Gas producers that lease land from the State of Alaska must pay royalties calculated on the value of the gas produced from the leased area. This royalty payment can be calculated under one of two methods: (1) "higher of" pricing or (2) contract pricing. "Higher of" pricing is the default. Computing the royalty owed under "higher of" pricing involves sophisticated calculations using market data and the prices of other producers. The Department of Natural Resources (DNR) usually does not calculate the royalty payment under "higher of" pricing until years after the time of production, once an audit can be completed. In order to pay royalties under contract pricing, the lessee must first request that form of payment calculation from DNR. Under contract pricing, the lessee's price at which it sells gas is used to determine the lessee's royalty payment.
Marathon Oil Corporation (Marathon) began production in the Ninilchik gas field in 2003. In 2008, before completion of the audit to determine the "higher of" royalty payment for 2003-2008, Marathon requested contract pricing from DNR. Marathon requested contract pricing for the period of 2008 onward and sought retroactive application of contract pricing to the 2003-2008 period. DNR approved Marathon's request for contract pricing from 2008 onward but denied the request to apply contract pricing to production prior to 2008. Marathon appealed to the superior court, which affirmed DNR's ruling. Marathon appeals.
Marathon has three arguments. First, Marathon argues that the statute that governs contract pricing—AS 38.05.180(aa)—permits retroactive application of contract pricing and that DNR was wrong to deny Marathon's request. We conclude that the statute is ambiguous, and because DNR's interpretation is longstanding and has a reasonable basis in the statute, we defer to its interpretation. Second, Marathon argues in the alternative that even if DNR's interpretation of the statute is valid, DNR was obliged to promulgate its interpretation as a
II. FACTS AND PROCEEDINGS
Marathon leases land from the State of Alaska for the purpose of producing natural gas. Marathon has many natural gas leases on the Kenai Peninsula, including one at Ninilchik.
Gas lessees must pay a royalty to the State in the amount of 12.5% of the value of the gas produced in the leased area. Determining the value of the gas produced for the purpose of calculating this royalty is usually done through "higher of" pricing. The value of the gas produced is deemed to be the highest of four possible prices.
Lessees must deliver royalty payments on or before "the last day of the calendar month following the month in which the oil, gas, or associated substances are produced." But the four values needed to calculate the royalty under "higher of" pricing are usually not determined until several years after the time of production, after DNR performs an audit. After the audit, a lessee's royalty liability is often "re-adjusted upward."
In 1986 the legislature amended the royalty statute.
In 1995 DNR leased lands in the Ninilchik Unit on the Kenai Peninsula to Marathon for the purposes of gas production. Marathon began production on this land in 2003. In 2008 Marathon requested contract pricing from DNR, both for future production and for past production between 2003 and 2008. DNR approved Marathon's request for contract pricing from 2008 forward but rejected the request for the 2003-2008 period. The
III. STANDARD OF REVIEW
We interpret statutes "according to reason, practicality, and common sense, taking into account the plain meaning and purpose of the law as well as the intent of the drafters."
It is DNR's job to manage the state's resources and to collect royalties from gas lessees.
A. DNR's Interpretation Of AS 38.05.180(aa) Is Reasonable.
In 1959, shortly after statehood, the legislature passed the Alaska Land Act and gave DNR the responsibility for managing state-owned
The 1986 amendments to the Alaska Land Act allowed lessees to calculate their royalty obligations using a different, potentially more favorable method. The amendments permitted lessees to use the price at which they contracted to sell gas to Alaska utilities as the basis for calculating the state's royalty.
The question presented is whether a lessee must apply for contract pricing before production actually occurs. For at least ten years, DNR has interpreted the 1986 amendments as permitting DNR to approve contract pricing only for future production. Thus, a lessee can apply to have contract pricing used to calculate its royalties for future production, but not for gas production that has already occurred. Marathon disputes this interpretation, arguing that the statute permits DNR to use contract pricing for past production. Marathon offers alternative statutory interpretations, proposing several cutoff points after which a lessee would no longer be permitted to apply for contract pricing. Marathon even suggests that a lessee could apply for contract pricing after the completion of the audit to determine its "higher of" royalty liability so long as the lessee applied "before the statute of limitations ran."
To establish the meaning of a statute, we examine both its text and its purpose.
1. The text of the statute
a. The meaning of "prospective"
Alaska Statute 38.05.180(aa)(2)(B) provides that DNR should not approve a request for contract pricing if "the prospective reduction in royalty receipts would not be balanced by increased benefits to in-state gas and electric consumers." (Emphasis added.) DNR notes that Black's Law Dictionary defines "prospective" as meaning "[i]n the future."
