Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-07-05299/USCOURTS-caDC-07-05299-0/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued September 15, 2008 Decided December 23, 2008

No. 07-5299

DEVON ENERGY CORPORATION,

APPELLANT

v.

DIRK KEMPTHORNE, SECRETARY OF THE INTERIOR,

APPELLEE

Appeal from the United States District Court

for the District of Columbia

(No. 04cv00821)

Deborah B. Haglund argued the cause for appellant. With

her on the briefs was Charles D. Tetrault.

Erik Milito and Michele Schoeppe were on the brief for

amicus curiae American Petroleum Institute in support of

appellant. 

Sambhav N. Sankar, Attorney, U.S. Department of Justice,

argued the cause for appellee. With him on the brief was

Michael T. Gray, Attorney. R. Craig Lawrence, Assistant U.S.

Attorney, entered an appearance.

Before: BROWN, Circuit Judge, and EDWARDS and

SILBERMAN, Senior Circuit Judges.

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Opinion for the Court filed by Senior Circuit Judge

EDWARDS.

EDWARDS, Senior Circuit Judge: The United States leases

the rights to extract and sell natural gas from lands owned by the

Government. In exchange, lessees, like appellant Devon Energy

Corporation (“Devon”), agree to pay the United States royalties

on the natural gas they are able to produce. This case arises

from a final order issued by the United States Department of the

Interior (“DOI” or “Interior”) requiring Devon retroactively to

recalculate royalties owed to the Government pursuant to its

lease to extract coalbed methane from federal land in Wyoming.

 At issue is the agency’s interpretation of its “marketable

condition rule.” The rule was included as a part of DOI’s 1988

Revision of Gas Royalty Valuation Regulations, which establish

the framework for calculating the royalty value of coalbed

methane gas production. In its disputed order, DOI held that the

marketable condition rule precluded Devon from deducting

certain costs associated with compression and dehydration when

calculating the “gross proceeds” upon which royalties are owed.

DOI determined that gas cannot enter a pipeline and move to a

purchaser unless it meets the requirements of the pipeline, which

typically requires compression to raise its pressure and

dehydration to reduce its water content. Thus, DOI concluded

that if gas is not sufficiently compressed and dehydrated to be

deliverable to the point of purchase through the pipeline, it is not

in marketable condition. Devon filed suit in the District Court

to challenge Interior’s order. The District Court denied Devon’s

motion for summary judgment and granted the Secretary’s

cross-motion. On appeal, Devon argues that DOI’s order is

inconsistent with the plain language of the marketable condition

rule, and also inconsistent with DOI’s own prior interpretation

of the rule. 

We affirm the judgment of the District Court. First, we find

that Interior’s interpretation of the marketable condition rule

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reflects a perfectly reasonable construction of the rule. It is

clear that the agency’s order is not at odds with the plain

language of the rule, nor does it effectively “amend,” rather than

reasonably construe, the rule. Second, we reject Devon’s claim

that DOI’s order conflicts with a prior interpretation of the

marketable condition rule. Devon argues that its position finds

support in guidance documents distributed by agency personnel

after DOI’s promulgation of the 1988 regulations. However, as

Devon concedes, these contested guidance documents were

distributed by agency individuals who had no authority either to

amend the marketable condition rule or to issue authoritative

guidelines on behalf of the agency. 

I. BACKGROUND

A. Statutory and Regulatory Framework

Through its Minerals Management Service (“MMS”),

Interior issues and administers leases authorizing the removal of

natural gas from federal land. The Mineral Leasing Act, 30

U.S.C. §§ 181 et seq. (2000), “was intended to promote wise

development of these natural resources and to obtain for the

public a reasonable financial return on assets that ‘belong’ to the

public.” California Co. v. Udall, 296 F.2d 384, 388 (D.C. Cir.

1961). Under the Mineral Leasing Act, the producer-lessees

must pay the government-lessor “a royalty at a rate of not less

than 12.5 percent in amount or value of the production removed

or sold from the lease.” 30 U.S.C. § 226(b)(1)(A). In the

Federal Oil and Gas Royalty Management Act, the Secretary of

the Interior was instructed by Congress to create a

comprehensive inspection, collection, accounting, and auditing

system to ensure that the government receives the royalties

owed. 30 U.S.C. § 1711(a) (1982). 

