Opinion ID: 2599092
Heading Depth: 4
Heading Rank: 1

Heading: The text of the PBUA

Text: Article 9.1 of the PBUA discusses possible expansion of the PBU: The Unit Area may be enlarged from time to time so as to include any additional lands reasonably determined to be within any Reservoir any portion of which is within the Unit Area. The lands to be included shall be based on such subdivisions of the public land surveys as may be approved by the Director, but not less than the area approved by the well-spacing order affecting such lands for such Reservoir.... Exxon argues that the first sentence indicates that Exxon may enlarge the unit area, so long as the additional lands meet the condition. The state argues that the first sentence is ambiguous, but the rest of the PBUA indicates that the department has the power to expand the PBU. The state is correct that the language is ambiguous. The passive voice can be ambiguous. [20] The text alone does not indicate whether Exxon or the department has the authority to expand the PBU. However, the subsections following the contested statement help to clarify it. Subsections (a) through (d) indicate the process for expansion of the PBU. The final step indicates that after due consideration of all pertinent information, the Director shall render his decision. This text, and the absence of text indicating that Exxon was meant to have the right to expand, strongly favors the state's interpretation that the director has the authority to decide expansion of the PBU. Both sides argue that the use of the permissive may supports their interpretation. Exxon argues that the permissive had to be used to preserve Exxon's option of expansion. If the mandatory shall was used, Exxon would have been required to expand the PBU if the condition was met. The state contends that use of the permissive indicates the department's discretion. The state notes that in four other articles of the PBUA, Articles 4.4, 5.4, 16.4, and 18.1, when the agreement intended to create a right that could be exercised by the lessees, it used the language shall have the right or shall be entitled to. The state's interpretation is the most logical. In interpreting a contract, courts should interpret the contract in a manner that makes the contract internally consistent. [21] Exxon's interpretation that Article 9.1 creates a right to expansion with the language may conflicts with other portions of the PBUA that use shall have the right or shall be entitled to to create a lessees' right. Finally, the state notes that Article 12.1 of the PBUA expressly indicates that the PBUA shall be subject to all valid applicable federal and state laws, rules, regulations and orders. Former 11 AAC 83.340 and former 11 AAC 83.345, state regulations in effect at the time the parties entered the PBUA, required the director's approval, based on a determination of necessity or advisability in the public interest, for a modification of an approved unit agreement. [22] Accordingly, the state argues that the PBUA required the director's approval for any modification of the agreement. Exxon has no response to this. This express statement also favors the state's interpretation that the department has discretion to deny expansion of the PBU. In sum, the text of the PBUA strongly indicates that the department had discretion to deny expansion as specified by its own regulations.