w n t off shore versus david barnhart secretary of the department of interior at all issues new the courts never considered before the legal consequences of interior electing to receive its royalties in kind its offshore royalties in kind the court's rulings and prior will the cases provide the legal framework that controls cases the court rejected interior's effort to manufacture statutory and begin where none existed and so here it wasn't necessary for congress to have gone into great detail about how to resolve in  volumetric delivery imbalances all that's important is to understand that interior statutory interpretation converges congress's amount or value language into amount and value in just like in those two wrote the relief cases before interiors rewriting of congress's language exceeds its statutory authority and they do or some can make do one on one sometimes temporarily and then change absolutely default methodology under the regulations interior is allowed to collect a change that receive volumes in kind and then it can change back to cash and it can change back to unchain it can do it as often isn't so we in order to agree with you we would have to find that the language in the statute shows that congress did it did not leave a gap for the agency to find here right with respect to isn't that chevron st that that's essentially what the court needs so the language is takes care of this probably out we're going forward with in kind and then there's a discrepancy and interiors as we make up for the discrepancy  same period of production here was november over one's through september of eight interior is is requiring t t pay royalties in amount of those or the volumes already delivered and cash which is proposes it should have set amount of value but not both well it doesn't say that but but the o c s lands act in other sections for other other listing of matters that are or items that are separated by or does say sometimes this or that or both and so the lack of the or both modification in the matter value its argument that that demonstrates congress inten garner that's right that's right then and and you know interiors argument backfires because when you start looking for a language like that in the o c s lands act you see this or both construction in other you know other sections of the a and then they have articulated a reasonable rule under step two we still have you haven't conceded the case that's exactly right your honor can you get to that argument as sure so so even if the panel were to determine that interior has the statutory authority to require a lessee like that empty to pay both in volumes and in cash for a single time period interior still has to comply with the to rule on they didn't comply with the a p a is that a rinder then where are we is that what is that what it what it what result so so there cash on methodology the answer to the lawsuit is either the court issues a decision agreeing with our statutory interpretation or if the court accepts interior statutory interpretation it declares interior's final decision to be unlawful because it's based on a substantive rule or is that to which one would be unlawful but decision so the the interior board of land appeals decision upholding the orders to pay so the substantive rule here are wipes away the deer operator letters yes roach and your ex which were also cash right that's right they were also cash that's the one you're focusing on you know wipe out those x ray and and what they did was they developed this  methodology internally without involving the regulated community and issued dozens of identically worded workers to operators like to be empty telling them to comply with this new methodology portion of the delivery in balance by making one final delivery to the government we still have to reach the equitable i'm sorry i guess you did so so that's the question of of how much would the delivery be right that final delivery of  credit for all of its deliveries over the the relevant time period the interior bortles the land appeals said the derby and he was not entitled to credit for over deliveries made prior to february of three the district court that there was unlawful and says it doesn't he is entitled to credit for those deliveries in the government has appealed that point so the court needs to decide you know the government's appeal at that point which which should be denied so that there should be an order resolving the case remaining it for double n t to make one final delivery to the federal government giving deputy credit for all deliveries made in the two thousand and one to two thousand and eight  ways they could do it but debbie t has a lot of offshore production they could easily do this on yes yes one thing i've neglected to say is that even if you get to chevron step two i would look at the diamond royalties and take a pay payment was not remotely addressed by the statute in any sort of specific way and yet it found that the plain meaning of the term production meant that interiors claim was was an enforceable and the court applied the there was as a matter of value the whole clauses amount of value of production in that case it was what is the value of production so it's it's you know right in the neighborhood and just because if you were to get to seven step to that doesn't mean we l the gas on a c one that would be a difference but the value of the gas today today versus some amount that they've calculated right it's right but what's the matter how much money are we talking here and how much is it worse you have to get through all of the steps regarding volumes to figure out what exactly was in volumes and then you would so if we were to make obviously if we were going to make  st company to get through the administrators appeal process and to federal court and these other appeals have been stayed pending the outcome of this so there are across the industry there are tens of millions of dollars at stake in this issue recoup the value of the royalties that were due to the american people on one of the american people's most valuable assets and you heard from debbie and his counsel that they're here because the price of natural gas now is less than half of what it was when they should have delivered it which would save them an incredible amount of money now money that would of course not go to the american public  briefly on the statutory issue i do think it's clear that it encompasses interior's authority here to collect this money and it's not just in the amount or value of this is of course alue what they're seeking on unpaid on delivered loyalties so that covers it right there square away but also the rest of the statute which authorizes interior to take appropriate actions to make additional collections without restriction and requires lisey's to pay in the time and manner specified and given that full statutory context i think the authority given to the interior here under the statute to make these collections of under delivered royalties is clear i'm sorry mr gray on the statutory point amount of value is i'm just i'm struggling with how to articulate the right share on step one  question it's not helpful to me just to say oh is an m b a he was or not i think the supreme court has given us a little bit more guns and then