J.P. Furlong Co. v. Bd. of Oil, Gas & Mining

This opinion is subject to revision before final
publication in the Pacific Reporter
2018 UT 22
IN THE
SUPREME COURT OF THE STATE OF UTAH
J.P. FURLONG COMPANY,
Petitioner,
v.
BOARD OF OIL, GAS AND MINING and the
DEPARTMENT OF NATURAL RESOURCES,
Respondents.
No. 20150620
Filed June 5, 2018
On Petition for Review of Administrative Agency Action
Utah Board of Oil, Gas and Mining
Docket No. 2015-013
Cause No. 139-130
Attorneys:
Anthony T. Hunter, Wichita, KS, for petitioner
Sean D. Reyes, Att’y Gen., Michael S. Johnson, Meg Osswald,
Asst. Att’ys Gen., Salt Lake City, for respondents
JUSTICE PEARCE authored the opinion of the Court
in which CHIEF JUSTICE DURRANT, ASSOCIATE CHIEF JUSTICE LEE,
JUSTICE HIMONAS, and JUSTICE PETERSEN joined.
JUSTICE PEARCE, opinion of the Court:
INTRODUCTION
¶ 1 J.P. Furlong Company (Furlong) owns a mineral lease.
Furlong challenges the Board of Oil, Gas, and Mining’s (Board)
decision to impose a joint operating agreement (JOA) 1 on its
_____________________________________________________________
1We use “JOA” to refer to the joint operating agreement the
operator—EP Energy E&P Company, L.P. (EPE)—proposed and the
(continued . . .)
FURLONG v. BD. OF OIL, GAS, AND MINING
Opinion of the Court
relationship with the party operating a drilling unit that includes
Furlong’s lease. Furlong primarily complains that the Board
accepted, without change, the JOA the operator proposed. Furlong
also assails the Board’s refusal to make any of the changes to the JOA
that Furlong wanted.
¶ 2 The JOA is materially the same agreement that governs
other interests in the project and is based on a widely accepted form
agreement. Furlong nevertheless challenges the Board’s decision,
arguing that there was not substantial evidence to support it, and
that the Board erroneously applied the law to arrive at its conclusion
that the JOA was just and reasonable. We see no merit in either of
these contentions and affirm.
BACKGROUND
¶ 3 Utah law allows the Board to “establish[] . . . drilling units
for a pool.” UTAH CODE § 40-6-6(1). A “pool” is “an underground
reservoir containing a common accumulation of oil or gas or both.”
Id. § 40-6-2(19). And drilling units are “defined as an area from
which the oil or gas may be efficiently and economically produced
through one well located in the center of the unit.” 1 SUMMERS OIL
AND GAS § 5:1 (3d ed. 2017).
¶ 4 Utah also allows for voluntary and compulsory pooling.
Pooling “bring[s] together . . . separately owned interests for the
common development and operation of a drilling unit.” UTAH CODE
§ 40-6-2(20). Voluntary pooling occurs when “[t]wo or more owners
within a drilling unit . . . bring together their interests for the
development and operation of the drilling unit.” Id. § 40-6-6.5(1). In
the absence of such a voluntary agreement, “the board may enter an
order pooling all interests in the drilling unit for the development
and operation of the drilling unit.” Id. § 40-6-6.5(2)(a). This is, as the
name suggests, compulsory pooling. See 1A SUMMERS OIL AND GAS
§ 6:4 (distinguishing between voluntary and compulsory pooling).
¶ 5 In the course of pooling their interests, parties often enter
into a joint operating agreement. 4 SUMMERS OIL AND GAS § 48:1.
A joint operating agreement . . . is a contract typical to
the oil and gas industry whose function is to designate
an operator, describe the scope of the operator’s
authority, provide for the allocation of costs and
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Board ultimately adopted. We will use “joint operating agreement”
to refer to joint operating agreements generally.
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Opinion of the Court
production among the parties to the agreement, and
provide for recourse among the parties if one or more
default in their obligations.
Id.
