# Un ited S tates C ourt o f Ap peals

FOR T HE D ISTRIC T OF CO LUM BIA C IRCU IT

Argued February

14, 2005 Decided June 10, 2005

No. 04-5006

A MOCO P RODUCTI ON C OMPANY ,

A PPELLANT

v.

R EBECC A W. W ATSON , A SS IS TANT S ECRETARY FOR L AND

AND M INERAL M ANAGEMENT , ET AL .,

A PPELLEES

Consolidat

ed with 04-5007

Appeals from the United States District Court for the D istrict of

Columbia (No. 00cv01480) (No. 00cv02933)

Steven R. Hunsicker

argued the cause for

appella nts. With him on the b

riefs wa s Melissa E

. Maxwell

. Craig L. Stahl was on the brief for amicus curiae BurlingtonResources, Inc. in s uppo rt of appellant. John T. Boeseand Laura B. Ro we entere d appea rances

.2

John A. Bryson , Attorney, U.S . De partment of Justice, argued the cause and filed the brief for appe llees. Ellen J. Durkee , Attorney , U.S. Dep artment o f Justice, e nte red an appearance.

Patrici a A Madrid, Attorney Gene ral, Attorney G

eneral’s Office of the State of New Mexico, Christophe r D. Coppin , Assis tant Attorney Gene

ral, Thomas H. Shipps , Ken Salazar , At torney Genera l, Attorne y General ’s Offic e of the State o f Colorado, Alan J. Gilbert , Solicitor General, Lee Ellen Helfrich , MartinLobel , Jill Elise Grant, Harry R . Sa chse, and James E. Glaze were onthe brief

for amici curiae in support of appellees.

Before: E DWARDS , S ENTE LLE , and R OBER TS , Circuit Judges

. Op in io n f or th e C ou rt fi le d b y Circuit Judge R OBER TS

.
R OBER TS , Circuit Judge : The San Juan Basin covers 7500 square miles in northwest New Mexico and southwest Colorado. Since the end of World War II , it has been a prolific source of natural gas, connected by pipeline to southern California and literally helpin g to fu el the dramatic growth of that region. B egin ning in the 1980s, large-scale extraction of the varie ty of natural gas known as coalbed methane beg an to supplement the supply of conve ntional g as from the region. Coalbed methane contains upwards of

ten percent carbon dioxide, which is larg ely absent from conventional naturalgas. Because carbon dioxide does not produce energy , mainline natural gas pipelines will not accept gas with a carbon dioxide component of mor e th an two to three percent of volume. A high ca rbon dioxide contentdoes notrender thenatural

gas use less for c onsumers , but if producers in the San Jua

n Basin w ant to sell

t heir ga s to marke

ts beyond that sparsely populated reg ion, they must use the mainline and meet its more stringent carbon dioxide standard.3

The federal government is a larg e landow ner in the San Juan Basin

and, like

many other ow ners of p

roperty rich in natu ral gas, it leases rights to extract the gas in exchange for a percen tage of the pr

oceeds. Unlike the

case withother landowners, however , the rel ationship betwee n the go vernmen

t and those who ext rac t gas from the government’s land is re gulated pursuant to an elaborate array

of statutes and rules. The present
case involves several disputes between the government and g as producers over how the n eed to remove the excess carbon dioxi de from coalbed methane, to make it palatable to the mainline pipelines, affects the roy alty pay ment the producers
owe the government under those s tatu tes and regulations. For the reasons that

follo w, we affirm the district court’s decision and uphold the government’s determination that the producers owe additional roy

alties. I. Background Statutory and Regul

atory Fram ework

. The Department of the Interior (DOI

), thr ough i ts Minerals Management Service (MMS), issues and administers leases authorizing the extraction of natural gas from government land. The Mineral L easing Act (MLA), 30 U.S.C. §§ 181 et seq. (2000), req uires producerlessees to pay

the gover nment-lessor “a roy alty at a ra te of not less tha n 1 2.5 percent in amount or value of the production removedor sold from the lease.” Id. § 226(b)(1)(a). To ensure the government gets its due in roy alties, the Secretary of the Interior is directed b y st a tute to establish a comprehensive inspection, auditing, and collection sy stem. See id. § 1711.
In 1988, pursuant to these statutes, MMS “amended and clari fied” the rule s “gove rning va luation of

gas for roy alty computation purposes.” Rev ision of Gas Royalty Valuation Regulations and Rela

ted Topic s, 53 Fed . Re g. 1230 (Jan. 15, 1988). Under these new

regula tions, MM S specif

ied that the “value of the production” referred to in 30 U.S.C. § 226(b)(1)(A) must be no less than “the gros s proceeds4 accruing to the le sse e for le ase prod uction,”minus cer