The Mineral Leasing Act gives DOI the authority “to

prescribe necessary and proper rules and regulations and to do

any and all things necessary to carry out and accomplish the

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purposes of” the Act. 30 U.S.C. § 189. Pursuant to this

directive, DOI has issued a number of regulations governing the

royalty valuation process. In 1988, DOI conducted a major

rulemaking that modified the then-existing gas royalty valuation

regulations. See Revision of Gas Royalty Valuation Regulations

and Related Topics, 53 Fed. Reg. 1230, 1272 (Jan. 15, 1988); 30

C.F.R. § 206.152 (1988). The 1988 regulations establish the

framework for calculating the royalty value of the coalbed

methane gas production at issue here. Under this regulatory

framework, royalties are calculated on the basis of the total

value a lessee receives for its production. The regulations

specify that the “value of production” should be no less “than

the gross proceeds accruing to the lessee for lease production,”

minus certain allowable deductions. 30 C.F.R. § 206.152(h); see

also Amoco Prod. Co. v. Watson, 410 F.3d 722, 725 (D.C. Cir.

2005), aff’d sub nom., BP Am. Prod. Co. v. Burton, 549 U.S. 84

(2006). 

When calculating “gross proceeds,” DOI regulations have

long interpreted the Mineral Leasing Act to require lessees to

put the gas into marketable condition at no cost to the United

States – the so-called “marketable condition rule.” The 1988

regulations confirmed this requirement. See 30 C.F.R.

§ 206.152(i) (governing unprocessed gas); 30 C.F.R.

§ 206.153(i) (governing processed gas); see alsoCalifornia Co.,

296 F.2d at 387-88 (affirming marketable condition

requirement). Marketable condition is defined in the DOI

regulations as “lease products which are sufficiently free from

impurities and otherwise in a condition that they will be

accepted by a purchaser under a sales contract typical for the

field or area.” 30 C.F.R. § 206.151. If a lessee sells

“unmarketable” gas at a lower price, the gross proceeds are

“increased to the extent that the gross proceeds have been

reduced because the purchaser, or any other person, is providing

certain services” to place the gas in marketable condition. 30

C.F.R. § 206.152(i); Amoco, 410 F.3d at 725-26.

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The 1988 regulations also provide that the lessee may

deduct its actual costs of transporting the gas from the wellhead

to the point of sale when gas produced from the lease is sold at

a market remote from the lease. 30 C.F.R. § 206.157(a)-(b).

This “transportation allowance” includes “only those costs

which are directly related to the transportation of lease

production.” 53 Fed. Reg. at 1261. A transportation allowance

is defined as “an allowance for the reasonable, actual costs of

moving [gas] to a point of sale or delivery off the lease . . . or

away from a processing plant.” 30 C.F.R. § 206.151.

B. Facts and Proceedings Below

Devon leases land from the United States in Wyoming’s

Powder River Basin, which contains the natural gas known as

coalbed methane. These leases cover three fields – Kitty,

Spotted Horse, and Rough Draw – each of which contains a

large number of individual gas-producing wells. The gas

produced from the wells is gathered at central delivery points

(“CDPs”) that have been approved by the Bureau of Land

Management as the points of measure for the royalty due on the

gas. After the gas leaves a CDP, it goes through a complex

series of compression and dehydration processes as it travels

“downstream” to the Buckshot processing plant in preparation

for eventual sale. See Valuation Determination for Coalbed

Methane Production from the Kitty, Spotted Horse, and Rough

Draw Fields, reprinted in Joint Appendix (“J.A.”) 57

(“Valuation Determination”); see also Chart, J.A. 460. 

The production process varies slightly in the three fields,

but the differences are not material. Essentially, each CDP is

connected to a small diameter pipeline. Gas travels from the

CDP through the pipeline to one of several “screw

compressors,” which compress the gas to raise its pressure. The

gas then travels through the pipeline to a “field booster,” a

reciprocating compressor that further raises the pressure of the

gas. The gas then enters a dehydrator, which removes water.

