Opinion ID: 6336934
Heading Depth: 3
Heading Rank: 2

Heading: Unit Average Valuation

Text: OXY next argues that the Director improperly rejected Hess’s Unit Average as the valuation method. OXY asserts that ONRR previously had approved the Unit Average, and while ONRR is not estopped from conducting audits or reexamining a valuation methodology, the Director’s decision and administrative record do not clearly support a reversal of the Unit Average. ONRR merely substituted its own methodology for the Unit Average “to extract more royalty dollars” without actually finding that the Unit Average was inconsistent with the regulations. Aplt. Br. at 17. OXY contends that ONRR instead should have conducted additional investigation into the pricing practices of other Unit entities before rejecting the Unit Average. Id. at 36–46. We conclude that the Director’s decision to reject the Unit Average valuation methodology is not arbitrary or capricious. In order for this court to reverse ONRR’s decision, we would have to conclude that the agency failed to consider an important aspect of the problem, offered an explanation for its decision that runs counter to the evidence before the agency, or failed to base its decision on consideration of the relevant factors. Utah Env’t Cong., 479 F.3d at 1280. The record presented does not support our reaching any of these conclusions in this case. ONRR provided a reasoned basis for rejecting the Unit Average price methodology under the applicable regulations. ROA, at 234–36. ONRR’s justifications collectively reinforce each 33 Appellate Case: 21-2011 Document: 010110678144 Date Filed: 05/02/2022 Page: 34 other: It was reasonable for ONRR to determine that the Unit Average—comprised primarily of non-federal lessees that are not subject to ONRR’s regulations or oversight mechanisms, that ONRR cannot audit, and that use valuation methodologies both largely unknown to ONRR and likely based at least in part on non-arm’s-length sales—was not an appropriate measure of value, particularly since the Unit Average resulted in a price lower than the Hess Purchase Contracts that ONRR was able to examine. The Director also explained in detail why any previous guidance or orders Hess received (namely 1980s-era correspondence between Amoco and the Minerals Management Service) that supported Hess using the Unit Average to calculate its royalties on its federal CO2 production were not germane. Id. at 248–53. As ONRR points out, none of the guidance OXY invokes had the force of law or was otherwise binding on the agency. Aple. Br. at 31–37. And even if OXY was correct that ONRR’s rejection of the Unit Average here conflicts with prior agency policy, nothing prevented ONRR from changing its position so long as it provided a reasonable explanation for doing so—and ONRR plainly provided a reasonable explanation for rejecting the Unit Average. The agency’s decision to reject the Unit Average is supported by substantial evidence and is not arbitrary or capricious.