said well did congress through its use of this language really leave nothing for the agency to fill in and as i understand it what's going on here that there are royalties that were at at some point were being in kind of the r i k program and then at some point the interior said and i think council opposite agrees that you had this authorities say ok we're going to stop that we're going to move to value but with respect to discrepancies on a royalty that was being collected in kind and here and now it's to say well now we want to make up for that discrepancy with cash right and that's the question here and they say you don't have authority under the statute to do that with specter particular we do you think the language on ambiguously gives you that authority or is it ambiguous and you have  the amount or value provision right step one of several includes all the stats relevant statutory context and then the relevance that's very context it's clear that congress gave the authorities the interior no limiting principle in that provision so what they say well only when it's the same period does interior not have the ability to do one or the other but why they never explain where in the statute that comes from why in the world congress would adopt that regime problem that this particular statute doesn't say amount of value or both no i don't think that's a problem at all and if you there are statutes certainly that say or both congress also if you do  in some other provisions where congress thought more clarity was necessary but if you just do it simple westfall search you return numerous instances where congress also includes the words but not both where it where clarity is needed so well when i think when they say or both is when congress decided that more clarity was needed i mean here you have an authorizing provision and they don't they don't even accept the full weight of their argument that if you credit that congress to say it or both the interior would have no ability to switch back and forth they've never been explained why there's a line there other than that it's convenient for their argument in this case and that wouldn't make sense that the shortages if they were do two years ago at that point they would do in in kind ok well they're overdue now so i think what they're saying is well you can't just now all of the sudden say something that is due in kind in the due in cash now because it makes more money for you would you agree that you could you could establish a rule where something has changed and kind in cash it would have to be fo the time and the reason is have to because they failed to make the deliveries and i think there's a practical point here that maybe hasn't come out yet today or in the breeze which is that when the agency ended the program the rd party contracts that relied on to have the program all expire the infrastructure all expires was not just a matter of the agency or now we can take the gas in the st place you'd have to have an authorization to restart the program you'd have to have all d new service contracts for transportation and processing and a whole infrastructure that's not in place and so part of what the agency was doing here this really goes if there is some ambiguity and has the agency adopted a reasonable approach  program you know you had the full life of the program to make up these deliveries about the way the program was supposed to work was going to make rolling deliveries if you want to deliver in one month the next month you were supposed to do it one hundred and twenty d by then you have to set up a new system with in theory to do it or pay a cash out and it didn't work that way you know they didn't do it and now we're left with a program that's ended you know not the infrastructure to accept the payments and the american people not having received the value of the royalties him physically deal with payment and conquer at this point right i would require a major administrative action to deal with them and i don't think i don't think that  that particular point is brought out well in the record there is things about expiring contracts and the record that you can you can glean from it to me that gets into the substantive rule problem because if you ended the program and so you now you have a new regime which you're basically saying you didn't comply with the a p a not you personally thank you can you can you help us there because that to me seems like the more difficult problem for the interior in this case even if we were to accept your you under one or step two i'm happy to do that and i think what you see is that the the orders to pay are clinton's central informal adjudication there was a problem here the problem was we have under deliveries of royalties there was a dispute about how to do  and the agency had to decide how much for each you know we came out and there was there are more than one of these cases right for each one i'm not sure i'm not sure about a best case on there i mean i think mostly you know that this court case law is philips and shell oil neither which are particularly helpful for us but i do think they're distinguish that rules have to a future effect ok and so philips and shell oil both involve d situations where the pronouncements had future effect so in philips for example know you're philips dealt with the you know you had a system in place to calculate the value and then they said we're going to use this other method going forward they require people to recalculate royalties that they'd already paid which is different than the situation where we're just seeking one of these that haven't been paid philip said well you've adopted a new regime going forward that you're applying here that's problem that's an adjuvant or a problem in philips they're changing the way that they're going to do it and sell oil they say well we used to think this further you know thing was good enough but now we want proof from ferk going forward for everybody going forward the the agency was free here even in these it never adopted a policy you know they point to the dear operator letters and the i believe decision but there was never any formal adoption of any or informal adoption of any policy that we have to do it this reconciliation in kind but the n c said in this particular situation it's resolving a very particular situation in this particular situation we're going to adjudicate this to require a payment to make it up and the agency before sending orders to agreed on a uniform methodology and then which was incorporated in the orders to pay that were the incident to people like  the the agency certainly developed what it thought the right way to do it was yes i do not i'm not aware of any situations in which since he did something different but that doesn't mean that the agency wasn't free to do something different in because really these are your orders to pay and then you have a formal you have an adjudication right there through the ideal way and in particular there were particular circumstances  through that the agency would have been free in those circumstances or in just communication with us my point is it seems like i think this is the argument on the other side it seems like the agency decided here's how we're going to do it it's not legislating anymore then