Marathon argues that the word "prospective" has a different meaning within the context of the statute. In Marathon's view, the legislature's reference to "prospective reduction in royalty receipts" is "not the same as requiring that a request be made in advance of or commensurate in time with first gas production." Marathon instead argues that
The term "prospective" could plausibly have either meaning. The use of the word could signify that the legislature only intended contract pricing to be available for future gas production; or the use of the word could be incidental "and the timing of the [application]. . . immaterial." We agree with the superior court that "the phrase `prospective reduction in royalty receipts' is ambiguous."
b. The scope of AS 38.05.180(aa)(2)
Marathon argues that AS 38.05.180(aa)(2) provides an exhaustive list of the reasons that DNR may reject a request for contract pricing. Alaska Statute 38.05.180(aa)(2) provides that DNR should reject a lessee's request for contract pricing if the commissioner makes a finding that
Marathon contends that because retroactivity is not among the listed reasons for rejection, DNR had no right to refuse Marathon's request for retroactive application. Marathon claims that AS 38.05.180(aa) creates a presumption in favor of approval and that DNR did not respect this presumption. But AS 38.05.180(aa)(2)'s core scope is more limited than Marathon contends. Alaska Statute 38.05.180(aa)(2) provides an exhaustive list of the price-related reasons DNR can reject requests for contract pricing, but the statute does not address other grounds for rejection. The legislative history of the 1986 amendments indicates that AS 38.05.180(aa)(2) is exclusively concerned with objections to the price a lessee submits as its contract price.
2. The purpose of the statute
a. The pro-consumer purpose of the 1986 amendments
Both parties agree that the purpose of the 1986 amendments was to benefit consumers: The statute lowers the amount of royalties paid by gas producers, and the savings are passed on to consumers. Marathon points to this pro-consumer purpose of the 1986 amendments and argues that allowing retroactivity would further this legislative purpose. Marathon argues that (1) the purpose of the statute is to benefit consumers by using contract pricing; (2) retroactivity results in more contract pricing; and (3) therefore, retroactivity is consistent with the purpose of the statute. Marathon cites extensive legislative history to support its argument, but while this legislative history generally recognizes the benefits of contract pricing, it does not answer the question whether the statute permits retroactivity.
Although it is true that the stated purpose of the 1986 amendments was to benefit consumers, the 1986 amendments exist
As we have recognized, the overall purpose of the Alaska Land Act is to maximize revenue for the state: In Chevron v. LeResche we pointed out that the purpose of the Alaska Land Act was "to provide for orderly oil and gas leasing that maximizes state return on its oil and gas resources," and that this fact should influence the statute's construction.
Though the 1986 amendments' purpose of benefiting a smaller subset of Alaska's utility consumers would arguably support Marathon's interpretation, the Alaska Land Act's overall purpose of maximizing revenue for all Alaskan citizens would support DNR's interpretation. The 1986 amendments and their legislative history do not provide guidance as to which purpose should predominate in this case.
b. The legislative tolerance for retroactivity
Marathon points to the retroactivity that exists elsewhere in the statute and the fact that audits and royalty calculations occur well after the time of production. Royalty calculations involve amounts, such as "tax reimbursement amounts," that cannot be known until some time after production.
3. We defer to DNR's longstanding interpretation.
The key to our decision is the standard of review. We conclude that the statute is ambiguous and provides no direct answer whether retroactive contract pricing is permitted. We have recognized that "an agency's interpretation of a law within its area of jurisdiction can help resolve lingering ambiguity."
We are especially inclined to defer when an agency's statutory interpretation is longstanding. DNR has been applying its interpretation for at least a decade. In multiple
B. DNR Was Not Required To Promulgate Its Interpretation In A Regulation.
Marathon argues that DNR's interpretation of the statute, even if valid, must be promulgated through a regulation before being applied to Marathon or any other party.
We have been hesitant to force agencies to promulgate all statutory interpretations as regulations.
C. Due Process
Marathon claims that "[d]ue process considerations are triggered by DNR's refusal to consider Marathon's request under the legislative criteria." But, as the State notes, it is somewhat difficult to discern what due process violation Marathon is alleging. The Alaska Constitution provides that "[n]o person shall be deprived of life, liberty, or property, without due process of law."
Marathon did have sufficient notice and the opportunity to represent its interests. Marathon argues that DNR did not adequately "apprise" Marathon of the grounds on which DNR would make its decision. Marathon argues that because it did not have adequate notice of DNR's earlier interpretation of the statute, Marathon was therefore denied the "opportunity to defend its request and have its merits judged."
But DNR has relied on its interpretation of AS 38.05.180(aa) for over a decade. As we explained in Alyeska Pipeline Service Co. v. State, a statute itself can provide constructive notice of an agency's interpretation.
Moreover, DNR did provide Marathon with notice of its decision on Marathon's request, and Marathon had the opportunity to present its arguments to DNR. After Marathon submitted its request, DNR rejected the request because it was retroactive. Marathon requested reconsideration and argued that AS 38.05.180(aa) does permit retroactivity. DNR affirmed its earlier decision and explained its interpretation that "AS 8.05.180(aa) does not authorize the Department of Natural Resources to grant retroactive approval." Because Marathon had both adequate notice and a fair opportunity to present its claims, we conclude that its due process rights were not violated.
For the foregoing reasons, we AFFIRM the superior court's decision.
CHRISTEN, Justice, not participating.