Court Opinion

ID: 9489459
Source: CourtListenerOpinion
Date Created: 2023-08-05 13:16:30.146247+00
Date Added: 2024-06-11T17:53:32.768338
License: Public Domain

ROGERS, Circuit Judge,
dissenting:
The court concludes that the Secretary of the Interior adopted an impermissible interpretation of his regulations when he determined that contract buy-out payments and settlements of accrued take-or-pay liabilities are among the “gross proceeds” received by a lessee for gas production. The court relies *1261largely on Diamond Shamrock Exploration Co. v. Hodel, 853 F.2d 1159 (5th Cir.1988), and the Secretary’s acquiescence in the Diamond Shamrock holding, Revision of Gross Proceeds Definition in Oil and Gas Valuation Regulations, 53 Fed.Reg. 45,082 (1988) (Gross Proceeds Revision). To the contrary, the Secretary made clear in responding to Diamond Shamrock that the regulations were changed only to the extent of requiring that actual severance of gas from the earth must occur before royalties are due on any revenue. Because the challenged interpretations in these consolidated cases assess royalties only after such severance occurs, there is no inconsistency between the Secretary’s position and his acquiescence in Diamond Shamrock. Accordingly, I respectfully dissent.
I.
A preliminary, but critical, issue in these cases is the proper standard of review. Ordinarily, the Secretary is entitled to considerable deference in interpreting both the statutes 1 at issue here, Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-43, 104 S.Ct. 2778, 2781-82, 81 L.Ed.2d 694 (1984), and the regulations2 adopted to implement the statutes, Udall v. Tallman, 380 U.S. 1, 16, 85 S.Ct. 792, 801, 13 L.Ed.2d 616 (1965). In theory, the court recognizes that the such deference is appropriate in the instant cases. Op. at 1258. In practice, however, the court effectively changes the issue from whether the Secretary’s interpretations of the statutes and regulations are permissible to whether the interpretations accord with the rationale of Diamond Shamrock. This subtle change in approach misconceives the nature of the Secretary’s acquiescence in Diamond Shamrock.
The Secretary was not bound to accept the holding of Diamond Shamrock, at least in cases reviewable in courts outside the Fifth Circuit. Even after one circuit has disagreed with its position, an agency is entitled to maintain its independent assessment of the dictates of the statutes and regulations it is charged with administering, in the hope that other circuits, the Supreme Court, or Congress will ultimately uphold the agency’s position.3 See United States v. Mendoza, 464 U.S. 154, 160, 104 S.Ct. 568, 572, 78 L.Ed.2d 379 (1984); see also American Tel. & Tel. Co. v. FCC, 978 F.2d 727, 737 (D.C.Cir.1992) (referring to agency’s “right to refuse to acquiesce” in decisions of circuit courts), cert. denied, 509 U.S. 913, 113 S.Ct. 3020, 125 L.Ed.2d 709 (1993). While some courts, including this one, have criticized agencies that refuse to apply the settled law of the circuit that will review the agency’s action in a particular ease, intercircuit nonacquiescence is permissible, especially when the law is unsettled.4 Nor can there be any doubt that the law involved in Diamond Shamrock is unsettled; courts and commentators are sharply divided over a host of questions involving the application of gas leases to take- or-pay payments and settlements, and even the most general issues regarding how to interpret royalty clauses continue to divide the authorities.5 See generally John S. *1262Lowe, Defining the Royalty Obligation, 49 SMU L.Rev. 223 (1996). Thus, the Secretary was under no obligation to adhere to the Diamond Shamrock holding, let alone its rationale or dicta, and the court should not review his actions for compliance with the language of that opinion.
The court concludes that the Secretary’s interpretation “must be reasonable in light of DOI’s adoption of Diamond Shamrock.” Op. at 1258. Correctly understood, the Secretary’s interpretation must be reasonable in light of the regulations he adopted after Diamond Shamrock was decided. Faced with an adverse decision from one circuit, the Secretary had discretion as to how to respond. Because the regulations were amended in response to Diamond Shamrock, that ease will be persuasive authority as to the regulations’ meaning. But what binds the Secretary is the amended regulations themselves, not the court decision that precipitated the amendment.
The Secretary is entitled to the great deference we usually accord to an agency’s interpretation of its own regulations,6 S.G. Loewendick & Sons, Inc. v. Reich, 70 F.3d 1291, 1294 (D.C.Cir.1995), for his interpretation is not constrained by what the Fifth Circuit had to say. The Secretary must also have a coherent rationale for when royalties are assessed, to ensure that his decision is neither arbitrary nor capricious. 5 U.S.C. § 706(2)(A).
II.
The court faults the Secretary for his purportedly inconsistent royalty treatment of take-or-pay payments and “functionally indistinguishable” take-or-pay settlement payments. Op. at 1260. The Secretary’s treatment is not inconsistent, however, because he assesses royalties on both types of payment when the lessee produces the gas to which the payment is attributable.