tain allowabl e deductions. 30 C.F.R. § 206.152(h) (1988). A factor in calcula ting the se “grossproceeds” is a longstanding interpretation of t he M LA that obli gates lessees to put the gas they extract in “mark etable condition at no cost to” the federal lessor. Id. § 2 06.152(i) ; see Califo rnia Co. v. Udall , 296 F.2d 384, 387–88 (D.C. Cir. 1961) (upholding marketable condition requirement). Under the 1988 regulations, lease products a r e considered

in marketable condition if they “are sufficiently

free from impuritie s and othe

rwise in a condition

th at theywill be accepted by a purchas er under

a sales contrac t typical for the field or area.” 30 C.F.R. § 206.151. I f a lessee sells “u

nmarket

able” gas at a

lower co st , the gross proceeds for purposes of roy alty calcula tion must be

“incre ased to th

e extent tha

t gross proceeds have be en reduc ed beca use the purchaser, or any

other person, is providing certain services” to place the gas in ma

rketable condition. Id. § 206.152( i). To tak

e a simple

example, if it costs $20 t

o put ga s in marke table condition by removing impuritie s, and the purified gas is sold for $100, “gross proceeds”for purp oses of r

oya lty c alculati ons is $100, regar dless of whether the producer removes the impurities and sells the gas for $100, or in stead sells the g as for $8 0 to a purchaser who then
removesthe impuri

ties. The regulations allow lessees to deduct from gross proceeds costs directly re

lated to transporting gas fro m the we llhead for sale at markets remote from the lease. See id. § 206.157(a)–(b). The gover

nment’s g enerosity with respect to this deductio n , however, g oes only so far — abse nt approval from MMS, a lessee is not allowed to dedu ct the costs of transporting nonroy alty bearing pro ducts. See id. § 206.157(a)(2)(i), (b)(3)(i). In o ther wor

ds, to the e

xtent the g overnme

nt is not g oing to share in the pro ceeds of

the produ cers’ d

istant sal e, beca

use someof the pr

oduct is no n-roy alty

bearing, the government

does notin effect share in the cost of transporting that portion of the product by having

that cost deduc ted f

rom “gross proceeds.”5

There is an exception to this logic: a portion of the product may fallinto a cat egor y known as “wa ste products which have no value.” Id. § 206.157( a)(2)(i), (b)( 3)(i). A lthough i t may at first
seem counterintui t ive, the government allows a deduction for th e cost of transporting such waste products, beca use such transpo rt is considered part of the cost of transporting the
ro ya lty-bearing

product with which the waste products are associated.
Factsand Ruling s Below . Producers Amoco Production Company (Amoco) and

Atlantic Richfield Company and Vasta r Resourc es, Inc. (ARCO/Vastar) pr oduce coalbed methane on public land in the San Juan B as in pursuant to leases with the federal government. To make the coalbed methane suitable for transpo rtat ion over mainline pipelines, the producers arrang ed for the remo val of excess carbon dioxide from most of the gas they extracted. Between 1989 and 1996, the produ cers so ld untreated gas at the wellhead to purchaser s who would pipe the gas to treatment

centers, remove the excess carbon dioxide, and then put the treated gas on the mainline sy stemfor transport and sale to end-users throughout the country. The

producers’ sales arrang ements differed; Amoco wou ld selluntreated gas primarily to a wholly-owned tra

ding subsidiary a

nd ARCO/Vas t ar would contract arms-length sales with unaffiliated pur chaser s. Neverth eless, the economics of the transactions were the same, withthe price of untreated gas a tthe wellhead reflecting

the fact that the purchaser would have to transport the g as to trea tmen t plants and remove the excess carbon dioxide before sending the gas into the mainline. On April 22, 1 996, MMS is sued a letter to lease operators
an d roy alty pay

ors in the San Juan Basin layingout the Service’s “guidelines” for calculating royalties on coa

lbed methane. Payor Letter, at 1. The Payor L

etter informed the producers that removing excess carbon dioxide was co ns idered a cost of placing the gas in ma rk et ab le co nd it io n. Co ns eq ue nt ly, produc-6

ers who remo ved the g as themse lv es c ould not de duct the c ost of doing so from gr oss proceeds, and those

selling untreated gas at a lower price nevertheless needed to add back to gro s s proceeds the cos t of removal services performed bythe purchaser. See id. at 1–2. The letter also addressed transportation allowanc es, specifying

that producers could deduct the costs of pi ping the methane and the allowable two to three perc ent por t ion of carbon dioxide to the treatment center, but not the cost of transporting the excess carbon dioxide to be removed at the center. In the gover

nment’s view, that

excess constituted a non-roy alty bearing product u

nder the regula tio ns. See id. at 2–3. On the heel s of the Pa

yor Lette r, MM S is sued sepa

rate orders finding

Amoco and ARCO/Va star def icient in t

heir roy alty payments for

the peri od betwe en 1989 a nd 1996. Th

is
s ho rtfall stemmed from the producers’ accounting f or sales of
raw coalbed methane that was later treated a nd marketed onthe mainline by its purc hasers. In calculating g ross proceeds, the producers did notadd back the costs incurred by the purchasers in moving the excess carbon dioxide to the treatment plant and removing it once there. Instead, they calc ulated gross proceeds the same way the