¶ 6 The drilling unit here is split into several tracts of land. EP
Energy E&P Company, L.P. (EPE) and Furlong, among other parties,
have an interest in Tract 6 of the drilling unit. Tract 6 represents
11.59 percent 2 of the drilling unit. 89.48 percent of Tract 6 is under
lease to EPE. 2.08 percent of Tract 6 is under lease to Furlong and
another company, KKREP, in equal proportion. Therefore, Furlong
has an interest in only 1.04 percent of Tract 6, and just 0.12 percent of
the drilling unit.
¶ 7 All but three working interest owners3 voluntarily pooled
their interests and signed a joint operating agreement with EPE.
Furlong is one of the three holdouts. 4
¶ 8 Furlong and EPE negotiated in hopes of agreeing to
voluntarily pool their interests. EPE sent Furlong a proposed joint
operating agreement which Furlong returned with suggested
changes. EPE accepted one change, rejected others, and asked for
explanation on the rest. Furlong explained the rationale behind its
edits.
¶ 9 At that point, EPE ceased negotiations, stating that the
parties had “reached an impasse as to mutually agreeable [joint
operating agreement] terms.” EPE also informed Furlong that it had
filed a Request for Agency Action before the Board and that it would
seek to force pool all of the interests in the drilling unit. EPE left
open the option of further negotiation “[s]hould Furlong be willing
to reconsider its position” on changes to the JOA.
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2 For readability, the percentages are rounded.
A “[w]orking [i]nterest is an interest in [oil or gas] by virtue of a
3
lease, operating agreement, fee title or otherwise, including a carried
interest, the owner of which is primarily obligated to pay, either in
cash or out of production or otherwise, a portion of the [u]nit
[e]xpense . . . .” 5 SUMMERS OIL AND GAS § 67:12.
The other two are Argo Energy and Dusty Sanderson, who
4
together own 0.1 percent of the working interest in the drilling unit.
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FURLONG v. BD. OF OIL, GAS, AND MINING
Opinion of the Court
¶ 10 The Board conducted a hearing. 5 EPE asked the Board to
force pool the remaining three interests—including Furlong’s 6—and
to impose the JOA on the interest holders.
¶ 11 The JOA the Board adopted was “materially the same form
as the [joint operating agreement] signed by the other participating
working interest owners in Section 2, including Furlong’s
co-lessee . . . .” It is also “materially identical” to joint operating
agreements EPE has used since 2011. EPE has agreed to these same
terms when it is an interest holder and not an operator. In other
words, the Board accepted evidence that EPE had agreed to terms
like those in the JOA when it stood in Furlong’s shoes.
¶ 12 An EPE employee testified that the adopted JOA was “a
standard industry form supplied by the American Association of
Professional Landmen [AAPL], Form 610.” Furlong did not dispute
that EPE used the model form to craft the JOA. Indeed, it conceded
that the Board “could [look] at the AAPL” to identify terms to
include in a joint operating agreement.
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5 EPE also asked the Board to declare Furlong a non-consenting
owner and impose a risk compensation penalty of 300 percent. The
Board held that Furlong was not a non-consenting owner, and
therefore did not have to pay the risk compensation penalty.
That decision is not before us on appeal. But the decision had
positive implications for Furlong. As we explained in Bennion v. ANR
Production Co.,
The [order imposing a non-consent penalty] . . .
allow[s] Bennion to receive a royalty from the time of
first production. Before he can receive a working
interest share of production, however, the new order
requires Bennion to pay his share of 100 percent of the
costs of surface equipment beyond the wellhead, 100
percent of the operating costs, and 175 percent of the
costs of drilling, completing, and equipping the well.
819 P.2d 343, 345 (Utah 1991). Just as in Bennion, Furlong was facing
the possibility of having to pay more than its share of the costs to
receive its share of the profits. The Board’s decision freed Furlong
from that fate.
6 “The Board grant[ed] EPE and Furlong’s request to force pool
Furlong’s interest.” Both parties wanted Furlong’s interest force
pooled and this decision is not before us on appeal.