At issue here are two of the types of settlement payments as were described in the “Dear Payor” letter of May 3,1993, from the Minerals Management Service (MMS) to its lessees. Applying the principle that “lessees and other payors are required to pay royalties on contract settlement payments to the extent payments are attributable to minerals produced from the lease,” the MMS examined four common types of settlement payments. “Past pricing disputes” relate to the amount owed for minerals produced or sold before the contract settlement, and such amounts are subject to royalty when the payment is made.7 A “contract buydown” involves a payment made to reduce the price of gas to be taken in the future (after the settlement) by the original purchaser — “it is a payment of some amount now in return for paying a lower price later” — and such payments are royalty-bearing as future production occurs. Neither of these two types of payment is involved in the instant case. Rather, the Samedan-Southern agreement contains a “contract buyout” payment ($89,-706) and a payment made in settlement of accrued but unpaid take-or-pay liabilities ($10,294). The “buyout” payment extinguishes the purchaser’s obligation to take any gas in the future, and is royalty-bearing because it “compensates the lessee for lower prices in the future for the production foregone by the original purchaser.” Under an attribution formula, the amount of the buyout payment attributable to each unit of gas freed up for *1263the remaining term of the original take-or-pay contract is added to the proceeds received from the substitute purchaser, and these gross proceeds are royalty-bearing as production occurs. Finally, payments in settlement of accrued take-or-pay liabilities are royalty-bearing, at the time of production, as attributed to each unit of gas up to the volume of what would have been make-up gas, for the remaining term of the make-up period under the original contract.
An examination of the regulatory scheme reveals why the Secretary’s extraction-plus-attribution principle is permissible. Congress delegated broad authority to the Secretary to ensure that royalties are paid on the full “value of the production removed or sold from the lease.” 30 U.S.C. § 226(b)(1)(A); see also 43 U.S.C. § 1337(a)(1)(A) (for Outer Continental Shelf leases, “value of the production saved, removed, or sold”).8 The Secretary, in turn, has adopted a market-based approach to determining the value of each unit of gas that is produced. The market “and its reliance on self-motivated individuals to engage in transactions which are to their own best interest, therefore, is a cornerstone of the regulations.” Revision of Gas Royalty Valuation Regulation and Related Topics, 53 Fed.Reg. 1230, 1233 (1988) (Gas Royalty Revision). The value of gas production is generally “determined by prices set by individuals of opposing economic interests transacting business between themselves.” Id.
At the same time, the Secretary has recognized that the benefits conferred on producers in the natural-gas market may not all be denominated in the same fashion. The regulations have therefore imposed royalties on a broad range of payments received by lessees in connection with gas.9 Before 1988, the regulations specified that the “value” must be at least the “gross proceeds accruing to the lessee from the sale of” gas, but did not further define “gross proceeds.” 30 C.F.R. §§ 206.103, 206.150 (1987). The 1988 overhaul of the regulations continued the same basic approach, prescribing that “under no circumstances shall the value of production for royalty purposes be less than the gross proceeds accruing to the lessee for lease production,” 30 C.F.R. § 206.152(h) (1988) (unprocessed gas); id. § 205.153(h) (unprocessed gas),10 but the new rules explicitly defined “gross proceeds” to mean “the total monies and other consideration accruing to an oil and gas lessee for the disposition of unprocessed gas, residue gas, or gas plant products.” Id. § 206.151. As MMS explained, it “purposefully drafted the gross proceeds definition to be expansive and thus include all types of consideration flowing from the buyer to the seller.” Gas Royalty Revision, 53 Fed.Reg. at 1241. This expansive definition was necessary because otherwise the Secretary’s general acceptance of arm’s-length contracts as evidence of the value of gas might overlook the total value of the gas to the lessee:
[Tjhere must be exceptions to the general rule that the lessee’s arm’s-length contract price should be accepted without question as the value for royalty purposes. Once such situation is where the contract does not reflect all of the consideration flowing either directly or indirectly from the buyer to the seller.
Id. at 1247. At a time when the economies of gas production were rapidly changing and contractual innovations were beginning to ap*1264pear, therefore, the Secretary made it clear that he would examine the dealings of producers and purchasers carefully to ensure that all of the value received by producers • was subjected to royalties. In the definition of “gross proceeds,” he included many examples of payments that would -be subject to royalties; among those examples were take- or-pay payments and advance payments to cover exploration or development costs. 30 C.F.R. § 206.151 (1988).