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Valuation Determination, J.A. 61. At this point, the gas enters

a 24-inch high-pressure gas pipeline, which begins at what is

known as the Landeck Station and runs 126 miles to the

Buckshot Gas Plant. Approximately 30 miles from the Landeck

Station, the gas enters a large compressor called the “MTG

Booster,” which compresses the gas to raise the pressure from

450-500 pounds per square inch (“psi”) to approximately 1,200

psi. The gas travels the remaining 96 miles to the Buckshot Gas

Plant, losing approximately one-third of its pressure on the way.

Id. at 66. 

 When the gas arrives at the Buckshot Gas Plant, excess

carbon dioxide is removed, the gas is dehydrated, and the gas is

compressed from approximately 800 psi to 1,100 psi. At that

pressure, Devon delivers the treated gas into one of two lateral

pipelines. The gas is transported to various purchasers through

these pipelines. Id.

On November 2, 1995, DOI and MMS personnel serving on

a group called the Royalty Policy Board met to discuss how the

royalty calculation regulations should be applied to coalbed

methane production. See Royalty Policy Board Meeting

Minutes, Nov. 2, 1995, reprinted in J.A. 102. Subsequently, on

December 7, 1995, and December 8, 1995, the then-Deputy

Director of MMS issued two documents captioned “Coalbed

Methane Valuation and Reporting Guidelines” and

“Compression Guidance,” respectively. See Coalbed Methane

Valuation and Reporting Guidelines, Dec. 7, 1995, reprinted in

J.A. 157; Compression Guidance, Dec. 8, 1995, reprinted in J.A.

160 [hereinafter, along with the “Dear Operator” letter, infra,

“guidance documents”]. These documents were memoranda

from the Deputy Director to the Associate Director for Royalty

Management and the Associate Director for Policy and

Management Improvement. J.A. 83. Although they were not

promulgated pursuant to the notice-and-comment procedures of

the Administrative Procedure Act (“APA”), 5 U.S.C. § 553

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(2000), the guidance documents nonetheless suggested that

certain costs of compression and dehydration after the gas leaves

the CDP were deductible as transportation costs. 

Subsequently, on April 22, 1996, MMS’s Associate

Director for Royalty Management distributed a “Dear Operator”

letter detailing how to calculate royalties on coalbed methane

production. The letter stated:

If you sell your coalbed methane at the tailgate of a carbon

dioxide removal or other treating facility . . . [y]ou can

include costs of dehydration occurring after metering at the

royalty measurement point in your transportation allowance

but you cannot deduct costs of dehydration occurring at the

wellhead. You can include costs for compression occurring

downstream of the royalty measurement point, to the extent

the compression is necessary for transportation. This

includes compression at the CDP and in the transportation

system to the [carbon dioxide] removal facility. 

MMS Dear Operator Letter, Apr. 22, 1996, reprinted in J.A.

162, 164 [hereinafter, along with the “Coalbed Methane

Valuation and Reporting Guidelines” and the “Compression

Guidance,” supra, “guidance documents”].

From 1995 to 2002, Devon deducted the following costs as

transportation allowances: the cost of compressing the gas at the

screw compressors, the field boosters, the MTG Booster, and the

Buckshot Gas Plant, as well as the cost of dehydrating the gas.

Devon apparently assumed that these expenses were deductible

transportation costs under the guidance documents. On January

11, 2002, however, Devon sought guidance from MMS to

confirm that it was properly deducting (as part of its

transportation allowance) dehydration and compression costs

incurred after the gas leaves the CDPs. Request for Valuation

Determination, Jan. 11, 2003, reprinted in J.A. 166. On October

9, 2003, the Acting Assistant Secretary issued a decision

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rejecting Devon’s reliance on the guidance documents. See

Valuation Determination, J.A. 57. 

