Court Opinion

ID: 9673252
Source: CourtListenerOpinion
Date Created: 2023-08-24 04:09:05.238209+00
Date Added: 2024-06-11T18:16:20.998698
License: Public Domain

Bronson, J.
The area around the Pigeon and Black Rivers in northeastern Otsego County, in the northern part of Michigan’s lower peninsula, is rich in a variety of natural resources.
Forests, rivers, and lakes are found here, particularly in the Pigeon River State Forest and the nearby Hardwood, Black Lake and Thunder Bay *674State Forests. Since the area is largely state owned and largely undeveloped, it is relatively wild, unspoiled and secluded. Consequently, the area provides one of the few remaining favorable habitats for wildlife in Michigan’s lower peninsula.
In this region is found Michigan’s elk range, the home of the only sizeable wild elk herd east of the Mississippi River. The herd contains an estimated 500 to 1,000 elk, the descendents of a few hardy elk who were released in the area in 1918 in an effort to reintroduce the animal to Michigan after they had been driven from this state in the late nineteenth century.
The area provides a home for many other forms of wildlife in addition to elk. Evidence suggests that this area is the sole remaining stronghold for black bear in the lower peninsula, and between 30 and 50 bear are estimated to inhabit this region. The region also provides one of the few remaining favorable locations for bobcats in this state. Other more common species of wildlife also inhabit this region, including deer and various game birds.
Another natural resource which has been found in the region is oil. Exploitation of oil as a natural resource provides greater opportunity for profit than elk, bear, or bobcats. Whether that profitability can be exploited by the extraction of the oil consistent with the conservation of the wildlife resources of the region is one issue which has been litigated in this case. Another issue concerns the scope of the authority of the Department of Natural Resources (DNR) to regulate the utilization and conservation of all of the state’s natural resources. Overshadowing the other questions presented is whether and how a major policy blunder by a public agency, here the DNR, may be corrected.
The term "blunder” is not too strong a word to *675describe the DNR’s 1968 decision to offer, at public auction, oil and gas leases covering some one-half million acres of state-owned land in the northern lower peninsula. The decision as to what lands to offer was made by the Natural Resources Commission with little investigation or consideration of the effects of possible drilling on state lands and other natural resources entrusted by law to the care of the commission.
The lack of scope and depth in the investigation is revealed by the testimony below which indicated that the various regional managers of the DNR were given nine days to make recommendations as to these some 500,000 acres. The only factor which was given consideration in arriving at the recommendations was whether any particular ongoing project, such as a state park, campground, or structural facility of some sort, was located on any particular parcel of land.
It appears from the record presented here that a major reason for leasing the land, and a likely reason for the limited consideration of the wisdom of that decision, was a feeling within the department that no one would actually do any drilling. It was only later, after several wells had been drilled and oil found in several locations, when further drilling was being planned by the oil and gas lessees, and after various individuals and groups of concerned citizens began to voice objections to the present and contemplated drilling, that the commission began to understand that there is really no such thing as a "free lunch”.
Under attack here now by appellant Michigan Oil Company are the steps taken by the commission to limit the deleterious effects of its 1968 leasing decisions by giving consideration to plans for resource management to include the regulation of oil drilling on the state-leased lands.
*676We must now consider whether the steps taken were statutorily authorized and, if so, constitutionally permissible as those actions affect appellant. To examine these questions, some detail as to Michigan Oil’s acquisition of its oil lease must be considered.
In the course of the oil and gas lease auction in August, 1968, bids totaling $1,122,788 were accepted for oil and gas leases covering 546,196.89 acres of state lands. The sales were approved by the commission and by the State Administrative Board in September of that year. Among those granted leases was Pan American Petroleum Corporation, which obtained leases covering 116,845 acres for a bid of $445,755. The leases obtained included State of Michigan Oil and Gas Lease No. 9656, which covered 1,760 acres of state land in Otsego County, Corwith Township, including 160 acres known as the southeast 1/4 of section 22 of township 32 north, range 1 west. This land was within the boundaries of the Pigeon River State Forest and contains the site of the drilling proposed by appellant, known as State-Corwith 1-22.