As a necessary adjunct to his reliance on arm’s-length contracts as indicators of gas value, the Secretary required producers to be reasonably diligent in enforcing their contractual rights against purchasers. On an issue that generated considerable comment during the rulemaking, Gas Royalty Revision, 53 Fed.Reg. at 1240-41, the Secretary concluded: “Monies and other consideration ... to which a lessee is contractually or legally entitled but which it does not seek to collect through reasonable efforts are also part of gross proceeds.” 30 C.F.R. § 206.151 (1988); see also id. § 206.152(j). Thus, producers who failed to enforce their rights under lucrative take-or-pay contracts were on notice that they could be liable for royalties on the contract price.
Shortly after the revised regulations were promulgated, the Fifth Circuit decided Diamond Shamrock The Secretary’s reaction to that case was brief and quite clear. Diamond Shamrock, said the Secretary, interpreted the phrase “value of production” to require that actual severance of gas from the earth must occur before any royalty could be due. The crux of the decision, to which the Secretary announced his acquiescence, was that
[t]he Court adopted as the legal definition of the word “production,” as used in the context of calculating royalty payments, the actual physical severance of minerals from the formation. Accordingly, the Court concluded that “royalty payments are due only on the value of minerals actually produced, i.e., physically severed from the ground. No royalty is due on take-or-pay payments unless and until gas [namely, make-up gas] is actually produced and taken.”
Gross Proceeds Revision, 53 Fed.Reg. at 45,-082-083 (quoting Diamond Shamrock, 853 F.2d at 1168). Although the court is not reviewing the merits of the Secretary’s reading of Diamond Shamrock, his view was reasonable; the Fifth Circuit itself has twice distinguished Diamond Shamrock by characterizing its ratio decidendi as depending on the definition of “production.” Frey v. Amoco Prod. Co., 943 F.2d 578, 581-82, 584 & n. 5 (5th Cir.1991) (Frey I), vacated in part, 951 F.2d 67, 68 (5th Cir.1992), reinstated, 976 F.2d 242 (5th Cir.1992); Mesa Operating Ltd. Partnership v. U.S. Department of Interior, 931 F.2d 318, 326 (5th Cir.1991) (Brown, J.), cert. denied, 502 U.S. 1058,112 S.Ct. 934, 117 L.Ed.2d 106 (1992). More important in light of the court’s reading of the Secretary’s reading of Diamond Shamrock, no reported decision has described that case’s reasoning as depending at all on the recoupability of take-or-pay payments.
Out of the major regulatory revisions adopted earlier that year following a lengthy rulemaking, the Secretary identified the only two provisions that were incompatible with the newly accepted definition of “production,” and he excised those provisions from the regulations. Gross Proceeds Revision, 53 Fed.Reg. at 45,083. Nothing else was touched. Emphasizing the limited nature of the amendments, the Secretary noted in the final rule itself that the amendments were “the minimum necessitated by” Diamond Shamrock, and reasserted his intention that “product value regulations will be premised on the concept that royalty value cannot be less than the gross proceeds accruing to the lessee.” Id. at 45,084. There was no mention of nonrecoupable take-or-pay payments or of take-or-pay settlement payments — not surprisingly, because Diamond Shamrock was silent on these subjects. Although the court places great interpretative weight on the Secretary’s bracketed inclusion of the words “make-up gas,” Op. at 1259, the Secretary referred to “make-up gas” in the context of the Diamond Shamrock holding: for re-coupable take-or-pay payments, the time of extraction is when the purchaser takes makeup gas.
*1265Contrary to this court’s reading, therefore, neither Diamond Shamrock nor the Gross Proceeds Revision adopted a requirement that payments be recouped before a royalty could be assessed. Op. at 1259. Rather, it was clear in 1988 that the only change in the regulations — “the minimum necessitated”— was that all revenues that had previously been royalty-bearing would no longer be subjected to a royalty assessment until actual extraction of gas occurred. It follows that the Secretary’s decision in the instant cases is consistent with the text of the post-Diamond Shamrock amendment, because all royalty assessments were triggered by actual extraction.
The Secretary’s challenged actions are also consistent with the rationale of the amended regulations as a whole. The definition of “gross proceeds” includes revenue to which a lessee is contractually entitled but does not seek to collect through reasonable efforts. 30 C.F.R. § 206.151 (1995). The regulations, both before and after Diamond Shamrock, also account for the possibility that the most reasonable way to collect contractual entitlements may be through settlement. ‘Walue shall be based on the highest price a prudent lessee can receive through legally enforceable claims under its contract.” 30 C.F.R. § 206.152(j) (1995). Given the unforeseen circumstances that made the contract so uneconomical for Southern, Samedan’s decision to settle at a discount was a prudent course of action. MMS, acting in accordance with the logic of § 206.152®, recognized this by charging a royalty on the prudent settlement value, rather than on the full face value of the contract. By waiting until extraction occurred, MMS also adhered to the Secretary’s acceptance of Diamond Shamrock’s definition of “production.” The challenged actions are no more than a straightforward application of the regulations: assessing a royalty payment on the settlement of legally enforceable claims, but only after the gas to which those claims pertain has been extracted from the ground.