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Opinion of the Court
¶ 13 Nevertheless, Furlong argued that any joint operating
agreement the Board imposed should differ from the standard form
in several ways. First, Furlong did not want the JOA to be recorded
and publicly available. Furlong explained that it did not “want [the
JOA] out there for all the public to read.”
¶ 14 Second, Furlong requested a change to a section involving
“[i]nterests of the parties.” Prior to the Board action, EPE had
approved one of Furlong’s changes to this section, but refused to add
an “acknowledgment from [EPE] that it agrees and will perform the
accounting for the [lease] and any burdens that may be created in the
future . . . .” During the hearing, an EPE employee explained that
EPE wanted each party to bear their own burdens, which is the
system the model form imposes.
¶ 15 Third, Furlong proposed to amend the language “in no
event shall [Operator] have any liability as Operator to the other
parties for losses sustained or liabilities incurred except such as may
result from gross negligence or willful misconduct.” Furlong wanted
this section to read “in no event shall [Operator] have any liability as
Operator to the other parties for losses sustained or liabilities
incurred except such as may result from gross negligence or willful
misconduct or from breach of the provisions of this agreement.” Furlong
explained that it added this language because “[a]ll parties,
including operators, should be held to the performance of their
contractual promises.” EPE argued that it would not want to “accept
broader liabilities than what is industry standard reflected in the
model form [joint operating agreement].” Furthermore, EPE asserted
that “there are already remedies for breach of contract claims in the
JOA . . . .”
¶ 16 Fourth, Furlong proposed a change to the provision:
“Operator shall not undertake any single project reasonably
estimated to require an expenditure in excess of [$75,000].” That
section also excepted several categories of expenses. Furlong
requested that EPE strike the exceptions and add language
providing that “Operator shall not undertake any single project
reasonably estimated to require an expenditure in excess of [$75,000]
without first delivering to NonOperators a supplemental [authorization for
expenditure].” Furlong explained that it “want[ed] to be protected
from excess expenditures.” EPE pointed to the model form, stating
that “[it] is not willing to provide Furlong or any other co-owner . . .
or non-operator with protections over and above what is provided in
the model form for excess expenditures.”
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FURLONG v. BD. OF OIL, GAS, AND MINING
Opinion of the Court
¶ 17 Fifth, Furlong argued for two changes to the
“[e]xpenditures and [l]iability of [p]arties” section. Furlong
requested that the Board delete the provision that allowed the
“Operator . . . the right from time to time to demand and receive
from one or more of the other parties payment in advance of their
respective shares . . . .” EPE claimed that its company policy was to
have these “cash calls” built into the operating agreements because
they protect “the operator and the other non-operators in the well
from a party that fails to pay or slow pays their proportionate share
of expenses.” EPE argued that cash call provisions were widely
accepted in the industry and played an especially important role
“with non-operators like Furlong who have no track record with
[EPE] for paying their bills timely.” Furlong responded that it has
had negative experiences with cash calls because operators have
taken money, but not drilled. Then, according to Furlong, the
operator waits years to return the funds and when it does, it returns
them without interest. Furlong also wanted another portion of the
JOA deleted that involved cash calls. Both sides essentially repeated
their prior cash call arguments with respect to that provision.
¶ 18 Sixth, Furlong wanted to extend the statute of limitations
for certain contract claims. EPE argued that this was “excessive.”
¶ 19 Seventh, Furlong argued for the addition of language
restricting EPE’s ability to use affiliated companies. Specifically,
Furlong wanted to add language—“[n]otwithstanding provisions to
the [c]ontrary”—that affiliates “may be used for goods and services
as long as their rates are consistent with the average commercial rate
prevailing in the area as evidenced by current bids.” Furlong
explained that “[it] ha[d] no issue with use of affiliates for the
provision of goods and services but it want[ed] their charges to be
fair which a bid process would support.” EPE testified that the
existing language tracked standard industry language on the topic.
¶ 20 After the hearing, the Board found “under the facts of this
case, the terms of the EPE propos[ed] [JOA] are just and reasonable.”
