

43 C.F.R. § 3103.4-4 (Suspension of operations and/or production). SOP Request at 1-2. CRVFO Decision dated Dec. 17, 2012, at 1. SDR Decision at 3 (quoting Stay Request Granted). See, e.g., Eric Carlson d/b/a Breckenridge Adventure Tours, 186 IBLA 319, 322

(2015); Western Industrial Minerals, 182 IBLA 11, 20 (2012) (quoting Thermal Energy Co., 135 IBLA 291, 322 (1996)).

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factors and acted on the basis of a rational connection between the facts found and the choice made.18

WillSource does not question that a request for an SOP of a Federal lease is properly denied under 43 C.F.R. § 3165.1(b) if the lease expired before that request was filed.19 Rather it challenges BLM's finding that Federal leases

58840, and 58841 had expired before it applied for an SOP on September 10, 2012. WillSource claims its leases were then in existence because the DSD had granted a "stay" of the June 2012 Order.29 In addition, WillSource claims BLM should be estopped from denying its SOP application.21 We address each of these claims below.

1. The expiration of the WillSource leases on November 11, 2011, was not affected by the Extension of Time Granted on SDR of the January 2012 Order.

WillSource contends the "stay" granted on SDR of the June 2012 Order precluded BLM from considering leases 58840, and 58841 to be expired until the merits of that Order were decided. But as detailed above and explained by the DSD, he was simply granting WillSource's request for an extension of time to file documents supporting its request for SDR of the June 2012 Order.22 All that the DSD "stayed," therefore, was the timeframe within which WillSource had been required to provide the documents. Moreover, these leases automatically expired when their extensions by rule expired on November 11, 2011, long before this "stay" was granted by the DSD.

WillSource has not carried its burden to show any error in the decision on appeal. Since Federal leases 58840, and 58841 were

See, e.g., Estates, 190 IBLA 123, 126 (2017), James R. Stacy, 188 IBLA 134, 135, 138 (2016); Mark Patrick Heath, 175 IBLA 167, 176 (2008); Michael Lederhause, 174 IBLA 188, 192 (2008); Meritage Energy Partners, LLC, 165 IBLA 204, 214 (2005).

See E. Yates Co., 156 IBLA 100, 105 (2001) ("Once the lease expires, there is nothing in existence for the Department to suspend. While the Department has the authority to retroactively approve a suspension of a lease after the expiration date has passed, it can do only i f a suspension application was properly filed before the lease expired.") (citations omitted).

Statement of Reasons (SOR) at 12-13. Id. at 13-17. SDR Decision at 3 (quoting Stay Request Granted at see also Answer at 7-

9.

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automatically eliminated from the WCU when it contracted on November 11, 2009, and their 2-year extensions by rule ended on November 2011, they expired on that date, as properly found by the DSD.23 WillSource knew or should have known this would occur when it belatedly applied for approval of an initial participating area on November 30, 2009, for a well completed over five years earlier, and also when BLM approved the participating area on September 10, 2010. We therefore affirm and proceed to consider WillSource's claim of estoppel.

2. BLM was not estopped from denying the WillSource SOP Request.

[2] The Board has made clear that estoppel is an extraordinary remedy when applied against the United States.24 Estoppel must be based upon an affirmative misrepresentation or concealment of material facts and that to establish estoppel, an appellant must show: BLM knew the true facts; (2) appellant was ignorant of the true (3) BLM intended its conduct to be acted upon or so acted as to give appellant reason to believe it was so intended; and (4) appellant detrimentally relied on BLM's conduct.25

WillSource raises four distinct bases for claiming why BLM was estopped from finding its leases had expired on November 11, 2011. First, BLM failed to inform WillSource that approval of the Initial Mesaverde Formation Participating Area on September 21, 2010, meant its nonparticipating leases had been automatically eliminated from the unit, effective November 2009.26

Second, WillSource was billed for and made annual rent payments to the Office of Natural Resources Revenue (ONRR) for the three leases after November 2011.27 Third, WillSource followed BLM's suggestion to check the status of its leases on the 2000 system," but the system never showed any change in their status.28 Fourth, WillSource followed BLM advice by filing for an SOP,

SDR Decision at 3 ("Because the leases expired on November 11, 2011, WillSource's request not timely, and the leases could not be suspended.").

See, e.g., Black Hills Plateau Production, LLC, 188 IBLA 368, 372 (2016). WillSource, 190 IBLA at 146. SOR at 16-17 (citing Declaration by Reed F. Williams, President of

WillSource, dated April 22, 2014) (Williams Declaration); id. at 3 ("Even more troubling is that WillSource never received any notice that its two-year extension to preserve leases COC 58835, 58840, and 58441 had been running.").