III.
The court reads the Secretary’s references to make-up gas in his discussion of the royalty treatment of recoupable take-or-pay payments in Gross Proceeds Revision, 53 Fed. Reg. at 45,082-83, as indicating that the Secretary believed that royalties could be assessed on take-or-pay payments only because the payments were later recouped by the original purchaser. Op. at 1259-60. With respect to a take-or-pay payment, however, two things happen when make-up gas is taken: gas is extracted; and the take-or-pay payment is recouped. Thus, in noting that such take-or-pay payments would not be royalty-bearing until make-up gas was taken, the Secretary could have identified as a sine qua non either extraction or recoupment. Given that the Gross Proceeds Revision does not mention recoupability at all, and that the references to make-up gas occur in the context of explaining Diamond Shamrock’s definition of “production” to mean “extraction,” the most natural reading is that it was extraction, and not recoupment, that the Secretary viewed as triggering the royalty obligation.
The court contends that, without recoupa-bility, there is no “direct link between the funds upon which royalties are imposed and the physical severance of gas.” Op. at 1259. That link is provided, however, by the Secretary’s attribution principle. In the case of a buyout payment, the Secretary determines the amount of gas for which the settling purchaser had a take-or-pay obligation and attributes the proceeds from the buyout payment to the gas that the lessee would not have been able to sell without the settlement — the “freed-up gas.”11 For the settle*1266ment payments for accrued take-or-pay liabilities, the Secretary determines the amount of gas under the settling purchaser’s accrued make-up rights and attributes the proceeds from that portion of the settlement payment to the additional gas that the lessee sells beyond the take-or-pay obligation in the original contract — the “would-have-been make-up gas.” In each case, the Secretary waits to assess the royalties until the time of extraction and establishes a link between the proceeds from the settlement payment and the gas produced.
Any sensible royalty system must recognize, as the Secretary’s system does, that gas production will go on after the take-or-pay crisis has been resolved. Before the crisis, when take-or-pay contracts were routinely negotiated, it was reasonably assumed that the pipelines would eventually take all of the make-up volumes to which they were entitled. Thus, in an ongoing take-or-pay contract, the Diamond Shamrock rule affects only the timing of the royalty payment, not the amount of royalty due. Although the lessor could not charge a royalty when the lessee received the take-or-pay payment, the lessor eventually received a royalty on the full proceeds received by the lessee when the make-up gas was taken. When an extreme drop in spot market prices was coupled with the deregulation of wellhead sales, the elimination of pipelines’ minimum bills and the implementation of open-access transportation, however, pipelines were threatened with bankruptcy if they continued to meet their take-or-pay obligations. See United Distribution Companies v. FERC, 88 F.3d 1105 (D.C.Cir.1996). Under those circumstances, it made sense for producers to accept contract buyouts needed to keep their pipeline customers solvent. But production went on, at much reduced prices. There is no logical reason to treat the take-or-pay settlements any differently from take-or-pay payments that would have been made by pipelines that fully performed under the contracts, for the settlements are simply replacements (at a discount) for forgone take-or-pay payments and high contract prices. Just as the lessor would have received at the time of production a royalty on the full contract price of makeup gas, which would have been paid for by an earlier take-or-pay payment, it should receive a royalty on the full contract price of would-have-been make-up gas, less a reasonable discount, which is paid for in part by the contract settlement. The Secretary’s approach is not only permissible but eminently sensible.
By recognizing the estimates of value in the settlement agreement between Southern and Samedan, the Secretary adhered to his general approach of allowing the market to determine the value of production. When the arm’s-length take-or-pay contract was first entered into, it represented the market’s estimation of the value of contemplated future production. Even after the price of gas on the spot market declined, the gas subject to the contract had a higher value for Samedan because of the existence of the take-or-pay contract with Southern. The decline of the market, however, did reduce the market value of the gas under the contract at the time of settlement below the face value of the contract, because it introduced uncertainty as to Southern’s ability to continue performing. Southern and Samedan therefore freely negotiated a settlement payment that reflected their estimation of how far the value of Samedan’s future production had fallen. Consistent with his view that “[vjalue ... is determined by prices set by individuals of opposing economic interests transacting business between themselves,” Gas Royalty Revision, 53 Fed.Reg. at 1233, the Secretary accepted Southern’s and Sam-edan’s estimate.12