The Board further explained that:
The [AAPL] model-form-based JOA proposed by EPE
is similar to other [joint operating agreements]
previously adopted by this Board in prior compulsory
pooling matters. The Board also notes that [joint
operating agreement] terms materially the same as
those proposed by EPE in this matter have been agreed
upon and are presently in effect between other
consenting owners within the subject drilling unit.
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Opinion of the Court
Although [joint operating agreements] substantially
similar to this form of operating agreement were
previously deemed just and reasonable in prior
matters, the Board analyzed the JOA proposed by EPE
anew for purposes of making its determination in the
present case. The Board’s analysis included
consideration of testimony given by the parties’
witnesses regarding Furlong’s proposed edits and
amendments to certain provisions of the JOA as
proposed by EPE. While legitimate disagreement can
exist about the provisions at issue, and while the
parties’ differing proposed terms might be reasonable
under certain circumstances, on balance, the Board
finds that under the facts of this case, the terms of the
EPE proposal are just and reasonable and adopts them
for purposes of this matter.
¶ 21 Furlong appeals.
ISSUES AND STANDARDS OF REVIEW
¶ 22 Furlong challenges the Board’s decision to adopt EPE’s
proposed JOA and raises two main arguments.
¶ 23 First, Furlong argues that the Board’s order is not
supported by substantial evidence. Under Utah Code section
63G-4-403(4)(g), we can grant relief if “the agency action is based
upon a determination of fact, made or implied by the agency, that is
not supported by substantial evidence when viewed in light of the
whole record before the court.” As the language suggests, we
“review[] the agency’s determination of fact for a lack of substantial
evidence.” Murray v. Utah Labor Comm’n, 2013 UT 38, ¶ 19, 308 P.3d
461. We “examin[e] the whole record to determine whether ‘a
reasonable mind might accept as adequate the evidence supporting
the decision.’” Oliver v. Utah Labor Comm’n, 2017 UT 39, ¶ 13, --- P.3d
--- (citation omitted).
¶ 24 Second, Furlong argues that “[t]he Board erroneously
applied Utah law when it failed to ‘balance the interests of
competing parties . . . .’” (Citation omitted). The Board’s
“interpretation of [the relevant statutes] is a question of law, which
we review for correctness.” Rueda v. Utah Labor Comm’n, 2017 UT 58,
¶ 18, --- P.3d --- (citation omitted).
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FURLONG v. BD. OF OIL, GAS, AND MINING
Opinion of the Court
ANALYSIS
¶ 25 Furlong primarily argues that the Board’s adoption of
EPE’s proposed JOA does not have substantial evidentiary support.
To prevail on this claim, Furlong must show that he “has been
substantially prejudiced” by an agency action “that is not supported
by substantial evidence when viewed in light of the whole record
before the court . . . .” UTAH CODE § 63G-4-403(4).
A decision is supported by substantial evidence if there
is a quantum and quality of relevant evidence that is
adequate to convince a reasonable mind to support a
conclusion. In conducting a substantial evidence
review, we do not reweigh the evidence and
independently choose which inferences we find to be
the most reasonable. Instead, we defer to [an
administrative agency’s] findings because when
reasonably conflicting views arise, it is the [agency’s]
province to draw inferences and resolve these conflicts.
Provo City v. Utah Labor Comm’n, 2015 UT 32, ¶ 8, 345 P.3d 1242
(alterations in original) (internal quotation marks omitted) (citations
omitted). And here, we review the Board’s conclusion that the JOA
was “just and reasonable” for substantial evidence. UTAH CODE § 40-
6-6.5(2)(b); Id. § 63G-4-403(4). 7
¶ 26 Furlong has several grievances with the Board, but the
general thrust of its arguments centers on Furlong’s contention that
the Board did not specifically indicate why it rejected each
individual change Furlong requested. Furlong argues that this
effectively hides the fact that EPE presented no evidence to the
Board that would have allowed the Board to properly prefer EPE’s
terms to those Furlong requested.