y did for sales of c oalbed m ethane u sed in untreated form by local pur chaser s. MMS thus concluded that Amoco and ARCO/Vastar owed th e government additional royalties totaling $4,117,607 an d $782 ,373, respectively . The producers didnot have to add back to gross proceeds the c ost of transporting roy alty -bear ing methane and the allowable three percent carbon d ioxide “wa ste produ ct” — bec ause this cost was deductib le in the g overnment’s view — and the orders did not
assess any additional roy

alties on sales of gas consumed without treatme nt. In separa te challe nges to t hese ord ers b ef ore the Assistant Secretary for Land and Minera

ls Ma nagement, the producers argued that untreated gas at the w ellh ead wasalread y in7

marketa ble condition — after

all, they sold a fa ir amount of

it in that form, and it

was used without treatment — so there was no
reason to augment their gross proceeds f or royal t y calcula tion purposes

. They

also arg ued that t he cost of piping th e excess carbondi oxide to the

treatme nt plant sh ould be vie

wed as a deductib le transpor

tation co st, not a c ost of putting the g as in market a ble condition. In the alternative, the produc ers conten ded that, under the transportation regulations, the exces s carbondioxide pipe d to the tre atment pla nts should

be regarded
as a “waste product.” The Assistant Secretar y rejec ted these cha llenges and also concluded — contrary to the produc ers ’ contentions — that the Payor Le tter was not a rule, and so was notsubject to

the Admini strativ e Procedure Act’s notice and comment requirement. See 5 U.S .C. § 553. The Assistant Secretary also reje cted the produce rs’ arg ument tha t colle ct ion of the royalties wa s barred by the six-year

statute of limitations for government actions for money damages found

in 28 U.S.C. § 2415.
In the District Cour t for the District of Columbia, the producers sought

a declaratory

judgment and

injunction

agains t enforcement

of th e MMS order s. On cro ss-motionsfor summary judgment, the districtcourt ruled for the government. See Amoco Production Co. v. Baca , 300 F. Su pp. 2d 1 (D .D.C. 2003). Am

oco and A

RCO/Vasta

r appea l. II.
We review t

he district court decision de novo , Fina Oil & Chem. Co. v. Norton , 332 F.3d 672, 675–76 (D.C. Cir. 2 00 3), and will revers e the A ssis tant S ecreta ry’s ruli ngs only if they are “a rb it ra ry, capric ious, an a buseof discretion, or other wise not in
acc ordance with law,” or if they are “in excess of statutory jurisdiction, authority, or

limitations , or short of statutory rig ht.” 5 U.S.C. § 706(2)(A), (C); Gerber v. Norton , 294 F.3d 173, 178 (D.C. Cir. 2002).8
A. We first turn to the prod ucers’ argument that the AssistantSecretary ’s application of the mark etable condition rule violates the MLA. The Assistant Secretary concluded that “the value fo

r roy alty purposes must be determined by a dding to the gr oss proceeds received from the we llhead purchaser the cost of treating the gas

. . . to the level required to place the gas in market able condition.” MMS Decision of Sept. 12, 2000 (Amo co Decision) at 10 [J.A. 1 1]; MMS Decision of Mar. 24 , 2000 (ARCO/Vastar Decision) at 6. The producers contend t his concl us ion cannot be squared with the statutory provision requiring producers to pay royalties based

on the “amount or value of the pr

oduction r

emoved or

so ld from the lease .” 30 U.S.C. § 226(b)(1)(A) (emphasis added). The pr oducers read the un ders cored ph

rase asrequiring that the phy sical lea sehold be treated as the relevant geog raphic market, precluding calc ulatio n of royalties based on gross proceeds derived from sales remote from the wellhead.
We review t

he age ncy ’s interp

retation of the ML

A, a statu te DOI administers, within the framework of Chevron, U.S.A., Inc.
v. Natural Res. Def. Council, Inc. , 467 U.S. 837 (1984). See Indep. Petroleum Ass’n of Am. v. DeW itt , 279 F.3d 1036, 1039–40 (D.C. Cir. 200 2) (“ IPAA ”). Under the first step of Chevron , w e in quire whether Congress h as spoken directly to the question at issue. 487 U.S. a t 842. I f so, we g ive eff ect to that clearly e xpressed intent. If instead the statute is “silent or ambiguous with resp ect t o the specific issue,” we defer to the agency interpre tation, so long as i tis reasonable. Id. at 842–43. Alth ough the producer s present a textually plausible rea ding of section 2 26, their s is not the onl y one ava ilable. T he phras e “from the lease” is sufficiently broad to be read as referring simply to the origin of the gas. Gas that is “from the lease” and that is marketed at a remote location can readily be de scribedas gas “removed or sold from the lease.” The produc ers read the statute as if it r eferred to gas “sold at