In its Valuation Determination, the agency found that

statements in the guidance documents were either ambiguous,

J.A. 84-85, or reflected an incorrect application of the

marketable condition rule, J.A. 84, or were simply

“inconsistent” with the rule, J.A. 85. The DOI Valuation

Determination held that Devon’s deductions of the costs of

dehydration and of compression performed at the screw

compressors, the reciprocating compressors, and the Buckshot

Plant were inconsistent with the marketable condition rule,

because the compression and dehydration functions were

necessary to put the production into marketable condition. 

Devon could not meet the requirements of any of its sales

contracts without compressing the gas to the pressure

necessary to get it into those [pipe]lines . . . . That is the

pressure that would enable the gas to be “accepted by a

purchaser under a sales contract typical for the field or

area,” in the words of the definition [of the marketable

condition rule] at 30 C.F.R. § 206.151. In other words, to

meet the requirements of the “sales contract[s] typical for

the field or area,” Devon had to compress the gas to

pipeline pressure.

Id. at 88. 

Both before and after the 1988 regulations, the lessee’s

obligation is to dehydrate gas to the water content required

for delivery to the pipeline (as necessary for sale under

contracts that are typical for the disposition of gas produced

from the field or area). . . .

Devon has not shown that the dehydration performed after

the reciprocating compressors and at the Buckshot Plant is

for anything other than what is required to put the

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production into marketable condition and what is necessary

for it to meet pipeline and purchaser requirements.

Id. at 91.

Devon’s request for reconsideration of the DOI Valuation

Determination was denied in March 2004. Final Order to

Perform Restructured Accounting and Pay Additional Royalties

(“Final Order”), Mar. 19, 2004, reprinted in J.A. 46. The DOI

Final Order largely reaffirmed the reasoning and conclusions

reached in the DOI Valuation Determination. Devon was

instructed to “perform a restructured accounting and pay

additional royalties on the coalbed methane produced from the

Federal leases” that were the subject of the DOI Valuation

Determination. J.A. 55. Devon was also instructed that, in the

future, it was to “report and pay royalties under the regulations

and guidelines discussed” in the DOI Final Order. Id. 

Devon filed suit in the District Court seeking to overturn the

Final Order. The District Court denied Devon’s motion for

summary judgment and granted Interior’s cross-motion for

summary judgment. Devon Energy Corp. v. Norton, No 04-Civ0821, 2007 WL 2422005 (D.D.C. Aug. 23, 2007). This appeal

followed.

II. Analysis

A. Standard of Review

“In a case like the instant one, in which the District Court

reviewed an agency action under the APA [5 U.S.C. § 706], we

review the administrative action directly, according no particular

deference to the judgment of the District Court.” Holland v.

Nat’l Mining Ass’n, 309 F.3d 808, 814 (D.C. Cir. 2002); see also

Troy Corp. v. Browner, 120 F.3d 277, 281 (D.C. Cir. 1997); Gas

Appliance Mfrs. Ass’n, Inc. v. Dep’t of Energy, 998 F.2d 1041,

1045 (D.C. Cir. 1993). We will uphold the contested agency

action unless we find it to be “arbitrary, capricious, an abuse of

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discretion, or otherwise not in accordance with law.” 5 U.S.C.

§ 706(2)(A). 

 An agency’s interpretation of its own regulation is entitled

to “substantial deference,” unless “plainly erroneous or

inconsistent with the regulation.” Thomas Jefferson Univ. v.

Shalala, 512 U.S. 504, 512 (1994) (internal quotation marks

omitted). However, an agency may not “evade [the] notice and

comment requirements [of § 553 of the APA, 5 U.S.C.

§ 553(b)(A),] by amending a rule under the guise of

reinterpreting it.” Envtl. Integrity Project v. EPA, 425 F.3d 992,

995 (D.C. Cir. 2006) (quoting Molycorp, Inc. v. EPA, 197 F.3d

543, 546 (D.C. Cir. 1999)); see also Am. Hosp. Ass’n v. Bowen,

834 F.2d 1037, 1044-48, 1052-57 (D.C. Cir. 1987). In

determining whether an agency action effectively “amends” a

rule without adhering to the requirements of the APA, we must

consider, inter alia, whether the agency officials involved in the

disputed actions had the authority to issue binding regulations or

otherwise act with the force of law on behalf of the agency. See

generally HARRY T. EDWARDS & LINDA A. ELLIOTT, FEDERAL

STANDARDS OF REVIEW – REVIEW OF DISTRICT COURT

DECISIONS AND AGENCY ACTIONS 130-35 (2007). 