The lease was entered into pursuant to authority granted to the department by 1909 PA 280, as amended, and 1921 PA 17, as amended, and was stated to be for a period of 10 years, plus "as long thereafter as oil and/or gas are produced in paying quantities from said lands by the Lessee”. The granting clause of the lease provided as follows:
" 'C’ Said Lessor for and in consideration of a cash bonus in hand paid, the receipt whereof is hereby confessed and acknowledged, and the signing and delivery of a bond, the amount and sufficiency of which is to be determined by the Lessor, and of the covenants and agreements hereinafter contained on the part of the Lessee to be paid, kept, and performed, has granted, *677demised, leased, and let, and by these presents does grant, demise, lease, and let, without warranty, express or implied, unto the said Lessee for the sole and only purpose of drilling, boring, mining and operating for oil and gas, and acquiring possession of and selling the same, and for laying pipelines and building tanks, power stations, and structures thereon, necessary to produce, save, and take care of such products, all those certain tracts of land situated in the County of Otsego, State of Michigan, and more particularly described as follows:
[description omitted]
it being the intention to convey to the Lessee the oil and gas rights to all of the lands described above subject to the control of the Department of Conservation as described herewith.”
The lease included the following significant limitations:
" 'H’ This lease shall be subject to the rules and regulations of the Department of Conservation now or hereafter in force relative to such leases, all of which rules and regulations are made a part and condition of this lease; provided, that no rules or regulations made after the approval of this lease shall operate to affect the term of lease, rate of royalty, rental, or acreage, unless agreed to by both parties.”
Pan American Petroleum, by assignment dated December 14, 1968, assigned an undivided 50% of all of its rights in and to Oil and Gas Lease No. 9656 to Northern Michigan Exploration Company and Amoco Production Company. The assignment was approved by a deputy director of the Department of Conservation on March 18, 1969. Subsequently, on April 26, 1971, application was made by Northern Michigan Exploration Company and Amoco Production Company to the Supervisor of *678Wells, a state officer, for a permit to drill a well on the southwest 1/4 of the southeast 1/4 of section 22. The application was turned down on the grounds that oil and gas drilling on that site would cause "serious and unnecessary damage” in that injury would be caused to various wildlife in the area, the swamp in the area would be affected, and the drilling would cause a "serious intrusion into a nearly solid block of semi-wilderness area of state lands”. The denial specifically stated that no site in the 40 acres was acceptable.
Michigan Exploration Company assigned their interest in this 40 acres to McClure Oil Company on January 28, 1972. After departmental approval of this assignment, obtained on April 3, 1972, McClure entered into a "farm-out” agreement (as described in Judge Peterson’s dissenting opinion) with its wholly owned subsidiary, Michigan Oil Company, on May 19, 1972. Michigan Oil thereafter made application to the Supervisor of Wells on May 31, 1972 for a permit to drill a well on StateCorwith 1-22.
The application for a drilling permit was denied by the Supervisor of Wells by letter dated July 21, 1972. The letter, quoting from instructions by the Director of Natural Resources to the Supervisor of Wells, stated a number of reasons for the denial. It was said that oil and gas operations could not be conducted on the proposed site "without causing or threatening to cause serious damage to animal life and molesting or spoiling state-owned lands”. Reference was made to the earlier denial of the previous application to drill on the same 40-acre tract and it was stated that conditions had not changed since that time. It was further stated that a forest management plan was being prepared, and that it would be appropriate to deny the *679application and all other applications for drilling permits in the area under study pending completion of the plan.
Michigan Oil appealed the denial to the Natural Resources Commission pursuant to statutory provisions. After a hearing before an independent hearing examiner, the commission upheld the supervisor’s denial of the drilling permit, stating in its order as follows:
"The action of the Supervisor of Wells in denying the drilling permit is upheld on the ground that to permit drilling will cause waste and constitute violation of * * * [1921 PA 17, as amended], and * * * [1939 PA 61, as amended].”
Among the commission’s findings was that if a well were drilled in this area, "damage to or destruction of the surface, soils, animals, fish or aquatic life will occur”. It concluded that if the well were permitted, waste, within the meaning of § 2 of 1939 PA 61, would occur.
Upon appeal to the circuit court, the commission’s order upholding the Supervisor of Wells’ denial of a drilling permit was upheld. Plaintiff now appeals the circuit court judgment as of right.