the lease,” but that is not9

the case. T

hey direct u s to no pre cedent l imiti ng mark etable
c ondition to their narrowing construction. Although the y observe that

this court in California Co. applied the mark etable condition rule to sales of treated gas near the wellhead, that is of littlehelp to the

m; all the gas at issue there “was conditioned by the seller and delivered to the purchaser within a short distance of the wells,” 296 F.2d at 3 87, so the q uestion pr esented here did not arise. The producers’ reliance on our more r e centdecision

in IPAA is also misp laced. T hey direct to us to a p ortion of the opinion observing that D OI “ abide[s] by t he statuto ry mandate to ba se ro yal ty on the ‘value of theproducti on removed or sold from the lea s e,’ ” 279F.3d at 1 037 (quoting 30 U. S.C. § 226(b)(1)(A)) , but the cited dictum does not even interpret “from the lease,” let alone do so authoritativel y. I f anythin g, IPAA was skep tical of t

he produ cers’ “ almost met aphy sic al” proposition “that the sale of ‘ market able condition’ gas at the leasehold r epresent[ed] a baseline” beyond which the government had to sha

re any costs incurred further down the line. Id. at 1041.
Becau se th e A ss is ta nt Se cr et ar y has n ot interpreted the statute in a manner contrary

to c lear c ongressional intent, the next step is to ask whet her her construction is a

reasonable one. See Chevron , 487 U.S. at 843. Th e produc ers do not , however, appear to marshal a step two argument. Consequently, we have
no basis for

finding the Assist

ant Secr etary ’s in ter pretation unreasonable. See Consu mer Elec. Ass’n v. FCC , 347 F.3d 291, 299 (D.C. Cir. 2003). B. The prod

ucers a lso contendthat the Assistant Secretary acted arb it rar il y and cap ric io usl y by mi si nt erp ret in g th e MLA regulations and departing from age ncy prec edent. Although we will not allow an agency to “rewrit[e] regulations underthe guise of interpreting them,” Fi na Oil , 332 F.3d at 676, we neverth eless owe “substantial deference to an ag ency’s inter pre-10

tation of its own r

egulat ions,” g iving tha

t interpr etation “controlling weight

unless it is plainly errone ous or inc onsistent with the regulation,” Thoma s J efferson Univ. v. Shalala , 512 U.S. 504, 512 (1994) (internal quotation marks omitted). Suc h deference is par ticularly appropr

iate in the context of “ ‘a complex and highly tec

hnical regulatory

program,’ in which the identification and classification of relevant ‘cr iteria necessar

ily require significant

expertise and entail the exercise of judgment grounded in policy con c erns.’ ” Id. (quot ing Pauley v. BethEnergy Mines, Inc. , 501 U.S. 680, 697 (1991)). The producers argue

that the DOI reg

ulation defining gas in “marke table condition” as gas acceptable to “a purchaser under
a s ales contract ty

pical for the field or area,” 30 C.F.R

. § 206.151, requ ire s MMS to consider untreated gas sold at the wellhead to be in marketable condi t ion, notwithstanding any later off-lease treatment. The Assistant Secretar y concl uded, however, that because the “d om inant market for gas from the
area is for gas that

is utili zed in distant markets with a much lower CO 2 content,” sales contracts for treated gas were ty

pical for the area, while those for untreated g as were not. Amo co Decision at 7; see also ARCO/Vastar Decision at 5. Al thou gh the producers conced e that most of the gas pur chased a t their leaseholds is treated for use in downstream markets, they argue that the Assist

ant Secr etary ’s “domin ant e nd-use”rationa le is irreco ncilable

with the text of section 206.151 of the re gulatio ns, which frames ty

picality in terms of a g

iven “field or area

. ”
We are not persuaded, however, that the regulations require MMS to understand typical sales co ntracts — and thus marketable condition — as relating to transactions at the leaseho ld or immediat ely nearby. A s an initial matter, it is not even clear that “field o r area ” — the te

xtual hook f

or the pr oducers ’ interpretation —refer s only to leasehold land. The regulations define “area

” as “a ge ographic region at least as large as the definedlimits of [a] gas field, in which . . . gas lease pr oducts11

have similar quality, e conomi c, and legal characte ristics,” and define “field” as “a geog

raphic region

situated over

one or more subsurface. . . gas reserv oirs e ncomp assin g at least the outermost boun da ries of a

ll . . . ga s accumulations.”30 C.F.R. § 206.151 (emphases added). Because these terms do not forecl ose the possibility of defining a r egion bey ond the geographical

limits of a lea sehold, we are hesitant to conclude that the Assistant Secretar

y’ s interpr

etation f ailed to “ sensibly conf o rm[] to the purpose and wording of the reg ulations.” Martinv. Occupational Safety and Health Review Comm’n , 499 U.S. 144, 151 (1991) (internal quotation marks omitted). The prod ucers ’ construction also does not square with the regulatory

schem e as a

whole. The regulation stipulating that producers are to pl ace g as in mark etable c ondition a

