Oil and Gas Lawyer Blog
Recently the US Supreme Court heard argument in Biden v. Nebraska, in which several states challenge the President’s authority to forgive student loans. Lost in much of the coverage was the administration’s challenge to the states’ standing to bring the case. “Standing” is a difficult concept to get your arms around. Courts cannot issue advisory opinions. Under Article III of the US Constitution, courts can decide only a “case or controversy.” That means the plaintiff must have a stake in the outcome different from the general public. To have standing, a plaintiff must have sustained or be threatened with an injury different from or in addition to the general public. The Biden administration argued that the states who sued would not suffer any injury because of Biden’s forgiveness of student loans, and therefore do not have standing to sue.
The concept of standing is important to the separation of powers in our federal and state judicial systems. It is a check on the power of courts. Nebraska could not simply ask the court to declare Biden’s loan forgiveness an unconstitutional exercise of executive power without first showing how the state would be injured by Biden’s action. Such an opinion would be an “advisory opinion.”
What does this have to do with Railroad Commission v. Apache?
Boykin Energy applied to the RRC for two disposal well permits in Reeves County in 2018. It proposed to inject produced water into the Cherry Canyon and Brushy Creek formations, found at depths between 3,725 and 6,400 feet. Under Commission rules, Boykin had to give notice of its application to owners and operators within one-half of its proposed injection wells. Apache objected to the applications even though it had no leases within one-half mile. Apache owns leases about two miles from the proposed wells; those leases give it the right to use groundwater for its oil and gas operations. Apache’s groundwater comes from the Rustler Aquifer, which lies above the Cherry Canyon and Brushy Creek formations. Apache contended that produced water from the injection wells could migrate into and contaminate the Rustler Aquifer.
Boykin challenged Apache’s standing to contest its permit applications. Under RRC rules, only an “affected person” has standing to challenge a permit application. The rule defines “affected person” as “a person who has suffered or will suffer actual injury or economic damage other than as a member of the general public or as a competitor.” 16 Admin. Code Sec. 3.9(5)(E)(ii).
A four-day hearing was conducted at the Commission, before a technical examiner and an administrative law judge — both employees of the Commission. They issued a proposal for decision finding that Apache had shown it is an “affected person” entitled to protest Boykin’s application. But the commissioners disagreed and overruled the hearings examiners, concluding that Apache did not show it would suffer injury or damage from Boykin’s injection wells. Apache appealed this decision to a district court in Travis County, which reversed the Commission’s order, holding that Apache had demonstrated its standing as an affected person. Boykin appealed that decision.
Appeals of administrative cases go to the Austin Court of Appeals. But because of its crowded docket this case was transferred to the Amarillo Court of Appeals. That court reversed the trial court and upheld the decision of the Commission.
Appeals of administrative agency orders are decided under the “substantial evidence” standard. The court explained this standard:
Under the substantial evidence standard, we review the evidence as a whole to determine whether it would allow reasonable minds to reach the same conclusion that the agency reached. We may not substitute our judgment for that of the agency and may only consider the record on which the agency based its action. We are not tasked with determining whether the agency reached the correct decision but, rather, whether there is some basis in the record for its action. While substantial evidence is more than a scintilla, the evidence in the record may actually preponderate against the agency’s decision and nonetheless amount to substantial evidence. We presume that the agency’s findings, inferences, conclusions, and decisions are supported by substantial evidence and the burden to prove otherwise is on the party challenging the agency’s decision. The agency’s decision should only be reversed if the party challenging the decision demonstrates that the absence of substantial evidence has prejudiced the party’s substantial rights.
The court found there was “substantial evidence” to support the Commission’s conclusion that Apache was not an “affected person.”
While Apache presented evidence of faults that would allow for the injected oil and gas waste to migrate into the Rustler Aquifer, Boykin presented evidence that its experts interpreted the seismic data as showing no faulting allowing migration of injected waste into the Rustler Aquifer. From this conflicting evidence, the Commission determined that Apache’s evidence did not show that it was an affected person. We must defer to the Commission decisions which are reasonable in light of the evidence before it. … Considering all the evidence, we conclude that reasonable minds could have determined that Apache was not an affected person and, therefore, substantial evidence supported the Commission’s decision.
Apache argued that the Commission’s decision denied it the right to due process–the right to a hearing on the merits of its protest. The court disagreed.
Once the Commission determined that Apache was not an affected person, Apache did not have standing to challenge Boykin’s applications. It is not a denial of due process to deny a party without standing the opportunity to be heard.
Apache also argued that the Commission’s decision violated its obligation to protect groundwater and minerals. But the Court responded that “Apache’s claim that approval of the disposal wells by the Commission might violate the Commission’s statutory duties because the wells might affect groundwater and minerals does not establish standing to challenge the wells.” In other words, not just any person can challenge an injection well permit application, only those who would be harmed if the permit is granted.
Apache illustrates the sometimes complex interplay between standing issues and the merits of the case. In effect, the Commission’s decision was that Apache did not prove that Boykin’s wells would pose a risk to groundwater, although it did so in the context of a fight over Apache’s standing. If Apache’s leases had been within one-half mile of the proposed injection wells the Commission’s rule would have granted Apache standing, but the result would likely have been the same. One can argue that proof of standing should have a lower threshold than proof of injury; that Apache should have the right to protest the permit applications if its evidence showed some evidence of risk to its groundwater, but that its burden of proof in a hearing on the merits should be greater–to prove that the injection wells would likely contaminate groundwater.
The Commission often relies on its determination of standing to avoid contested case hearings. Where its rules require notice of applications to adjacent mineral owners, it only requires notice to lessee/operators of adjacent lands where the adjacent lands are under lease. In other words, mineral and royalty owners in those lands are not entitled to notice and have no standing to object to the application. Its rationale is that the lessee/operator will protect its interests and those of its lessors and royalty owners, an assumption I have found not to always be true.
From what I have read about the arguments in Biden v. Nebraska, it appears that a majority of the Court would be likely to hold that Biden’s loan forgiveness program exceeds his statutory authority. But it also seems that some of the conservative members of the Court were troubled by the states’ arguments that they have standing to bring the case. Their proof of actual harm appears to be thin.