Appellant Michigan Oil asserts that by virtue of the rights which it has acquired in the oil and gas lease, the Supervisor of Wells and the Natural Resources Commission cannot deny it a permit to drill for oil, or at least not for the reasons given to support the denial. Appellant asserts that no statutory authority exists to justify the denial and that, even assuming the existence of such statutory authority, the exercise of such authority, under the circumstances of this case, would be unconstitutional. It is also asserted that the record *680does not support the findings of fact upon which the commission’s conclusions of law are premised.
Before discussing the legal issues raised, we think it appropriate to discuss more generally the sources of the authority of the Supervisor of Wells and the Natural Resources Commission with respect to the land in question. Since the land is owned by the state in fee, and located in a state forest, the commission acts as proprietor of the land pursuant to 1921 PA 17, as amended, MCLA 299.1 et seq.; MSA 13.1 et seq. One specific section of that act empowers the commission to enter contracts for the taking of oil and gas and to:
'[M]ake and enforce reasonable rules and regulations concerning the use and occupancy of lands and property under its control”. MCLA 299.2; MSA 13.2.
Another section also invests the commission with rule-making powers as follows:
"The commission of conservation shall make such rules for protection of the lands and property under its control against wrongful use or occupancy as will insure the carrying out of the intent of this act to protect the same from depredations and to preserve such lands and property from molestation, spoilation, destruction or any other improper use of occupancy.” MCLA 299.3a; MSA 13.4.
It would seem plain that the authority thus granted the commission by statute to enter into contracts for the taking of minerals necessarily implies authority to decide whether to lease and on what terms any lease will be entered into. This power to lease state lands is clearly meant to be exercised in light of all of the duties imposed upon the Natural Resources Commission including, among others, duties imposed by MCLA 299.3; *681MSA 13.3, to "protect and conserve the natural resources of the state”, to "provide and develop facilities for outdoor recreation”, to "prevent the destruction of timber and other forest growth by fire or otherwise”, and to "foster and encourage the protecting and propagation of game and fish”. The commission clearly could have refused to lease the lands in question in order to further any of these goals. The question presented now concerns thé authority of the commission with regard to state lands for which oil and gas leases have been sold, and more particularly the commission’s role in the statutory procedure for the issuance of permits to drill for oil.
Section 23 of the oil conservation act, 1939 PA 61, as amended, MCLA 319.1 et seq.; MSA 13.139(1) et seq., prohibits the drilling of oil or gas wells absent the issuance of a permit by the Supervisor of Wells. Strictly speaking, the statute makes it the duty of the Supervisor of Wells to grant or deny applications for permits to drill. However, the Department of Natural Resources is also accorded a role in such decisions. The relevant section of the statute appears to require that a drilling permit be issued upon the filing of a proper written application, the filing of a satisfactory surety bond, and payment of the required fee. The following proviso, however, indicates that the Department of Natural Resources is not without authority to take part in the permit issuing process:
"Provided, however, That no permit to drill a well shall be issued to any owner or his authorized representative who does not comply with the rules, regulations and requirements or orders made and promulgated by the supervisor: And provided further, That no permit shall be issued to any owner or his authorized *682representative who has not complied with or is in violation of this act, or any of the rules, regulations, requirements or orders issued by the supervisor, or the department of conservation.” MCLA 319.23; MSA 13.139(23).
This proviso would seem to involve the DNR, as well as the Supervisor of Wells, in the procedure for the issuance of drilling permits to the extent of the rule-making power of that agency. This section confers authority on the DNR to issue "rules, regulations, requirements or orders” concerning gas and oil operations on land under its control. Where such rules and regulations concerning state lands would be violated by the drilling for oil, the Supervisor of Wells would be required by statute to deny any such application for a permit.
The scope of the commission’s authority to regulate oil and gas operations on land under its control is in part defined by other sections of the oil conservation act. Section 4 of that act provides that:
"It shall be unlawful for any person to commit waste in the exploration for or in the development, production, or handling or use of oil or gas; or in the handling of any product thereof.” MCLA 319.4; MSA 13.139(4).