*1267The contrary arguments adopted by the district court in In re Century Offshore Mgmt. Corp., 185 B.R. 734, 741 (E.D.Ky.1995), appeal pending, No. 95-6320 (6th Cir.), a case involving a buyout payment, for why the Secretary’s position is flawed, are unpersuasive. First, the court’s concern that there would be two royalty payments for each sale of gas misapprehends the Secretary’s attribution rule for determining the “gross proceeds” for each sale. Second, the court’s claim that the purpose of the minimum-take requirements was to protect the lessee (and not the lessor) against the risks of development overlooks the fact that another purpose (which has become paramount by the time of settlement) was to protect both lessee and lessor against the risk that the market price would drop. Third, the court’s claim that lessees might be barred from seeking refunds of royalty overpayments, see 43 U.S.C. § 1339, is mistaken because under the Secretary’s extraction-and-attribution principle royalties are assessed only at the time of production. Finally, the court’s claim that settlement payments are not part of the fair market value of production, cf. Gas Royalty Revision, 53 Fed.Reg. at 1233, ignores the fact that the settlement, like the sale of gas to the subsequent purchase, is an arm’s-length market measure of the “value of production.” It is unclear why only the lessee, and not the lessor, should benefit from that value.
Accordingly, I conclude that the Secretary’s extraction-and-attribution principle is not only authorized by the regulations that he adopted in the wake of Diamond Shamrock, but also well-reasoned and applied consistently across-the-board to all types of take-or-pay and take-or-pay settlement payments.
IV.
Previous administrative actions that appellants claim conflict with the Secretary’s actions in the instant case in fact present no obstacle to the Secretary’s position. See Op. at 1253. Santa Fe Energy Co., MMS-85-0046-OCS (Ass’t Sec’y Land & Minerals Mgmt. Oct. 14, 1988), decided only that royalties on reeoupable take-or-pay payments and settlements of accrued take-or-pay liabilities were not due until make-up gas was taken. The decision, shortly after Diamond Shamrock, simply put the holding of that case into effect, and is entirely consistent with the Secretary’s current position. Santa Fe did not speak to the question, which was not presented in that proceeding, whether a third-party purchase could substitute for make-up gas. Samedan’s reliance on Hunt Oil Co., MMS-87-0324-OCS (Dep. Ass’t Sec’y Land & Minerals Mgmt. Jan. 25, 1989), is no more persuasive. In that proceeding, MMS was not permitted to charge royalties on the time value of advance payments for the development and production of gas (that is, the imputed interest from the time the advance payments were made until the time of production), even though royal*1268ties were due, at the time of production, on the principal value of the advance payments. Whatever the merits of Hunt, the Secretary’s actions are consistent with that decision because he does not assess a royalty on the time value of contract settlements (that is, the imputed interest from the time the settlement payments were made until the time of production).
The two other decisions that appellants cite, Blackwood & Nichols Co., MMS-88-0008-0&G (Dir. MMS Apr. 20, 1989), and Wolverine Exploration Co., MMS-88-0052IND (Dep. Ass’t Sec’y Indian Affairs (Operations) May 2, 1990), were both issued by officials who did not have the authority to make department-wide policy, or even to take final agency action subject to judicial review. See 30 C.F.R. §§ 243.3, 290.7 (1995); 43 C.F.R. § 4.21(c) (1995). Although both decisions were subject to further administrative appeal, they were not appealed. When Samedan reached the Assistant Secretary in 1993, she was therefore free to disagree with the prior decisions of lower-level officials. In any event, though, neither decision conflicts with the Secretary’s actions in the instant case. Blackwood & Nichols, while quite cryptic, held that a certain nonrecoupable buyout payment was not royalty-bearing, but there is no indication in the record that the volumes to which the buyout payment was attributable were ever taken by a third party. Thus, the decision does not address the issue of the production of “would-have-been” make-up volumes. Wolverine involved a nonrecoupable settlement of accrued take-or-pay liabilities. There was no buyout of the contract, and the original purchaser continued to take gas under the take-or-pay provisions. The Deputy Assistant Secretary ruled that the payment was not royalty-bearing because it could not be credited against future purchases. The result in Wolverine does not conflict with the Secretary’s assessment of royalties on Southern’s payments in settlement of accrued take-or-pay liabilities because, as the Assistant Secretary in Same-dan noted, the record does not show that the purchaser in Wolverine took additional gas above its minimum-take obligation. By contrast, Samedan concedes that its sales to Hadson exceeded the minimum-take amount in its original contract with Southern, so that under the Secretary’s attribution policy royalties were assessed on that “would-have-been make-up gas” only.
