Opinion ID: 541820
Heading Depth: 1
Heading Rank: 1

Heading: facts

Text: 4 This action was brought by the Tribes against the Secretary and several oil companies that had mineral leases on tribal lands. The Tribes, owners in common of the minerals under the tribal lands, claimed that the oil companies had underpaid royalties due on gas produced and sold from the Wind River Indian Reservation. Defendants Chevron Oil Company, Continental Oil Company and Shell Oil Company are not involved in this appeal. The Secretary applied the net realization method to calculate the royalties due. That method requires ARCO to pay royalties based on the value of the residue gas and liquids after processing, minus a processing allowance. 5 In response to the complaint and correspondence from the Tribes, the MMS, a subdivision of the Department of the Interior, initiated an audit of the gas companies' leases with the Tribes, including the ARCO leases, to identify any royalty underpayment. Before the audit was completed, ARCO, the other defendants and the Secretary stipulated that: 6 all unresolved issues raised or to be raised by the [MMS] in its audits of royalty payments on natural gas and liquid products produced from the Wind River Indian Reservation leases which are the subject of this action shall be determined by this court [the district court] without the necessity of intervening administrative appeals. 7 After reviewing ACRO's comments, conducting an on-site inspection of ARCO's River Dome Gas Plant (RDGP) and surveying ARCO's previously filed royalty calculations, the MMS determined that several of ARCO's claimed cost deductions were improper. ARCO does not claim that there was any procedural error by MMS nor does ARCO raise any constitutional challenges. Rather, ARCO challenges the MMS conclusion that two cost items were nondeductible. Both cost items pertain only to the RDGP. First, ARCO contends that the MMS audit was wrong in disallowing ARCO's deduction for the cost of gas compression required both to manufacture and market the gas. Second, ARCO contends that the MMS audit was wrong in disallowing ARCO's deduction of a flat 10% of its allowable processing deductions to cover administrative overhead costs. Instead MMS required ARCO to specify and verify those expenses. 8 There being no material factual dispute, the controversy was submitted to the district court on cross-motions for summary judgment. The district judge granted the Tribes' and the Secretary's cross-motion and denied ARCO's cross-motion.