Since the commission has the power to "make and enforce reasonable rules and regulations concerning the use and occupancy of lands and property under its control”, and may promulgate rules and regulations to protect such lands and property from "molestation, spoilation, destruction or any other improper use or occupancy”, it would seem to follow that the commission may regulate oil and gas operations on state leased lands so as to prevent unlawful "waste”. It follows that the commis*683sion may prohibit the drilling for oil on state lands under its control when such operations would cause or threaten to cause "waste” within the meaning of the oil conservation act or "molestation, spoilation, [or] destruction” of state lands.
In short, the commission, acting on behalf of the people of this state, has the authority and the duty to regulate state lands under its control and their authority to so act does not end when application for a permit to drill for oil on state lands is filed.
The present appeal may be discussed within the framework of the statutory scheme. We agree with the observation in the dissenting opinion of Judge Peterson that the sequence of events which occurred here does indeed demonstrate an effort by the commission to redeem an apparent mistake. Quite clearly the commission has attempted to act so as to minimize possible deleterious effects of its ill-considered leasing decisions in 1968. But we see nothing wrong with a public agency, entrusted with preserving valuable resources belonging to the people of the State of Michigan, having once jeopardized those resources, taking all necessary and proper steps to rectify previous errors so as to benefit the public. To the contrary, we are of the opinion that any public agency, which is capable of recognizing that it has acted unwisely and which takes steps to rectify previous mistakes, should be encouraged so long as remedial efforts are lawful. Moreover, we think that the actions taken by the Supervisor of Wells and the Natural Resources Commission were within their statutory powers and not constitutionally prohibited.
Initially, we would disagree that the denial of the permit to drill was based solely on a claim of authority under the oil conservation act to prevent waste. As noted, the July 21 letter from the Super*684visor of Wells denying the permit relied not only on a claim of waste but also on the threat of "molesting or spoiling state owned lands” and additionally made reference to forest management plans then under consideration. While the language in the letter indicating that the proposed drilling would cause or threaten to cause serious damage to animal life implicitly relies on the section of the oil conservation act prohibiting waste, the language concerning the possibility of a "molesting or spoiling [oí] state owned lands” clearly indicates reliance on the previously quoted sections of 1921 PA 17, as amended, giving the Natural Resources Commission authority to protect state lands under its control, as does the reference to the contemplated rules for the management of state owned lands.
The opinion of the Natural Resources Commission, upholding the supervisor’s denial of the permit, similarly does not rely solely on the commission’s powers to prevent waste under the oil conservation act. Rather, the opinion includes the following findings and conclusions clearly referring to the exercise of powers under 1921 PA 17, respecting state lands under the control of the commission:
"[T]he Commission must find that damage to or destruction of the surface, soils, animals, fish or aquatic life will occur.”
Again,
"The Department is required to protect and conserve natural resources and game pursuant to Act 17, supra. If the Department had not opposed the application for permit it would have failed in performance of this duty. ”
*685And, as has been noted, the commission’s order specifically relies not only on the oil conservation act but also on 1921 PA 17.
The conclusion which we draw from this sequence of events is that the commission exercised not only their powers under the oil conservation act to regulate the drilling of oil and gas wells on state lands but also their more general powers as trustee of state land and resources including wildlife.
There is ample statutory justification for the reasons given for the denial of the permit. To the extent that the denial served to prevent the destruction or spoilation of state lands, it was justified by MCLA 299.3a; MSA 13.4, and to the extent that it was denied in the furtherance of the commission’s powers to "make and enforce reasonable rules and regulations concerning the use and occupancy of lands and property under its control”, it receives statutory justification under MCLA 299.2; MSA 13.2 and MCLA 299.3; MSA 13.3.
Moreover, we reject a construction of the oil conservation act which would only empower the Supervisor of Wells and the DNR to prohibit waste which is unnecessary to the production of oil and gas and thereby impliedly protects any and all other waste, no matter how serious, if necessarily incidental to the production of oil and gas. The definition of waste found in § 2 of the act is not so narrow. While the statutory definition does include "the unnecessary damage to or destruction of the surface, soils, animal, fish or aquatic life or property from or by oil and gas operations”, the statutory definition includes as well the "ordinary meaning” of the term waste. We are not prepared to hold that the "ordinary meaning” of the term waste cannot include even the most serious perma*686nent damage to or destruction of any and all natural resources of the state incidental to the production of oil. Such a construction would be an unreasonable and unnecessarily narrow reading of the statutory language. We conclude that the construction given to the term waste by the Natural Resources Commission and the circuit court is the correct one and that the very acts of drilling for oil may constitute or result in waste prohibited by the oil conservation act. The Natural Resources Commission therefore possessed statutory authority to order the denial of a drilling permit in order to prevent waste.