Y.
The court does not reach Samedan’s argument that the Secretary’s counterclaim to enforce his order is partially time-barred because it finds that the order cannot be enforced in any case. Op. at 1260. Because I disagree with the court’s holding on the validity of the Secretary’s order, I address the statute of limitations issue and conclude that, as with the other issues raised by appellants,13 Samedan’s position is not meritorious.
Samedan contends that the Secretary’s attempt to assess royalties is partly barred by the six-year limitations period created by 28 U.S.C. § 2415(a).14 A brief review of the chronology is in order. After settling with Southern in December 1987, Samedan began producing the gas to which the Secretary later attributed the settlement payment. Production began in February 1988, and roy*1269alties were due on the buyout portion of the settlement as production occurred until sometime in November 1989, when total sales reached the $89,706 buyout value. Royalties were due on the portion of the settlement for accrued take-or-pay liabilities as production occurred from May 1988 until sometime in July 1988, the period during which would-have-been make-up gas was taken, until those additional sales reached the $10,294 value for that portion of the settlement. There is no dispute that if the settlement is royalty-bearing at all, royalties became due on the last day of the month following production, which means that royalties on the settlement payment began to accrue in March 1988. On December 2, 1993 — almost six years after royalties began to accrue — • MMS ordered Samedan to pay a 20% royalty on the entire settlement. The order informed Samedan of its right to an administrative appeal. Samedan exercised that right, and the Assistant Secretary affirmed the MMS order on September 16, 1994. On October 3, 1994, Samedan sued to enjoin enforcement of the Assistant Secretary’s order, and the Secretary filed a counterclaim on November 1, 1994, to enforce the order. On the date of the counterclaim, more than six years had passed since royalties had accrued on volumes produced through September 1988. Samedan therefore contends that the Secretary’s counterclaim is time-barred with respect to those volumes.
The counterclaim is timely, however, because § 2415(a) permits the government to file a complaint within six years of the accrual of a right of action “or within one year after final decisions have been rendered in applicable administrative proceedings required by contract or by law, whichever is later.” The counterclaim was filed less than one year after both the initial MMS order and the Assistant Secretary’s order on appeal. Samedan contends that the Secretary could have filed a judicial complaint without having engaged in any administrative proceedings, so the proceedings that he actually provided were not “required by ... law” and thus did not extend the period for filing suit. It is undisputed that Samedan was required to pursue its administrative appeal to the Assistant Secretary level before it could file judicial suit. 30 C.F.R. § 243.3; 43 C.F.R. § 4.21. Because the administrative proceedings were “required” before Samedan could sue, the Secretary also had a one-year period following their conclusion in which he could file his claim in court. See Mesa Operating Ltd. Partnership v. U.S. Department of Interior, 17 F.3d 1288, 1291-92 (10th Cir.1994); United States v. California Care Corp., 709 F.2d 1241, 1247 (9th Cir.1983).15
Permitting the government to await the conclusion of administrative proceedings required of its adversary serves the purposes of the statute of limitations while simultaneously preserving the proper balance between the administrative and judicial processes. Were it otherwise, the Secretary would have had to file a “protective” suit to enforce the MMS order even as the order was under administrative review. Such a suit either would be a “sheer formality” having no substance during the pendency of the administrative review, or would result in a “short-circuit” of the administrative process. United States v. General Elec., Inc., 556 F.Supp. 801, 805 (D.N.J.1983) (quoting Crown Coat Front Co. v. United States, 386 U.S. 503, 515, 87 S.Ct. 1177, 1184, 18 L.Ed.2d 256 (1967)); United States v. International Ass’n of Firefighters, 716 F.Supp. 656, 660 (D.D.C.1989). At least in the absence of any allegation of unreasonable delay by the Secretary in the administrative proceedings, forcing the Secretary into court before those proceedings have been completed would not serve the purposes of the statute of limitations. Transferring the dispute from the administrative process into district court would not improve the accuracy of fact-finding, provide repose to parties in Samedan’s position, penalize the government for sleep*1270ing on its rights, or equalize the positions of the government and its private adversaries, which are the goals of § 2415. S.Rep. No. 1328, 89th Cong., 2d Sess. 2, 12, reprinted in 1966 U.S.C.C.A.N. 2502, 2503, 2513; see General Elec., 556 F.Supp. at 805.16
Aceordingly, I dissent and would affirm the judgment of the district court.