¶ 27 Furlong has something of a point. The Board did not walk
through the changes Furlong requested item by item and articulate
why it favored EPE’s proposal in each individual instance. But
recognizing that the Board could have crafted an order that better
explained the Board’s reasoning does not translate into a basis for
concluding that the Board lacked substantial evidence for its decision
that the JOA it imposed was just and reasonable.
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7This standard hails from the statute’s mandate that any joint
operating agreement the Board imposes be “just and reasonable.”
UTAH CODE § 40-6-6.5(2)(b).
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Opinion of the Court
¶ 28 In McElhaney v. City of Moab, we discussed the type of
findings a substantial evidence standard of review implies in an
administrative setting. 2017 UT 65, ¶ 41, --- P.3d ---. In that case, the
Moab City Council, sitting as a land use authority, denied a
conditional use permit but failed to provide a decision that
contained any written findings of fact. Id. ¶¶ 6, 7, 41. We “recognized
that without sufficiently detailed findings that ‘disclose the steps by
which’ an administrative agency reaches its ultimate factual
conclusions, ‘this Court cannot perform its duty of reviewing the [ ]
order in accordance with established legal principles and of
protecting the parties and the public from arbitrary and capricious
administrative action.’” Id. ¶ 36 (alteration in original) (citation
omitted).
¶ 29 We ultimately concluded that the Moab City Council had
failed to produce an acceptable order and remanded. Id. ¶¶ 41–42.
We noted that the City Council had made absolutely no findings to
support its decision, and the basis for the decision was entirely
unclear. Id. ¶ 39. Indeed, the disparate statements of the individual
council members at the hearing were the only information the
McElhaneys had to explain why the City Council denied their
conditional use permit. Id. ¶ 7.
¶ 30 In contrast to the decision before us in McElhaney, the
Board’s order informed Furlong of the basis of its decision. The order
recited that “[t]he [AAPL] model-form-based JOA proposed by EPE
is similar to other [joint operating agreements] previously adopted
by this Board in prior compulsory pooling matters.” The Board also
reasoned that “[joint operating agreement] terms materially the same
as those proposed by EPE in this matter have been agreed upon and
are presently in effect between other consenting owners within the
subject drilling unit.” These are “sufficiently detailed findings” such
that Furlong knew why the Board ruled the way it did. Id. ¶ 36.
Unlike in McElhaney, the Board gave Furlong notice of what it would
need to challenge on appeal. And, these findings allowed us to
perform our duty of ensuring that there was substantial record
evidence to support the Board’s decision. 8 See id.
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8This is not to suggest that the Board’s order was perfect or even
laudable. It could have done a better job of reciting the facts that led
the Board to conclude that “the terms of the EPE proposal are just
and reasonable.” But the order gave Furlong notice of the rationale
behind the Board’s decision. And the Board outlined its findings
(continued . . .)
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FURLONG v. BD. OF OIL, GAS, AND MINING
Opinion of the Court
¶ 31 And substantively, the Board heard substantial evidence to
support the conclusion that the JOA was just and reasonable. The
terms the Board declined to modify were based on the model AAPL
form. Furlong’s own witness testified that, when developing a joint
operating agreement, the model form was one source to consult. The
Board had approved similar joint operating agreements before. And
the record before the Board included evidence that every other
consenting owner in this drilling pool adopted a materially identical
joint operating agreement.
¶ 32 Moreover, EPE introduced the testimony of Michael John
Wachler—an EPE employee who participated in JOA negotiations.
Wachler had negotiated over sixty joint operating agreements in the
Uintah Basin. Wachler addressed Furlong’s proposed changes and,
as detailed above, explained EPE’s reasons for rejecting each of
Furlong’s proposals. 9
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with sufficient precision that we could have a meaningful discussion
on appeal about what occurred below and whether record evidence
supported the Board’s decision.