B. Plain Language

Under the 1988 DOI regulations, “marketable condition” is

defined to mean “lease products which are sufficiently free from

impurities and otherwise in a condition that they will be

accepted by a purchaser under a sales contract typical for the

field or area.” 30 C.F.R. § 206.151. The marketable condition

rule requires lessees to put gas into marketable condition at no

cost to the United States. At issue here is DOI’s interpretation

of the rule to include the costs of compression and dehydration

incurred after the gas leaves the CDPs to allow it to move

through the pipelines that serve the market in which the gas is

typically sold. Devon argues that this interpretation is

inconsistent with the plain language of the regulations, because

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it improperly focuses the inquiry on the market where the gas is

actually sold, as opposed to the requirements of a sales contract

typical for the field or area. 

In its Valuation Determination and Final Order, DOI held

that costs associated with compression and dehydration are not

deductible if their primary function is to prepare the gas to move

through the pipelines to the point where gas is purchased.

However, the parties disagree as to what “sales contract typical

for the field or area” requires. DOI found that “typical” sales

contracts require that gas be delivered to the purchaser at the

terminus of a specified pipeline. Under this view, a producer

must provide the compression and dehydration necessary to

allow the gas to be delivered through the pipeline. Therefore,

the agency reasonably found that Devon “could not meet the

requirements of any of its sales contracts without compressing

the gas to the pressure necessary to get it into” the pipelines,

J.A. 88, and that Devon had “not shown that the dehydration

performed . . . [was] for anything other than what is required to

put the production into marketable condition . . . to meet

pipeline and purchaser requirements.” J.A. 91. 

It is true that the DOI marketable condition rule is

ambiguous, and Devon’s preferred interpretation of the rule is

not unreasonable. In other words, we assume that the costs of

dehydration and compression can reasonably be interpreted to

fall within the compass of “transportation costs.” However, we

are obliged to afford “substantial deference to an agency’s

interpretation of its own regulations.” Thomas Jefferson Univ.,

512 U.S. at 512 (citations omitted). On this record, we find that

DOI’s contested construction of the marketable condition rule

is reasonable. Indeed, DOI’s interpretation of the marketable

condition rule is consistent with an interpretation that this court

approved in Amoco, 410 F.3d 722. 

In Amoco, we addressed DOI’s interpretation of the

marketable condition rule as it related to the cost of transporting

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excess carbon dioxide to the treatment plant. The court held that

the marketable condition rule did not require DOI to

“understand typical sales contracts – and thus marketable

condition – as relating to transactions at the leasehold or

immediately nearby.” Id. at 729. “The regulation stipulating

that producers are to place gas in marketable condition at no cost

to the government does not contain a geographic limit.” Id.

Therefore, DOI’s interpretation of the marketable condition rule

to require lessees to compress and dehydrate gas to meet the

requirements of the pipelines that serve its typical purchasers is

not “plainly erroneous or inconsistent with the regulation.”

Thomas Jefferson Univ., 512 U.S. at 512. And as the court

noted in Amoco, the deference that we owe to an agency’s

interpretation of its own regulations “is particularly appropriate

in the context of a complex and highly technical regulatory

program, in which the identification and classification of

relevant criteria necessarily require significant expertise and

entail the exercise of judgment grounded in policy concerns.”

410 F.3d at 729 (citations and quotations omitted). 

C. The Requirements of a Typical Sales Contract

Devon argues that there is no record support for the

agency’s conclusion that the typical sales contract for the field

or area required Devon to compress its gas to 1,100 psi and

dehydrate it in order to put the gas in marketable condition.

However, although DOI provided Devon an opportunity to

supplement the record after the first valuation determination,

Devon merely asserted that it “believes that its working interest

partner, Redstone Resources, Inc., sells gas to unrelated third

parties in the field at pressures less than 1200 psi [sic] under

contracts typical for the field or area.” Request for

Reconsideration and/or Clarification, reprinted in J.A. 194, 196.