. Indian Mineral Leasing Act, 25 U.S.C. §§ 396, 396d (1994); Mineral Leasing Act, 30 U.S.C. § 226 (1994); Outer Continental Shelf Lands Act, 43 U.S.C. § 1337(a) (1994).

. 30 C.F.R. §§ 206.150-.159 (1995).

. Commentators have pointed out various benefits of intercircuit nonacquiescence. See Samuel Estreicher and Richard L. Revesz, Nonacquies-cence by Federal Administrative Agencies, 98 Yale LJ. 679, 736-37 (1989).

. Cf. Johnson v. United States R.R. Retirement Bd., 969 F.2d 1082, 1090-93 (D.C.Cir.1992), cert. denied, 507 U.S. 1029, 113 S.Ct. 1842, 123 L.Ed.2d 467 (1993); id. at 1097-98 (Buckley, J., dissenting in part); Yellow Taxi Co. v. NLRB, 721 F.2d 366, 383 & n. 39 (D.C.Cir.1983) (opinion of MacKinnon, J.); id. at 384-85 (Wright, J., concurring); id. at 385 (Bork, J., concurring).

.Compare Tara Petroleum Corp. v. Hughey, 630 P.2d 1269, 1272-74 (Okla.1981) with Texas Oil & Gas Corp. v. Vela, 429 S.W.2d 866, 871 (Tex. 1968). Commentators are divided on whether royalties should be due on take-or-pay settlement payments. Compare Patricia A. Brown, Note, Klein v. Jones: Equitable Right to Royalties on Take-or-Pay Settlements, 47 Ark. L.Rev. 749, 784-86 (1994) and Kirk J. Bily, Comment, Royalty on Take-or-Pay Payments and Related Consideration Accruing to Producers, 27 Hous. L.Rev. 105, 133— 35 (1990) (yes) with Beverly M. Barrett, Note, Roye Realty v. Watson: Are Royalties Owed on all Take-or-Pay Settlements in Oklahoma?, 46 Okla. L.Rev. 745, 762-64 (1993) and Angela Jeanne *1262Crowder, Comment, Taker-or-Pay Payments and Settlements — Does the Landowner Share?, 49 La. L.Rev. 921, 935-37 (1989) (no).

. Appellants contend that no deference should be due to an agency's interpretation of its own regulation when it will affect contracts to which the agency is a party, relying on dictum in a previous opinion. See Transohio Sav. Bank v. Director, Office of Thrift Supervision, 967 F.2d 598, 614 (D.C.Cir.1992) (leaving open whether to accord Chevron deference to the interpretation of a statute that affected agreements to which the agency was a party). This contention is incorrect because Congress has authorized the Secretary to prescribe regulations governing mineral leases. 25 U.S.C. § 396 (allotted Indian lands, applicable to Samedan); see also id. § 396d (tribal Indian lands); 43 U.S.C. § 1334(a) (offshore leases); 30 U.S.C. § 189 (onshore leases); see California Co. v. Udall, 296 F.2d 384, 388 (D.C.Cir.1961) (deferring to Secretary's reasonable construction of 30 U.S.C. § 226 because Secretary has duty of administering the statute).

. Appellants have conceded that amounts paid to resolve disputes over the price of past production are royalty bearing.

. The statutory authority to charge royalties on Indian lands is even broader, as royalties are not required to be tied to "production.” 25 U.S.C. §§ 396 (allotted lands), 396d (tribal lands). However, the Secretary has adopted the formula "value ... produced and saved from the land leased” for leases on Indian lands. 25 C.F.R. §§ 211.13(a) (tribal lands), 212.16 (allotted lands). Samedan's lease is on allotted Indian lands, so 25 C.F.R. § 212.16 is the regulation applicable to Samedan’s lease.

. See, e.g., Enron Oil & Gas Co. v. Lujan, 978 F.2d 212, 215-17 (5th Cir.1992) (upholding Secretary’s "long-standing method of including state severance tax reimbursements in the calculation of ‘gross proceeds’ ”), cert. denied, 510 U.S. 813, 114 S.Ct. 59, 126 L.Ed.2d 29 (1993); Mesa Operating Ltd. Partnership v. U.S. Department of Interior, 931 F.2d 318, 324 (5th Cir.1991) (upholding Secretary's assessment of royalties on reimbursed gas treatment costs), cert. denied, 502 U.S. 1058, 112 S.Ct. 934, 117 L.Ed.2d 106 (1992).