In large degree, three factors salvage the Board’s order. First,
Furlong’s proposed changes to the JOA presented the Board with a
relatively simple and straightforward case that could be resolved
with a relatively simple and straightforward analysis. Second, the
statute authorizes the Board to choose between operating
agreements the parties present. See infra ¶ 36. This permitted the
Board to skate by with a less detailed analysis because it only needed
to explain the basis for its conclusion that the option it chose was just
and reasonable. Finally, the Board’s analysis applies equally to each
of Furlong’s challenges. This allowed the Board to issue an order that
lumped all the challenges together. Although the Board’s order
clears the substantial evidence bar in this instance, a more
complicated case or one with more varied challenges could present a
horse of a different color.
9 Furlong argues that Walcher was not credible because in
Walcher’s experience a non-operator had never asked for different
terms. But that does not completely discount his testimony
concerning EPE’s reasons for rejecting Furlong’s suggested changes.
And we are not in the business of reweighing credible evidence
when conducting a substantial evidence review. See Provo City, 2015
UT 32, ¶ 8 (“In conducting a substantial evidence review, we do not
(continued . . .)
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Opinion of the Court
¶ 33 Although we can sympathize with Furlong’s desire to get
more explanation from the Board, we cannot conclude that the
Board’s decision lacked substantial evidentiary support. Nor can we
conclude that the Board imposed a JOA that was unjust or
unreasonable when the record confirmed that it was based upon the
industry accepted model form and was materially the same
agreement that the other non-operators in the drilling pool
voluntarily agreed to.
¶ 34 In the course of arguing that there was a lack of substantial
evidence, Furlong advances a number of policy arguments. For
example, Furlong argues that “[j]udicial approval of” a process
where “the Board regularly adopts the ‘industry standard’ model
without alteration” “will undermine the public interest under Utah
Code [section] 40-6-1, which is to promote development, protect the
correlative rights of owners, and benefit the general public.” This is
an interesting argument, and Furlong might be right. 10 But we
cannot use interesting policy arguments as a springboard into
modifying the statute’s substantial evidence standard. Our review is
limited to ensuring that substantial evidence supported the Board’s
decision. Any argument that the Board should be more open to
departure from the standard industry form should be made to the
legislature.
¶ 35 Simply stated, the record does not permit us to conclude
that the Board lacked substantial evidence for its conclusion. The
JOA it imposed was based on the model agreement and is materially
the same one that the other lease holders in the pooling unit agreed
to use. The Board could properly conclude that it was neither unjust
nor unreasonable to allow EPE to treat all members of the drilling
unit similarly and to require Furlong—which owns 0.12 percent—to
abide by an agreement that was materially the same as the others.
¶ 36 Furlong next argues that the Board erroneously applied the
law when the Board failed to balance Furlong’s interests with those
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reweigh the evidence and independently choose which inferences
we find to be the most reasonable.” (citation omitted)).
10Then again, it might not. Furlong provides us with no evidence
to support the assertion that the Board’s reliance on the model
agreement stifles innovation.
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Opinion of the Court
of EPE. 11 The pertinent law states “[i]n the absence of a written
agreement for pooling, the board may enter an order pooling all
interest in the drilling unit . . . .” UTAH CODE § 40-6-6.5(2)(a). The
statute gives the Board leeway to determine what the order should
contain and invests the Board with considerable discretion to decide
what terms it includes in that order. The Board can adopt terms from
an agreement that “is in effect between the consenting owners,” or
from those “submitted by any party to the proceeding,” or even
those it submits on its own motion. Id. § 40-6-6.5(2)(c). The Board’s
discretion is bounded by the requirement that the order be “just and
reasonable.” Id. § 40-6-6.5(2)(b).
¶ 37 Furlong argues that the Board erroneously interpreted the
law because it did not balance what Furlong wanted with what EPE
wanted. As an initial matter, nothing in the statute expressly requires
the Board to balance the parties’ interests when deciding the form of
a joint operating agreement. See id. § 40-6-6.5(2). Finding nothing of
help in the statute, Furlong extracts support for its proposition from
Harken Southwest Corp. v. Board of Oil, Gas, & Mining, 920 P.2d 1176
(Utah 1996). In Harken, we said that:
[S]pacing orders must “be made upon terms and
conditions that are just and reasonable.” [UTAH CODE]
§ 40-6-6(5)(a). Thus, spacing orders are dependent not
only on a variety of factual determinations, but also on
the need to balance the competing interests of affected
parties and on the general requirement that they be
reasonable.