This cursory assertion is not sufficient to render DOI’s

interpretation unreasonable.

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D. Prior Inconsistent Interpretation

Finally, Devon argues that the agency’s interpretation of the

marketable condition rule (embodied in the DOI Valuation

Determination and Final Order) must be vacated because it was

issued without notice-and-comment rulemaking required by

§ 553 of the APA. At bottom, Devon’s central claim is that it

acted in reliance on the guidance documents and this “reliance

interest is protected by the APA.” Appellant’s Br. at 16.

Devon’s argument runs as follows:

The marketable condition rule does not prohibit the

deduction of transportation costs, and it does not attempt to

differentiate between deductible transportation costs and

nondeductible marketable condition costs. Because the

regulations do not expressly address the issue, the Royalty

Policy Board was called upon to interpret the regulations.

[Id.]

[The Board’s] decision gave rise to [the guidance

documents] which were consistently followed by Interior

from 1995 until 2003. [Id.]

Devon followed Interior’s publicly-announced guidelines

and instructions when it deducted its post-CDP dehydration

and compression costs. [Id.]

Interior’s decision in this case wrongly assumes that

Interior was not bound by its 1995 guidelines and

instructions because they were not embodied in a formal

regulation. This Court has long recognized that an agency

interpretation can be authoritatively adopted even if it was

not embodied in a rule that was adopted through a notice

and comment rulemaking. [Id. at 17.]

An agency’s consistent advice – and here it was instruction

– to the regulated community can evidence the agency’s

authoritative adoption of a regulatory interpretation. Such

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an interpretation can be changed only through a notice and

comment rulemaking. [Id.]

DOI’s description of the situation is quite different.

According to the agency, there was no official or binding

Royalty Policy Board action taken to address the issues now

before the court. Rather, DOI contends that

[n]otice and comment rulemaking was . . . not required for

Interior to change its interpretation of its regulation from

how it had been applied as a result of ambiguous guidance

documents. This Court has held that the very same

guidance documents were not binding on the agency. [See

Amoco, 410 F.3d at 732.] If they were not binding, then

they are not evidence of a definitive agency interpretation

and Interior can change its interpretation without going

through notice and comment rulemaking. . . . Absent a

definitive interpretation, the APA does not require notice

and comment rulemaking to effect a change in that

interpretation.

Appellee’s Br. at 15-16. For the reasons stated below, we agree

with DOI.

First, it is telling that the agency’s disputed Valuation

Determination and Final Order came only after Devon sought

confirmation from the agency that it was properly deducting the

dehydration and compression costs (as part of its transportation

allowance) incurred after the gas leaves the CDPs. This request

for confirmation was made in 2002, long after the issuance of

the guidance documents upon which Devon now relies. It is

perplexing, to say the least, that Devon was seemingly confused

over the propriety of its royalty accounting if, in its view, the

matters at issue had been authoritatively resolved over five years

earlier. In other words, there is much force to DOI’s argument

that, in fact, the guidance documents were far from conclusive

in what they said.

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Second, implicit in Devon’s prior-inconsistentinterpretation argument is a claim that the judgments reached in

DOI’s Valuation Determination and Final Order do not reflect

a supportable interpretation of the marketable condition rule. As

we have already explained in part II.B, supra, we find no merit

in this claim. Although the marketable condition rule is

ambiguous and Devon’s preferred construction of the rule is not

unreasonable, we are obliged to defer to the agency’s reasonable

construction of the rule. Thomas Jefferson Univ., 512 U.S. at

512 (holding that an agency’s interpretation of its own

regulation is entitled to “substantial deference,” unless “plainly

erroneous or inconsistent with the regulation”). 

Third, and most important, Devon is mistaken in its

argument that the guidance documents constituted authoritative

and binding interpretations of the marketable condition rule. In

rejecting Devon’s argument, we start with the principle that

agency actions do not have the force of law unless they “mark

the consummation of the agency’s decisionmaking process” and

either determine “rights or obligations” or result in discernible

“legal consequences” for regulated parties. Bennett v. Spear,

520 U.S. 154, 177-78 (1997). The “Dear Operator” letter

certainly does not satisfy this standard. Indeed, this court has

previously considered a different aspect of the very same “Dear

Operator” letter that is at issue in this case. See Amoco, 410

F.3d at 732. 