Appellant asserts that the factual findings of the commission are not supported by "competent, material and substantial evidence on the whole record”. Const 1963, art 6, § 28, Administrative Procedures Act, § 106; MCLA 24.306; MSA 3.560(206). Appellant would have us conclude that the evidence presented at the hearing below could not support a conclusion that oil drilling operations on the proposed site would result in serious harm to wildlife inhabiting the surrounding area. This position is untenable. The uncontradicted evidence below established that the proposed drill site is located in the midst of Michigan’s elk range, that the elk herd which inhabits this area is the last sizeable wild elk herd east of the Mississippi River, and that oil and gas operations would cause the elk to avoid the area surrounding such operations, resulting in the reduction in the range and habitat of the elk and the decline in the population of the herd. Uncontradicted evidence established that oil and gas production activities would have the same effect on bear and bobcat, and that the area presently provides one of the few remaining favorable locations for bear and bobcat in lower Michigan. *687These factual findings are amply supported by the record and indicate that the proposed drilling poses a serious threat to the survival of wildlife already found only in limited numbers in a limited area of the state.
These findings are sufficient to support the commission’s legal conclusion that drilling on the proposed site would result in "waste” within the meaning of the oil conservation act and "damage to or destruction of’ animals within the meaning of 1921 PA 17.
We turn next to the alleged constitutional infirmities in the commission’s actions. Appellant claims that the denial of a permit to drill for oil constituted an unconstitutional taking of property without payment of just compensation. We disagree. As correctly pointed out by the circuit court judge in discussing this issue, there is no claim here and no proof that denial of this drilling permit would result in the loss of the primary value of the property in question. It is clear, however, that should appellant never receive a drilling permit, whatever property interest appellant claims in the property in question would be valueless.
It would appear to be clear and undisputed that the fact that appellant’s property interest was in the first instance derived from a contract with the state does not and could not thereby exempt that property interest from the proper exercise of the state’s police power. See Robertson v Commissioner of State Land Office, 44 Mich 274, 278 (1880), Tucker v Gvoic, 344 Mich 319; 74 NW2d 29 (1955), Texas & New Orleans R Co v Miller, 221 US 408, 414; 31 S Ct 534; 55 L Ed 789 (1911), American Land Co v City of Keene, 41 F2d 484 (CA 1, 1930).
*688The Michigan Supreme Court, in Robertson, supra, at 278, had the following to say with respect to the state’s power to regulate interests acquired pursuant to contracts between the state and a private citizen:
"The State as a sovereign cannot deal with it otherwise than as it might with a contract between two private citizens. But the State as a sovereign may subject the interest acquired by the contract to the taxing power and the police power, precisely as it might the interest acquired under any contract between two individuals, and not otherwise.”
Also undisputed, and of significance in determining whether some property right obtained by appellant pursuant to the oil and gas lease in question has been "taken”, is the fact that the lease was expressly made subject to "rules and regulations of the Department of Conservation now or hereafter in force”. The sole restriction which the lease purported to make on the commission’s control of the property was that rules and regulations made after the approval of the lease could not affect the "term of lease, rate of royalty, rental, or acreage”, none of which restrictions are relevant to the instant case. It is thus inherent in the very nature of the property interest acquired by appellant by virtue of the 1968 oil and gas lease that the property interest at all times was to remain subject to the Natural Resources Commission’s authority to regulate state lands under its control.
Clearly the lease does not guarantee that the lessee will be permitted to drill for oil. The commission expressly retained its statutory authority to fulfill its duty to the people of the State of Michigan by regulating the use of the state lands and resources placed in its control and held by it *689as a public trust. Since the commission thus retained its authority to prevent the "molestation, spoilation, [or] destruction” of the property in question, as well as to prevent "waste” in the production of oil and gas on that property, a proper exercise of that authority could not result in any diminishing of appellant’s interest in the property obtained pursuant to the oil and gas lease. Since appellant’s property interest is partially defined by the commission’s statutory authority to regulate state lands, a proper exercise of that authority could not result in a taking in the constitutional sense.