920 P.2d at 1179. 12
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11 Utah Code section 63G-4-403(4)(d) authorizes a challenge of a
formal adjudicative proceeding where a party claims the “agency
has erroneously interpreted or applied the law . . . .”
12 Furlong also resorts to the statute’s declaration of public
interest, arguing that the Board’s adoption of this JOA did not “fully
protect[]” its interest by failing to balance the competing
considerations. That policy statement reads:
It is declared to be in the public interest to foster,
encourage, and promote the development, production,
and utilization of natural resources of oil and gas in the
state of Utah in such a manner as will prevent waste; to
authorize and to provide for the operation and
(continued . . .)
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Opinion of the Court
¶ 38 Furlong relies on this language to argue that “[t]he Board
was required to balance the interests of the parties.” But Furlong
misreads Harken. When we stated that spacing orders are partly
“dependent . . . on the need to balance the competing interests,” we
did not articulate a new test. Id. Indeed, in Harken, we ultimately
relied on the existing statutory requirement; spacing orders—like the
pooling orders at issue here—must be “just and reasonable.” UTAH
CODE §§ 40-6-6(5)(a), 40-6-6.5(2)(b).
¶ 39 In other words, Harken stands for the unremarkable
proposition that to be just and reasonable, in some cases the Board
may have to “balance the competing interests of affected parties.”
920 P.2d at 1179. But this does not conjure a test different from that
found in the statute or impose an obligation on the Board to ensure
that the parties’ interests are in perfect equipoise. The Board
understood its mandate—any joint operating agreement needed to
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development of oil and gas properties in such a
manner that a greater ultimate recovery of oil and gas
may be obtained and that the correlative rights of all
owners may be fully protected; to provide exclusive
state authority over oil and gas exploration and
development as regulated under the provisions of this
chapter; to encourage, authorize, and provide for
voluntary agreements for cycling, recycling, pressure
maintenance, and secondary recovery operations in
order that the greatest possible economic recovery of
oil and gas may be obtained within the state to the end
that the land owners, the royalty owners, the
producers, and the general public may realize and
enjoy the greatest possible good from these vital
natural resources.
UTAH CODE § 40-6-1. The general statement of policy—to the extent it
even supports Furlong’s position—does not override the statutory
test that the joint operating agreement be just and reasonable. “While
some statutes have a policy section and some have a preamble, the
effect to be given these provisions is the same: they provide
guidance to the reader as to how the act should be enforced and
interpreted, but they are not a substantive part of the statute.” Price
Dev. Co., L.P. v. Orem City, 2000 UT 26, ¶ 23, 995 P.2d 1237. In other
words, the statement of policy might, in some circumstances,
influence our interpretation, but it does not rewrite subsequent
sections of the code.
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FURLONG v. BD. OF OIL, GAS, AND MINING
Opinion of the Court
be just and reasonable. 13 That is the statutory requirement and
Furlong’s argument that the Board erroneously applied the law falls
wide of the mark.
CONCLUSION
¶ 40 We can understand Furlong’s desire for more explanation
in the Board’s order. We cannot, however, transform that
understanding into a conclusion that the Board failed to follow its
statutory mandate. The Board correctly applied the law and
rendered a decision supported by substantial evidence. That is what
the statute required. We affirm.
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13 Furlong also argues under Utah Code section 63G-4-403(4)(e)
that the Board “failed to follow prescribed procedure . . . .” Furlong
claims the Board “arbitrarily” ignored “Furlong’s reasonable
requests for amended terms” and “abused its discretion [by
imposing] EPE’s proposed JOA contract . . . word-for-word
against . . . Furlong without analyzing the particular facts of the
case.” This is nothing more than Furlong’s substantial evidence
argument dressed in another cloak. The Board did not ignore
Furlong’s requested changes; it denied them. Substantial evidence
supports the denial and the statute ends our inquiry there.
14