In Amoco, coalbed methane producers challenged an

Assistant Secretary’s decision that cited the April 22, 1996

letter, arguing that it constituted a new rule that the agency could

promulgate only through notice-and-comment rulemaking.

Citing Independent Petroleum Ass’n of America v. Babbitt, 92

F.3d 1248, 1256-57 (D.C. Cir. 1996), the court rejected

Amoco’s argument because the letter was not binding on the

agency:

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As in Babbitt, the Payor Letter here is not an agency

statement with future effect because nothing under DOI

regulations vests the Letter’s author – in Babbitt and this

case MMS’s Associate Director for Royalty Management

– with the authority to announce rules binding on DOI. Id.

at 1256. “The letter is not an agency rule at all, legislative

or otherwise, because it does not purport to, nor is it capable

of, binding the agency.” Id. at 1257.

. . . .

The sort of “workaday advice letter[s] that agencies prepare

countless times per year in dealing with the regulated

community,” Indep. Equip. Dealers Ass’n v. EPA, 372 F.3d

420, 427 (D.C. Cir. 2004) (internal quotation marks

omitted), do not retroactively become agency rules

whenever they are referenced in an agency decision.

Amoco, 410 F.3d at 732. 

In response to the Amoco holding, Devon says that it “does

not contend that the 1996 Dear Operator letter in and of itself

was a binding rule. Rather, Devon contends that the regulatory

interpretation it relied on was authoritatively adopted by the

agency through the cumulative effect of a number of agency

actions, including but not limited to, the issuance of the 1996

Dear Operator letter.” Devon Reply Br. at 14. There are two

problems with this argument. First, it assumes that the two

internal memoranda written by the Deputy Director of the

Minerals Management Service in 1995 to the Associate Director

for Royalty Management and the Associate Director for Policy

and Management Improvement were final and binding agency

interpretations of the marketable condition rule. Second, it

assumes that the guidance documents have the force of law

because Devon followed the advice contained in the documents.

There is no merit to these contentions. 

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Devon argues that these 1995 documents were conclusive

because they reflected the actions of the Royalty Policy Board,

as if to suggest that the Board had authority to adopt regulations

or guidelines that bind the agency. But when questioned about

this at oral argument, Devon’s counsel readily conceded that the

Royalty Policy Board had no authority to issue authoritative

guidelines, and that the guideline documents did not have the

force of law. This concession is unsurprising, because there is

nothing in the record here to indicate that the guidance

documents purported to have the force of law. 

At the very least, a definitive and binding statement on

behalf of the agency must come from a source with the authority

to bind the agency. See Ctr. for Auto Safety v. Nat’l Highway

Traffic Safety Admin., 452 F.3d 798, 810 (D.C. Cir. 2006)

(holding that Associate Administrator for Safety Assurance had

no authority to issue guidelines with binding effect on agency);

Ass’n of Am. R.Rs. v. DOT, 198 F.3d 944, 948 (D.C. Cir. 1999)

(holding a letter and two emails from lower level officials did

not amount to an authoritative agency interpretation); Paralyzed

Veterans of Am. v. D.C. Arena L.P., 117 F.3d 579, 587 (D.C.

Cir. 1997) (stating that a speech of a mid-level official of an

agency “is not the sort of ‘fair and considered judgment’ that

can be thought of as an authoritative departmental position”)

(citing Auer v. Robbins, 519 U.S. 452, 462 (1997)); Amoco, 410

F.3d at 732 (noting “Dear Operator” letter not binding on

agency because not authored by official with authority to

announce binding rules). The guidance documents at issue here

do not satisfy this standard.