when the agency decides how it's going to do to kate particular cases it's not doing a legislative role the fact that if there were only one i mean there could have been only one legislator it's there could have been only one right now had there been only one new and say well the agency adopted a new rule the fact that there was more than one doesn't change what the agency did it's good agency policy to adopt a consistent practice i mean that's that doesn't e rule they almost uniformly involve some situation where the agency at some point says we are going forward this is how everyone shall be treated in here what if this was not a going forward situation this was this is how we're going to resolve d the imbalances that exist and that is a backwards that's that's adjudicatory that's that's different than saying from now on we're going to calculate in this particular way not the other way or in saying i can sell oil from now on you have to come with to us you have a case that draws that distinction between future and backward looking i mean there may not be because i don't there are i'm not sure i have it you know right at my from the author but they do talk about the reason that matters is because it has to have future effect i get it so but you mention binding effect is your argument that you're operating leverage binding well we're talking about they were they were banging on the ac in fact if you look that if you look at the history of the people who got it they didn't much treat them as binding and if you look at the history here the way the dear operator letters set out the way this was supposed to work was that if you had an imbalance you had sixty days to identify it then you had a month to make it up and if you had made it up in one hundred and twenty dollars days you worked with interior on a delivery schedule or a cash out payment but you know neither the agency nor the regular community really followed that religiously which those they were not signed by authorities with officials to with the officials with the authority to bind the agencies and i don't think those well i mean they're sent to administer the program and that's the agency operates there's an oral organized there's been an organizational shift within interior yes but there's no i mean there's no entire program at this point the secretary you know stopped it in two thousand and there's not there's nothing going on with respect to that making with respect and on it did it did do rulemaking with respect to value right if it did and you know i don't i don't know for sure the answer about why they didn't gauge rulemaking i think part of the answer is they started with a pilot program how's this going to work you know then they're you know essentially there and they were developing rules to go on you know as they were used you play in the south to see how it works you see and what the rules should be going forward and shell offshore is whether it applies just to a specific fact of a particular case i whether read lies more broadly and this does not apply if we were to apply that test just based on its words why would you lose well so show oil still oil so that there were two important things to its decision the departure from the previous practice and that formed the rest of the case which is why they talk about the departure from previous practice so paralyzed veterans of course said even where you have an interpretive rule that doesn't require those in combat rule making if you depart from that rule that departure requires  yes i agree with that and this is particular cases right there's not i mean what we're what they're resolving here are very specific imbalances that resulted from the program in the past and you know very particular cases and the fact that they're like a i said before that there's more than one doesn't change what the agency was doing i think it's i think there are something like thirty four dollars stayed cases w roughly twenty million dollars out there at stake and then i don't have the precise figures but that's it i think it's money it's fatah it's spot it's five companies who have you know different it is basically five companies who have different cases that are out there s this is exactly shell versus babbitt this is exactly phillips petroleum the agency the record demonstrates that the agency after terminated the program spent two years trying to figure out what to do and then came up with a methodology that applied across the board in a joint motion with filed in the interior board of land appeals the office of natural resources revenue said upon terminations they are a key program on or issued dozens of cash out memoranda and or is to report and pay additional royalties to federal various barrel oil and gas lessees each of which employed in effectively identical methodology to result delivery imbalances remaining at the end of the iraqi period the owner or director in this case one of the administrative appeals levels said on our apply the same methodology to all cash out cellmates and in of the or i k program and then in the district court interior said in one or consistently applied y babbitt and in philips in both cases interior issued orders which said back then a few years ago you didn't pay royalties correctly and in all those cases at issue was past rody payments which were demanded based on a new a new substantive rule that is not going through rulemaking here the future effect is is that interior says we've now come up with this new methodology and you have to understand it was brand new in very different than anyone expected or had seen before and they said we're going to apply it going forward to resolve all these past imbalances so this is  regulation that's the problem here they didn't come out with any regs they recognize the need to they started to do they started to draft them that's what they told the general accountability office of congress they said we have sui recognize we need they can't do it if it's substantive they have it they can't and this is wrong about that determination but they can switch to saying we're not going to do regulations if they act believe genuinely that it's not substantive it's not it's not really what they believe it's whether it is in fact substantive or not and so the case law says it's substantive if it fills in gaps in legislation it's substantive if it effectively legislates the interior board of land appeals here said the statues don't say anything about this and which is effectively an admission that this is a substantive rule because they were in their mind filling gaps it's substantive because it's binding on the regulated commute community they said their words if you don't pay like this you're going to get civil penalties so they treated it as binding on the regulated community and on the regulators themselves knowing that at the agency could do anything different from this once they adopted it it's binding because they had to be because any time an agency looks and says well we can do this this way or this way or this way and they pick one of them that choice among alternatives is a substantive rule the regulated community is supposed to be involved in involved in this sort of decision making let me let me see what else  take a brief recess before considering the next case