t no cost to the government does not contain a geograp hic limit. See 30 C .F. R. § 206.152(i). More importantly, regulations governing transpor ta tio n allowances obviously a ssume that valuation of gas “at a point (e.g., sales point or point of value determination)
o ff the lease” is permissible. Id. § 206.156( a). The Assis tan t Secretary ’s approac

h to the ma

rketable conditi on rule

is entirely consis tent w ith this re gulator y sc heme and the basic principle that the ML A contemp lates a me aningf ul dist incti on between marketing and merely se

lling gas. See California Co. , 296 F.2d at 388. The Assistant Secretary ’s approach to marketable condition should not have surprised the producers. When soliciting comments for the 1988 rulemaking that led to reiteration of the marketa ble condition rule in regulation 206.152, theagenc y entertained

suggestions from produc e rs that the government lessor should share t

reatmen t costs, by

allowing produce rs to deduct all post-p

roductio n costs under the theory that royalties
are “due on the market

value of production at the lease or well.” 53 Fed. Reg. at 1252. Otherwise, ind us try commentators argued, MM S w ou ld “i mp ro pe rl y sw eep[] all post-production12 operations under the holding of [ Calif ornia Co. ].” Id. MMS considered

but rejected this suggestion, concl uding that “socalledpost-production costs . . . [g]enerally . . . a re notallowed
as a deduction be c ause they a re necessary

to make production marketable.” Id. at 1253.
T he produce

rs alter natively contend t

hat, bec ause the

re is
an established demand for untreated gas, sales of such gas at the wellhead should be treated

as “ty pical” f or defin ing mar ketable cond ition. It is true that fifteen to twenty percent of the g a s purchased

from the producers was consumed loc ally , and it is plausible to conclude that contracts for one-fifth of a pr oduct are common enough to be “ty pi cal.” But it is jus t as plaus ible to read typicali ty as embr acing t he mos t common use and sale of gas fro m the area, and it is not at all obvious from the tex t an d purposes of the re gulatio ns that co ntracts f or one-f ifth of the gas should govern the regulatory treatme nt of the r emaining eighty percen t. Finally, we disag

ree with the producers’ argument that the Ass ist ant Secretary

impermissibly departed fr om agency preced ent. In Xeno, Inc. , the ag ency conclu ded gas wa s in marketa ble condit

i on at the wellhead based on evidence of competing purchase offers there. 134 I.B. L.A. 172, 180–84 (1975). Central t

o Xeno , however, was the fact that the ga s was suitable for pipeline acc ess before gathe ring and compression, a quality reflected in its price at

the wellhead. See id. ; see also Amerada Hess Corp. v. Dep’t of Interior , 170 F.3d 1032, 1037 (10th Cir. 1999) (distinguishing Xeno when a producer had not shown gas was in marketable condition at the wellhea d).
Nor is Beartooth Oil & Gas Co. v. Lujan , No. 92-99 (D. Mont. Sept. 22, 1993), to the contrary

. Beartooth overruled a decision that, in assessing royalties on wellhea d sales, included the value of

subseque

nt compre ss ion and delivery bya purchaser. Even if th

is unpublis h ed distr

ict court opinion — withdrawn after a

settleme nt — bound MMS, it is rea dily13 distinguishable. The Beartooth court ruled for the producer not because the court was certain the gas was in marke table co ndition at the wellhead, but rather because the age ncy did not make findi ngs supporti ng the assertion that the gas was not. See Beartooth at 9–10. Here, the Ass istant Sec retary explained

in d etail w hy the g as was not in marketable condition at the wellh ead. See Amoco Decision at 9–11; ARCO/Vastar Decision at 6–7. III. The Assistant Secretary

allowed the pr oducers to deduct from gross proceeds the costs of transporting the roy alty-bear ing methane and the three percent ca rbon dioxide “wa ste produ ct” to the trea

tment p lant, but not the costs of transporting and removing the excess carbon dioxide. The producers argue that
someor all of t

h e costs of ridding the gas of excess carbon dioxide should be d

eductibl e from g

ross proc eeds as a

cost of transporting the gas to market under 30 C.F.R. § 206.157(a)–(b).
To argue that all the extra costs are deductible, theproducers liken these expenses to “ firm dema nd” cha rges — nonrefu ndable de posi t payments required to reserve pipeline
ca pa ci ty. DO I a rgued

that such

charg es were

not rela ted to transpor tation in IPAA , but we did not accept DOI’ s argume nt. See 279 F.3d at

1042 (“While some reason may lurk behind the government’s position, it has off ered non e, and we have no b asis for sustaining its conclusion. ”). The producers contend that, like firmdemand charges, the costs at issue here are n ecessa

ry to
secure access to a mainline sy stem that will not accept gas with
a carbon dioxide content of more than two o r three percen t. In support of their a

rgumen t, th ey a lso cite two other cases purportedly

regarding pre- pipeline treatment as a transportation cost: Exxon Corp. , 118 I.B.L .A. 221 (1991) and Marathon O il Co. v. United States , 604 F. Supp. 1375 (D. Alaska 1985).14