Fourth, resting on its “reliance” theory, Devon suggests that

the agency is bound by the guidance documents because, for a

number of years, regulated parties followed the advice contained

in the documents. This argument fails. In Center for Auto

Safety, 452 F.3d 798, a case very much on point, the court held

that policy guidelines issued by the Associate Administrator of

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the National Highway Traffic Safety Administration did not

amount to a binding rule. The contested guidelines, which

related to automakers’ voluntary regional recalls, were found not

binding because the Associate Administrator had no authority to

issue binding regulations or make a final determination on the

issue. Importantly, the court also rejected the petitioner’s

argument that, merely because the agency and automakers had

followed the guidelines for seven years, the guidelines had

binding “legal consequences.” In addressing this point, the

court said: 

The flaw in appellants’ argument is that the “consequences”

to which they allude are practical, not legal. It may be that,

to the extent that they actually prescribe anything, the

agency’s guidelines have been voluntarily followed by

automakers and have become a de facto industry standard

for how to conduct regional recalls. But this does not

demonstrate that the guidelines have had legal

consequences. The Supreme Court’s decision in Bennett

makes it quite clear that agency action is only final if it

determines “rights or obligations” or occasions “legal

consequences.” 520 U.S. at 178. (citation and internal

quotation marks omitted). Circuit case law cannot obviate

the holding of Bennett.

Ctr. for Auto Safety, 452 F.3d at 811. See also Nat’l Ass’n of

Home Builders v. Norton, 415 F.3d 8, 15 (D.C. Cir. 2005) (“[I]f

the practical effect of the agency action is not a certain change

in the legal obligations of a party, the action is non-final for the

purpose of judicial review.”). 

Devon argues that our decisions in Alaska Professional

Hunters Ass’n v. FAA, 177 F.3d 1030 (D.C. Cir. 1999), and

Paralyzed Veterans of America, 117 F.3d 579, should control

the disposition of this case. We disagree. In Alaska

Professional, the court found that thirty years of uniform advice

by the Alaskan regional office of the FAA “became an

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authoritative departmental interpretation” binding on the agency.

The case is plainly distinguishable, however, because the

disputed agency advice in that case had been upheld in a formal

adjudication by the Civil Aeronautics Board, FAA’s predecessor

agency. See Alaska Prof’l, 177 F.3d at 1034 (discussing

Administrator v. Marshall, 39 C.A.B. 948 (1963)). Indeed, the

decision in Alaska Professional acknowledges that an

interpretation or advice by an official without authority to bind

the agency alone would not amount to an authoritative

interpretation. Alaska Prof’l, 177 F.3d at 1035; see also Hudson

v. FAA, 192 F.3d 1030, 1036 (D.C. Cir. 1999) (distinguishing

Alaska Professional as concerning a binding interpretation on

the basis of the formal adjudication upon which the longstanding

practice was based); Ass’n of Am. R.Rs., 198 F.3d at 949 (same).

In this case, by contrast, the guidance documents have never

been upheld in an agency adjudication, nor have they ever been

endorsed in any other agency action having the force of law. 

Paralyzed Veterans also lends no support to Devon’s

position. In that case, we held that Advisory Board guidelines

that were not clearly adopted by the Department of Justice and

a speech by a mid-level official did not amount to a binding

interpretation of its regulation implementing the Americans with

Disabilities Act. 117 F.3d at 588. The court noted that if the

Department itself had adopted the Board’s interpretation of the

regulation the outcome might have been different. Id. The case

surely does not stand for the proposition that guidance

documents written by persons without authority to bind an

agency and released with no indication that the documents

purported to have the force of law may be taken as binding

interpretations of an agency regulation. 

In sum, we find no merit in Devon’s claim that it acted in

reliance on the 1995 and 1996 guidance documents and that this

“reliance interest is protected by the APA.” As noted above, the

guidance documents were far from conclusive in what they said.

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In any event, on the record here, it is plain that the contested

guidance documents did not come from sources who had the

authority to bind the agency. Therefore, it does not matter

whether the appellant, or others, followed the advice that was

offered in these documents. These documents did not amount

to a binding interpretation of the marketable condition rule, so

the Agency was free to adopt the interpretation at issue in this

case without providing an opportunity for notice and comment.

III. CONCLUSION

For the reasons indicated above, we deny Devon’s

challenge to DOI’s Final Order and affirm the District Court’s

judgment in favor of the agency.

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