.Samedan produces unprocessed gas, so 30 C.F.R. § 206.152(h) (1995) is the applicable regulation.

. Not only are there technological and sometimes contractual or legal constraints on increases in the volume of production, but take-or-pay contracts typically set aside a certain percentage of the lessee's deliverability. In Southern’s take- or-pay contract with Samedan, for example, Southern promised to take or pay for 85 percent of deliverability each year. By limiting the attribution of payments for accrued take-or-pay liabilities to the original make-up period, the Secretary avoids the problem of demanding royalties when the original purchaser would have been unable to take its entire make-up rights. For example, Hadson and TransOk were able to *1266make up the entire amount of Southern’s accrued take-or-pay liabilities in less than three months.

. Moreover, a contrary royalty rule would distort the market incentives for the efficient settlement of uneconomical take-or-pay contracts. Exempting buy-out payments from royalties would give the producer an incentive to settle such contracts at a greater than appropriate discount, to the detriment of a lessor who is unrepresented in the settlement negotiations. This distortion would occur because the producer would be willing to accept a below-market discount in return for the ability to exchange royalty-bearing rights under the original contract *1267for a royalty-free settlement payment. This is inconsistent with the lessee’s duty toward the lessor to obtain the highest possible price. 30 C.F.R. § 206.152(j); cf. Frey v. Amoco Prod. Co., 603 So.2d 166, 173-75 (La. 1992) (Frey II); 5 Eugene Kuntz, Treatise on the Law of Oil and Gas § 60.3, at 137-38 (1991) (“[T]he lessee is required to exercise ... the degree of diligence that would be exercised by an ordinarily prudent operator having regard for the interests of both the lessor and the lessee.”). As the Eighth Circuit observed, “The lessee's action has relinquished a valuable right and the lessor is entitled to receive something in return.” Klein v. Jones, 980 F.2d 521, 531 (8th Cir.1992). The Secretary's position that buy-out payments are royalty-bearing avoids the perverse incentives that would otherwise obtain.
A similar distortive effect would apply if the settlement of accrued take-or-pay liabilities were royalty-free. As the Assistant Secretary recognized, whether the original purchaser retains make-up rights on its take-or-pay settlement is a function of how much it is willing to pay as a settlement. Even under the analysis urged by appellants and accepted by the court, a recoupa-ble take-or-pay settlement would be royalty-bearing when make-up gas was taken. Treating non-recoupable settlements differently would distort the producer’s decision-making and lead it to accept an uneconomically large discount on a nonrecoupable settlement.

. I join in Part II.A of the opinion of the court. Op. at 1256-57, holding that the "Dear Payor" letter of May 3, 1993, does not constitute a rulemaking requiring APA notice-and-comment procedures. In addition, because for reasons noted above in Part II of my dissent the letter did not "effectively amend[] a prior legislative rule" governing royalty assessments, American Mining Congress v. Mine Safety & Health Admin., 995 F.2d 1106, 1112 (D.C.Cir.1993), the letter (if it were a rule at all) would be an “interpretative-rule” not subject to notice-and-comment procedures. 5 U.S.C. § 553(b)(A).

. Section 2415(a) (1994) provides:
Subject to the provisions of section 2416 of this title, and except as otherwise provided by Congress, every action for money damages brought by the United States or an officer or agency thereof which is founded upon any contract express or implied in law or fact, shall be barred unless the complaint is filed within six years after the right of action accrues or within one year after final decisions have been rendered in applicable administrative proceedings required by contract or by law, whichever is later....

. United States v. Cocoa Berkau, Inc., 990 F.2d 610, 615-16 (Fed.Cir.1993), cited by Same-dan, is not to the contrary. There, the Federal Circuit held that an informal, discretionary process for administrative relief was not "required by law" because, among other things, the private party was not required to invoke and exhaust the process before bringing suit.

. The district court rejected the statute of limitations defense for a number of other reasons as well: the counterclaim was not for "money damages” within the meaning of § 2415 because it sought performance of the lease agreement rather than monetary compensation for a breach; the administrative proceedings themselves did not constitute an "action” within § 2415, and once those proceedings were concluded, the government had a judicial claim to enforce the administrative order, rather than for money damages on a contract; and the counterclaim was timely under § 2415(f), which provides that § 2415(a) shall not prevent the government from asserting a counterclaim "that arises from the same transaction or occurrence that is the subject matter of the opposing party's claim." Because the counterclaim was filed within one year of the final decision in the administrative proceedings, it is unnecessary to reach these alternative grounds.