Nor is this conclusion affected by the fact that the commission had not promulgated rules and regulations pursuant to the Administrative Procedures Act at the time of the denial of a drilling permit to appellant. The denials clearly indicated that a forest management plan was being prepared. Denial of oil drilling permits for areas which would be covered by such a plan pending completion of the plan was a reasonable, if not essential, means of protecting the commission’s rule-making power. If drilling permits could not be denied pending promulgation of rules and regulations under consideration, permanent damage could occur in the interim rendering futile the commission’s efforts to develop and promulgate official rules and regulations dealing with the area in question.
Appellant next asserts that the denial of the drilling permit pursuant to a resource management plan constituted a zoning plan and was illegal because the Natural Resources Commission possesses no statutory authority to engage in zoning. In conjunction with this argument, appellant also argues that to the extent that the commission *690has engaged in zoning and has denied their application for a drilling permit pursuant to a plan of zoning, that the denial is illegal because not subject to any standards.
The argument that the commission is without zoning power may be easily disposed of. This argument amounts to little more than a play on words. Every agency regulation concerning the use of land is not necessarily a "zoning” for which specific statutory authority to zone is required. The commission has the statutory authority, as discussed previously, to regulate the use of state lands, to prevent destruction of state lands and resources, and to control waste. They did not need statutory authority to "zone”.
Nor do we agree with appellant that the decisions of the Supervisor of Wells and the commission were unlawful because not guided by statutory standards. The statutory standards which were relied upon, the threat of "waste” and "molestation, spoilation, or destruction” of state lands, provide an adequate statutory standard.
Substantive due process requires only that a standard utilized by an administrative agency in the performance of delegated legislative tasks be "as reasonably precise as the subject matter requires or permits”. State Highway Commission v VanderKloot, 392 Mich 159, 173; 220 NW2d 416 (1974), Osius v St Clair Shores, 344 Mich 693, 698; 75 NW2d 25 (1956). In such a case, administrative officials are not left with the unbridled authority to act arbitrarily.
The Supreme Court recently held that the standard of "necessity” in the context of the highway condemnation act was a sufficient standard to meet due process requirements. State Highway Commission v VanderKloot, supra. We think that *691the Natural Resources Commission and the Supervisor of Wells here acted pursuant to standards at least as precise as the standard upheld in VanderKloot. Even more detailed standards may be expected to be defined upon promulgation by the commission of its contemplated plan for forest management. We hold that the actions were taken pursuant to a standard sufficient to meet due process requirements.
Appellant further asserts that the denial of a drilling permit constituted an unconstitutional impairment of a contract obligation by the state and is for that reason void. It is also argued that the state should be equitably estopped from depriving the appellant of its drilling rights by refusing the drilling permit.
Article 1, § 10 of the Michigan Constitution provides that: "No * * * law impairing the obligation of contract shall be enacted.” The best that can be said for appellant’s argument is that it confuses the constitutional prohibition against the state enacting laws impairing the obligations of contracts with the state allegedly breaching a contract to which it is a party. It has long been recognized that mere breach of contract by a governmental entity does not constitute an unconstitutional impairment of a contractual obligation. Thompson v Auditor General, 261 Mich 624, 634; 247 NW 360 (1933), St Paul Gaslight Co v St Paul, 181 US 142; 21 S Ct 575; 45 L Ed 788 (1901), Shawnee Sewerage & Drainage Co v Stearns, 220 US 462; 31 S Ct 452; 55 L Ed 544 (1911).
Furthermore, as noted previously, this lease did not necessarily contemplate that the Supervisor of Wells and the Natural Resources Commission would be required, under any and all circumstances, to issue a drilling permit to the lessee. *692The commission, by entering into this lease, did not and could not deprive itself of its statutory duty to prevent waste or destruction of the state’s resources under its control. In fact, this lease was expressly made subject to rules and regulations of the commission "now or hereafter in force”.