Unlike the case in IPAA , however, here the Assistant Secretary ha s expl ained wh

y th e costs a t issue ar e not prop erly considered

transportation costs: because removal of the exces s carbondi o xide was necessar y to place the gas in

marketa ble condition , those sa

me costs could not

be part of the transportation allowance. The logic of the reg ulations bars an expenditure to place gas in marketa

ble condi tion from a

lso being an expend

iture deductible from gross proceeds as a transportationcost. See 30 C.F.R. § 20 6.152(i) (lessee s must “pla ce ga s in ma

rk etable condition at no cost to the Federal Government”). Because we uphold the AssistantSecreta

ry ’s concl usion that these co sts are necessary to place the gasin ma

rketab le condition, we cannot quarrel with her rejection of the produce r s’ transportation th eo ry. Unsurpr

isingly , none of

the case s the prod

ucers c ite deals withdeducting costs necessary for plac ing ga s in marke

table condition. The fir

m demand charges to reserve space on the pi peline at issue in IPAA , for exam ple, rel ated sole

ly t o transportation and had nothing to do wi th conditioning the gas for market. See IPAA , 279 F.3d at 1042; see also M arathon Oi l , 604 F. Supp. at 1386 (costs of liquefy ing natural

gas de ductible because done “for

p urposes of storage or shipment” and endproduct “chemic ally

identic al to the natural gas at the lease”); Exxon Co. , 118 I .B .L.A. at 242 (deductible dehy dration of gas “was not performed to satisfy market specifications”). Seeking at least half a loaf, the pr oducersarguethe Assistant Secretary

erred in treating the excess carbon dioxide (the amount beyond the

pipeline threshold) as a non-roya lty-bearing product, whose transport at ion cost is nondeductible. The producers contend that the carbon di oxide in excess of the pipel ine t olerance should have been treated the same as that within the toler ance — a s a waste

product — with the result that the deductible transportation c ost w ould not be reduced by the cost of transporting any

of the carbon dioxide.15

Alth ough carbon dioxide is carbon dioxide, the re is a meaningful distinction in the regulation between the amount that may be marketed along with the gas, a nd the excess that

must be removedto make the gas marketable. The two amounts nee d notbe treated

the same under the rules, simply because they

are the same product . Within the pipeline tolerance, carbon dioxide is a waste p r oduct because it need not be removed to place the gas in marketable condition; beyond the tolerance, the carbo n dioxide is a non-royalty

-bearing product that must be rem oved f or the gas to considered marketable unde r the rul es. Thi s difference has the

consequenceascribed by the Secretary

when it comes to d

etermining the d

eductibi lity

of trans portation

costs. The producers rely on

an illustr ative exa mple in the

MMSissued Payor Handbook tha t treats carbon dioxide in a manner suggestingit is waste. This example — which does not purport to be a rule

and conc erns a c arbon dio xide conte nt of only one percen t, see 3 M INERALS M GMT

. S ERV ., U.S. D EP ’ T OF THE I N TERI OR , O IL & G AS P AYOR H ANDBOO K § 6.4.1 (1993) — hardly compels the agency

to treat a ten pe rcent component of carb on dioxide as waste, let alone creates an inferenc e tha t carbon dioxide is always waste

. IV. The pro duc ers als o ch all eng e th e Pa yor Le tter cited in the orders and in the

Assistant Secreta ry ’s decis ions, arguing that it constituted a new rule the ag ency could pro mulgate

only throu gh notice and comment rulemaking. See 5 U.S.C. § 551(4) (defining a rule as “the whole or part of an age ncy statement

of general or particular applicab il it y and futur e effe ct designed to implement , interpret, or prescribe law or policy or descr

ibing the organization, procedure or practice requirements of

an agency

”)

. Rejecting the Assist

ant Secr eta ry ’s e xplanation that the Payor Letter was merely an inter

pretation of existing regulations, the producers ask us to set it aside andc onsider the Assistant Secretary ’s reliance upon it unlawful because the agency did not16 promulg atethe rule as required by the Administrative Procedur e Act. See id. § 553(b)(3)(A). This ch al le ng e i s g ov er ne d b y Indep. P etroleum Ass ’n of Am. v. Ba bbitt , which held that a similar MMS letter was not a rule subje ct to the notice and comment requirement. 92 F.3d 1248, 1256–57 (D.C. Cir. 1996). As in Babbitt , the Payor Letter here is not an agency

statement with future effect because not hing under DOI reg

ulations vests the Letter’s author — i n Bab bitt and this case MMS’s Associate Director for Royal t y Management