Id. at 14 (citing Williams Declaration). Id. at 15 (citing Williams Declaration); see id. at 11 ("BLM maintains the LR

2000 system, [which was] relied upon by WillSource and [is] relied upon by ONRR.") ("WillSource was expressly advised in the past by CRVFO employees

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claiming "CSO employees expressly advised WillSource to request SOPs for its leases to protect its interests."29

There is no requirement for BLM to separately inform unit operators and lessees when nonparticipating leases are automatically eliminated from a unit under the unit agreement. Nor is there anything preventing Federal leases from expiring if lessees are billed for and continue to pay rent on expired leases. We therefore ruled in WillSource that there was no estoppel preventing Federal leases 58840, and 58841 from being eliminated from the WCU on November 2009.30 We think a similar result is also warranted in this case.

Turning to WillSource's alleged reliance on the status of its leases, as reported by the LR 2000 system, we note it is a searchable database, available to the public and capable of generating a variety reports, but that any use of this system carries an express warning: "NO WARRANTY IS MADE BY BLM FOR USE OF THE DATA FOR PURPOSES NOT INTENDED BY This warning indicates that data produced by the system cannot serve as an affirmative misrepresentation of a material fact that can be reasonably relied on by lessees to establish an estoppel against BLM.3 2 Absent more than a simple assertion by WillSource that BLM suggested it check the status of its leases using LR2000, we conclude that WillSource's alleged reliance on reports generated by the LR 2000 system is not a sufficient basis upon which to estop BLM from finding Federal leases 58840, and 58841 were

that its only way of checking the status of WillSource's leases was through the LR 2000 system.") (citing Williams Declaration); see also id. at 3 ("Thus, despite acting diligently and contacting the CSO regarding the status of its individual leases and the Willow Creek Unit, and based on prior dealings with the agencies, WillSource reasonably believed that it would receive proper notice if the status of any of its leases changed.") (citing Williams Declaration).

Id. at 17 (citing Williams Declaration). See WillSource, 190 IBLA at 146-47 ("[W]e do not find that a failure to inform

the unit operator of what is in its unit agreement constitutes an affirmative misrepresentation or concealment of material facts. ... [Nor do we find] affirmative misconduct in the Department continuing to bill WillSource for leases that expired on November 2011, because any overpayments would be refunded."

See https://www.blm.gov/lr2000/ (last visited May 18, 2017). See Minerals, IBLA 152, 156 (1991) ("[W]hile appellant may well

have been ignorant in fact, it was not ignorant in law. Estoppel cannot lie where the party seeking to raise the defense is chargeable with the knowledge of the true facts.")

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automatically eliminated from the unit under the WCUA on November 2009, and that they automatically expired on November 11, 2011, when their extensions-by-rule ended.

WillSource also attempts to base its estoppel claim on CSO advice in 2012 that WillSource seek an SOP to protect its interests and a CRVFO letter dated April 1, 2014. As to the CSO advice, it was given more than a year after these leases were eliminated from the unit and had expired. As to the April 2014 letter, it simply informed WillSource and other lessees in the White River National Forest that their leases would be included in an upcoming review on remand in Board of Commissioners of Pitkin County, 173 IBLA 173 (2007), which could result in those leases being "voided, reaffirmed, modified with additional or different terms, or subject to additional mitigation measures for site-specific development proposals."33 However, this letter is simply a notice of that review and does not purport to make an affirmative representation that Federal leases 58840, and 58841 were valid and in existence on April 1, 2014. In any event, we fail to see how CSO advice in 2012 or a CRVFO letter in 2014 could estop BLM from finding these lease had automatically expired on November 11, 2011, under the WCUA, § 2(e) and 43 C.F.R. § 3107.4. To hold otherwise would be to grant a right not authorized by law, which would be contrary to well-established law and board precedent.

In sum, based on our review of the facts and allegations undergirding WillSource's several estoppel claims, we conclude it has not carried its burden to establish estoppel in this case.

BLM Letter dated April 1, 2014, at 1. See, e.g., Glen and Marie Teague, 179 IBLA 324, 339-40 (2010); Ron Coleman

Mining, Inc., 172 IBLA 387, 391 (2007).

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Therefore, pursuant to the authority delegated to the Board of Land Appeals by the Secretary of the Interior,35 we affirm the SDR Decision.

I concur:

43 C.F.R. § 4.1.

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