Michigan Oil Company’s argument that the state should be equitably estopped from denying a permit to drill is without merit. Appellant’s theory is that when the state, through one of its agencies, sold the lease in question to Pan American Oil Corporation, they impliedly promised that a permit to drill would be issued. The doctrine of equitable estoppel was defined by the Michigan Supreme Court in Holt v Stofflet, 338 Mich 115, 119; 61 NW2d 28 (1953), where it was said:
" 'It is a familiar rule of law that an estoppel arises when one by his acts, representations, or admissions, or by his silence when he ought to speak out, intentionally or through culpable negligence induces another to believe certain facts to exist and such other rightfully relies and acts on such belief, so that he will be prejudiced if the former is permitted to deny the existence of such facts.’ ”
The circuit court held that, on the facts of this case, there was no holding out of erroneous facts to Michigan Oil nor justifiable reliance on their part. This holding was correct as the record supports the following finding of the circuit court judge which is unchallenged on this appeal:
"Indeed, Mr. Orr, President of Michigan Oil, testified that he learned of the State-Corwith in question through his capacity as a member of the Oil and Gas Advisory Board of the Supervisor of Wells, and he further testified that he knew of the prior refusal of a permit when Michigan Oil purchased the lease and *693indeed it was purchased because a permit had previously been denied! In other words, Michigan Oil took a chance and lost.” (Emphasis in the trial court opinion, transcript citations omitted.)
Appellant’s final argument is that the instant denial of a drilling permit deprived appellant of its constitutional right to equal protection of the law in view of permits which had been and have been granted to others in areas from within 2-1/2 to 7-1/2 miles from appellant’s proposed well site. Appellant places particular reliance on the oil drilling permit granted for the well designated as the Charlton 1-4 discovery well, which is approximately 2-1/2 miles southwest of State-Corwith 1-22. Appellant has not, however, made out a case of arbitrary action denying it equal protection.
The Charlton 1-4 well was completed in June of 1970. It is clear that the standards for issuing drilling permits were substantially changed after the permit for this well was issued and there was testimony at the hearing below which indicated that under the standards in effect at the time of appellant’s application, the Charlton 1-4 permit would also have been denied. Stricter standards for the prevention of waste and destruction of natural resources other than oil were implemented after the Charlton 1-4 well had been drilled and in fact largely because the drilling of that well had increased awareness within the department of the detrimental effects of a successful oil well on the Pigeon River State Forest.
The constitutional guarantee of equal protection of the laws certainly does not mean that a state agency, upon discovering that a former policy was in error, must nevertheless continue to pursue that dangerous policy to the point of destruction.
Moreover, as the threatened damage to animals *694in the Pigeon River area is in large part based on the fact that the animals will tend to avoid human activity, the commission, having once permitted a company to drill for oil in the Pigeon River area, was faced with choosing between a policy of permitting oil drilling on all state leased lands, leaving no undisturbed area into which the animals could move, or drawing a line beyond which drilling would not be permitted. Thus, while drilling permits have been granted in the immediate area surrounding Charlton 1-4 and in the immediate areas of other wells already drilled, drilling in those areas would not cause additional encroachments into previously undisturbed areas or necessarily cause any further disruption of wildlife living habits in those areas. On the other hand, no permits have been issued for any of the land in the 25-square-mile area surrounding proposed Cor-with 1-22, indicating that denial of the instant permit was based on a plan having a rational foundation promoting a legitimate state purpose and therefore constituting no denial of equal protection to appellant.
We conclude that the circuit court judgment should be affirmed. The denial of a drilling permit to appellant Michigan Oil Company was contemplated by their lease. It constituted a statutorily permissible exercise of the authority of the Natural Resources Commission. It deprived appellant of no constitutional right.
We caution the Natural Resources Commission that appellant cannot be denied indefinitely a drilling permit on the basis of contemplated rules and regulations. We expect that a comprehensive management plan be completed and officially promulgated in the near future. While we approve of administrative agencies demonstrating a degree of *695flexibility in perceiving and reacting to new problems or dealing with past mistakes, the procedural safeguards contained in the Administrative Procedures Act, MCLA 24.201 et seq.; MSA 3.560(101) et seq., must also be recognized as the public’s first defense against arbitrary agency action. Should Michigan Oil Company apply once more for a drilling permit, the Natural Resources Commission will have to show some substantial progress towards official promulgation of the rules and regulations which they have been considering in order to justify further denials. On the present record, however, we see sufficient evidence that the commission has undertaken to shoulder previously neglected responsibilities to justify the disputed denial.
Affirmed. No costs, this being a public question.
M. J. Kelly, P. J., concurred.