— with the authority to announce r ules binding on DOI. Id. at 1256. “The let ter is n ot an agency r

ule at all , legislative or

otherwise, because it does not purport to, nor is it capable of, binding the age ncy.” Id. at 1257. The produce

rs attempt to disti nguish Babbitt by alleging that here the agency

adopted the Payor L

etter’s positions when it issued and affirmed the o r ders. But nothing in the decisions under review s ugge sts that the

agency vi ewed the

Pa yor Letter
as authoritative or binding; the agency in those decisions applied the pertinent statutes and regulations with no determinat iv e reliance on thePayor L

etter. The agency

decisions reached the
sameresult

as the guidance in the Pay or Letter, but that was true in Babbitt as wel l. The sort of “workaday advice letter[s] that agencies prepare countless times per yea r in dealing with the regulated community,” Indep. E

quip. Dea lers Ass’n v. EPA , 372 F.3d42 0, 427 (D.C. Cir. 2004) (internal quotation marks omitted), do not retroactively become agency

rules wheneve r they are referenced in an ag ency decision.

V. Fi na ll y, the producers argue that the district cour t and the AssistantSecretary

erred in concluding that the MMS orders assessing ad dition al royalties we re not barred by

the statute of17

1 The disp ute a bou t the ap plica bility of 28 U.S .C. § 24 15 (a) to demands for add itional royalties is no lon ger a live o ne with respect to pro du ction after S epte mb er 1, 1 99 6, fo r wh ich C ong ress h as set a seven-y ear limitations p eriod. See Fed eral O il and G as R oyalty Sim plifica ti on and Fa ir ness Act of 1996, Pub. L. No. 104-185, 110 Stat. 17 00 (c odified at 30 U .S.C . § 17 24). limita tions found at 28 U.S.C. § 2415(a). 1 That provision specifies that [E]v ery action for money

damages brought by

the United St at es or an of

fi ce r o r a ge nc y t hereof which is foundedupon any

contract express o

r implied in law or fact, shall be barred unless the complaint is filed within six years a

fter the right of action accrue s or within one year after f inal dec isions hav e been r endere d in applicable administrative proceedings required by contract or by law, whiche

ver is later. The thr es hold question is whether an administrative order assessing additional ro ya lties can reasona bly be under stood to be an “action for mo ney damag es” initiated by the filing of a “complaint.” The phrase “action for money damages ” poin ts strongl y to a suit in a court of

law, rat h er than an agency enforcement order that happen s t o concern money due under a statutory scheme. See B LACK ’ S L AW D ICTIONARY 389 (6th ed. 1990) (defi ning “ d amages” as “pecuniar y compensation or in de mn it y, which may

be reco vered in

the cour ts”); OXY USA, Inc. v. Babbitt

, 268 F.3d 1001, 1010 (10th Cir. 2001) (en banc) (Briscoe, J., dissenting) (“Take n togeth er, the e ntire phr ase plainly and indisputably refe

rs to lawsuits brought

by the federal governmen t seeking compensatory relief for losses suffered by the government.”). Any doubtis removed by the f act that subsection 2415(a)
measures the limitations period from the filing of a “complaint.” It strains le gal languag e to const rue this administrative compli-18

ance order as a “compl aint” fo r money damage s in any ordinar

y sense of the te rm. See B LACK ’ S L AW D ICTIONARY 285 (6th ed. 1990) (defining complaint as an “initial pleading” under “code s or Rules of Civil Proc edu re” that contains, inter alia , a “statement o f the gr ounds upon which the court’s jurisdiction depends”) (emphasis added). Although some statutes provide for
a “compla int” that triggers administrative procee dings, see, e.g. , 5 U .S.C. § 1215(a

)(1); 15 U.S.C. §§ 45 (b), 522; 25 U.S.C. § 2713(a) (3); 29 U. S.C. § 160(b ), adjudi cative h earing s on the
me rits follow such filings. Here MMS issued an order , th e defianceof which incurs a “Notice of Noncompliance” and subsequent

civil penalties, abse nt a successful appeal. See 30 C.F.R. § 241.51 ( 1996); see also B LACK ’ S L AW D ICT IONARY 1096 (6th ed. 1990 ) (def

ining or der as “ [a] mandate ; prece pt; command or direction authoritatively g iven; rule or re gulation”). While we are satisfied

from the te xtof subsection 2415(a) that the a gency

action at issue here does not fall under the clause’s purview, the statute as a whole is admittedly less clear

. One of the statute’s enumerated exceptions — added more than 16 ye ars afte

r the pas sage o f the orig

inal Act, se e Debt Collection A ct of 1982, Pub. L. No. 97-365, § 9, 96 Stat. 1749, 1754

