Opinion ID: 2599092
Heading Depth: 5
Heading Rank: 2

Heading: The department's inability to contract around its regulations

Text: Exxon argues that the department's own regulations allow the department to enter contracts that differ from existing regulations and provide that later-enacted regulations will not apply to preexisting contracts. [24] It also notes that the department has no statutory authority to alter a unit agreement without consent by the contracting parties. [25] Exxon claims that it drafted the PBUA to eliminate the department's discretion. Why, Exxon asks, would it draft an agreement that simply restates the department's regulations? We disagree with Exxon's first contentionthat the department can agree to contract terms that violate its regulations. The only authority cited for this proposition is 11 AAC 83.301(b), which states that the department's regulations apply to an existing oil and gas lease or approved unit agreement where not inconsistent with the lease or unit agreement or regulations in effect on the effective date of the lease or unit agreement. This merely applies the department's later-enacted regulations as default rules to existing leases or unit agreements when there is no conflict. Subsection .301(b) does not make existing department regulations inapplicable to new unit agreements. Former 11 AAC 83.340 and .345 existed before the approval of the PBUA. Former section .345 stated that [a]ny modification of an approved unit agreement is subject to the director's approval in the same manner and upon the same determination as the original unit agreement. [26] Former section .340 required that [a] unit agreement will be approved by the director if he determines that the agreement is necessary or advisable in the public interest, is for the purpose of more properly conserving natural resources, and adequately protects all parties in interest including Alaska. [27] Thus, 11 AAC 83.301(b) does not affect the applicability of the best interests analysis for expansions of the PBU according to former 11 AAC 83.340 and .345. [28] Moreover, 11 AAC 83.301(b) does not confer authority for the converse: to contract outside of the department's regulations. To allow such activity would be arbitrary; parties contracting with the department would not be held to the same regulations that non-contracting parties were required to comply with. And the department should never need to contract in violation of its own regulations, because it has the authority to change its regulations so long as the new regulation has a reasonable basis and is within the scope of the legislature's delegation of power to the department. [29] Because we conclude that 11 AAC 83.301(b) does not allow the department to contract outside of its regulations, Exxon's argument that the department contracted away its regulatory discretion fails. In sum, the text of the PBUA and the extrinsic evidence support the conclusion that the department had discretion to deny expansion. The department did not, and could not, contract away its discretion to consider the state's best interests in approving expansions of the PBU. Exxon did not have a unilateral right to expansion under the PBUA.