—states that “[t]he provisions of this section shall not prevent the United States or an officer or age ncy thereof from collecting any claim of t he United States by means of administr ative of fset, in acc orda nce with s ection 37 16 of title 31.” 28 U. S.C. § 2415(i). The prod

ucers c ontend tha

t subsect ion 2415(a

) must apply to ad mi ni st ra ti ve pr oc ee di ng s g en er al ly, or there wo uld have been no need to except a dministra tive offs ets in subsection (i). This argume

nt is not without force. It is a familiar canon of statutory construction th at, “ if possible,” we are to construe a statute so as to give effect to “every clause and

w ord,” United States v. Menasche , 348 U.S. 528, 538–39 (1955) (internal quotation marks omitted), and the pr oducers’ argument has19 help ed co nvince two other circuits that subsection 2415(a) can apply to other admin istrative proceedings, see OXY USA , 268 F.3d at 1 006; United

States v. Hanover Ins. Co. , 82 F.3d 1052, 1055 (Fe d. C ir. 199 6). In this case, however, the inference to be drawn from the a

ddition of subsecti on 2415(i)does not dissuade
us from th e more natural reading of the e xpress language of subsection 2415(a). As the Supreme Court recently e

xplained, “ourprefer

ence fo r avoidin g surplu sage c onstruct ions is no t absolute.” Lamie v. U.S. Trustee , 124 S. Ct. 1023, 1031 (2004). See Chickasaw Nation v. United States , 534 U.S. 84, 89 (2001) (adopting construction that leads to surplusage because “ we can find no other reasonable rea ding of t h e statute”). No canon of construction just i fies c onst ruing t he actu al sta tuto ry language beyond what the terms can reasonably bear. See Conn. Nat’l Bank v. G ermain , 503 U.S. 249, 252–53 (1992). The context surrounding the passa ge of su bsection 2415(i) gives us s ome co mfort that the provision is not so much surpl u sage as the re sult of a c ongre ssional effort to m oot a debate between t he Justice Department and the Comptroller General about the reach of subsection 2415(a) in the context of administrative offsets. The Justice Department thoughtsubsection 2415(a) might be invoked to bar administrative offsets; the Comptroller

General concluded that it was not applicable in that context. The Comptr

oller Ge neral ne verth ele ss recommended that Congress enact subsection 2415(i) “as a means of resolving the differences between us.” Debt Coll ect ion Act of 1981: Hearings on S. 1249 before the Senate C ommittee on Governmental Affairs , 97t

h Co ng. 83 ( 198 1) ( sta

tem ent of M ilto n J. Socolar, Acting Comptroller General). “By adopting sec tion 2415(i), Congre ss thus did no t have to decide whether the Department

of Justice orthe Comptroller General had the better of the argu ment as to the proper construction of the pre-1982 version of section 2415.” Hanover Ins. Co. , 82 F. 3 d at 1057 (Bry son, J., dissenting). We think it clear that subsection 2415(a), by its terms, does not cover administrative actions, and20

the fact that

Congress “sought to make [the] statute crystal cle ar rather than just c lear” in

the conte

xt of adminis trative o ffsets does not alter our conclusion. In re Collins , 170 F.3d512, 513 (5th Cir. 1999).
F inal ly, buttressing our conclusion not to let subsection 2415(i) alter the

clear im port of 2 415(a) is the opposing canon (ther e always see

ms to be one) that statutes of limitation s agains tthe s overeign are to be strictly construed. See E.I. du Pont de Nemou rs & Co. v. Dav is , 264 U.S. 456, 462 (1924); Hanover Ins. Co. , 82 F.3d at 1057 (Bry son, J., di s senting). Expanding the apparent scope of a statute of

limitations beyond its plain language by

inference fro m an expres s exceptio n is hardly strict construction. Similar concerns helped dissuade the Supreme Courtfrom relying

on the surplusage canon in Chickasaw Nation

. See 534 U.S. at 90 (application of surplusage canon would contra vene rule that Congress ordinarily enacts tax exemptions explicitly). Alth ough o ther courts addressing this question have emphasized the under

lying purpo se of repose animating section 2415, see OXY USA , 268 F.3dat 1005–0 6; Hanover Ins. Co. , 82 F.3dat 1055, the Supreme Court has frequent ly warned tha t such appeals to purpose cannot override a statute’s c lear language, see, e.g. , Badaracco v. Comm’r of Internal Revenue , 464 U.S. 386, 398 (1984) (“Courts are not authorized to rewrite
a statu te beca use th ey migh t dee m its effects susceptible of improveme

nt. This is especially so when c ourts construe a statute of limitations, which must receive a strict construction in favor of the Gov ern ment.”) (internal quotation marks and citation omitted). Conseque ntly , we join th

e Fifth C ircuit, see Phillips Petroleum Co. v. Johnson , No. 93-1377 (5th Cir. Sept. 7, 1994), in concluding that thestatute oflimitations in subsection 2415(a) does not apply to b ar an ad ministrative order demanding pay

ment owedpursuant

to the MLA and its regulations.21

Because we conclude that the gove rnment’s demand for additional royalties is notan action for money damages initiated by the filin g of a com

plaint, we do not need to address the government’s further arguments that the demand neither seeks “money damages” nor

is “foundedupon a co ntract. ” 28 U.S.C. § 2415(a). The judgment of the

district c ourt is Affirmed

.