B-169124.OM, L/M, MAR 24, 1981

B-169124.OM, L/M, MAR 24, 1981

SUBJECT: REQUEST FOR LEGAL OPINION ON LOGICAL MINING UNIT AND PRODUCTION REQUIREMENTS AFFECTING FEDERAL COAL LEASES

GENERAL COUNSEL, OGC:

CERTAIN QUESTIONS REGARDING LOGICAL MINING UNIT AND PRODUCTION REQUIREMENTS INVOLVE PROVISIONS OF LAW AND/OR REGULATION FOR WHICH LEGAL CLARIFICATION IS NEEDED. THE QUESTIONS PERTAIN TO WORK ON AN AUDIT NOW IN PROGRESS, "EVALUATION OF PRODUCTION POTENTIAL OF EXISTING FEDERAL COAL LEASES AND THE NEED FOR ADDITIONAL LEASING," CODE 008920.

THE AUDIT STAFF BRIEFLY DISCUSSED SOME OF THESE QUESTIONS WITH MR. STAN FEINSTEIN ON HIS AUGUST VISIT TO THE DENVER REGIONAL OFFICE. DURING THAT MEETING MR. FEINSTEIN PROVIDED US WITH SOME "FOOD FOR THOUGHT." SEPTEMBER, MR. JOHN KELLY OF THE DENVER STAFF VISITED WITH MR. FEINSTEIN IN WASHINGTON, D. C. WE WOULD APPRECIATE MR. FEINSTEIN BEING ASSIGNED TO THIS CASE.

IT WOULD HELP US IN COMPLETING THE AUDIT WORK TO HAVE A RESPONSE BY NOVEMBER 16, 1979. THIS IS PARTICULARLY IMPORTANT BECAUSE THE RESOLUTION OF THESE QUESTIONS WILL AFFECT THE COURSE OF OUR SUBSEQUENT AUDIT WORK WITH COAL COMPANIES AND ITERIOR OFFICIALS. THE QUESTIONS WE NEED ANSWERED AND WHICH ARE DISCUSSED IN MORE DETAIL IN AN ATTACHED SUMMARY INCLUDE:

(1) ISSUES PERTAINING TO THE DETERMINATION THAT EACH LEASE IS A LOGICAL MINING UNIT (LMU).

- DOES THE SECRETARY OF THE INTERIOR HAVE AUTHORITY TO RULE THAT EVERY FEDERAL COAL LEASE IS AN LMU REGARDLESS OF WHETHER SUCH A DESIGNATION CONFORMS WITH THE STATUTORY DEFINITION OF AN LMU?

- DOES THE SECRETARY HAVE AUTHORITY TO RULE THAT A COAL LEASE ISSUED PRIOR TO AUGUST 4, 1976, IS AN LMU WITHOUT THE CONSENT OF THE LESSEE?

(2) ISSUES PERTAINING TO LMU CRITERIA.

- CAN THE TERM "CONTIGUOUS", AS USED IN THE STATUTORY DEFINITION OF AN LMU BE APPLIED TO THE COAL SEAM AS A UNIT - THUS IGNORING AREAS WHERE THE SEAM HAS ERODED AWAY OR OTHERWISE DOES NOT EXIST - RATHER THAN TO THE SURFACE TOPOGRAPHY?

- CAN A LESSEE SUBMIT A REVISED MINE PLAN FOR AN LMU TO CHANGE ANNUAL PRODUCTION RATES AND, AS A RESULT, EXTEND THE LIFE OF THE LMU BEYOND THE 40-YEAR PERIOD IN THE INITIAL MINE PLAN?

- CAN A LESSEE SUBMIT A REVISED MINE PLAN FOR AN LMU TO CHANGE THE BOUNDARIES OF THE UNIT AND, AS A RESULT, EXTEND THE LIFE OF THE LMU BEYOND THE 40-YEAR PERIOD IN THE INITIAL MINE PLAN?

(3) ISSUES PERTAINING TO MINIMUM PRODUCTION REQUIREMENTS.

- DOES THE REQUIREMENT THAT LESSEES MINE AT LEAST A PRESCRIBED MINIMUM AMOUNT OF COAL (DILIGENT DEVELOPMENT) ON LEASES ISSUED PRIOR TO AUGUST 4, 1976, CONSTITUTE A UNILATERAL ADJUSTMENT OF LEASE TERMS? DOES THE SECRETARY HAVE THE AUTHORITY TO REQUIRE MINIMUM PRODUCTION LEVELS ON THESE LEASES PRIOR TO READJUSTMENT OF LEASE TERMS?

- WHICH PRODUCTION REQUIREMENT MUST A LESSEE MEET: THE DILIGENT DEVELOPMENT/CONTINUED OPERATION LEVELS PRESCRIBED BY REGULATION OR THE MINING PLAN SCHEDULE WHICH IS REQUIRED TO BE BASED ON NOT MORE THAN A 40-YEAR MINING SCHEDULE?

- DOES THE SECRETARY HAVE THE AUTHORITY TO EXTEND THE TIME FRAME FOR ACHIEVING DILIGENT DEVELOPMENT ON LEASES ISSUED PRIOR TO AND AFTER AUGUST 4, 1976, FOR REASONS SUCH AS THE DEVELOPMENT OF ADVANCED TECHNOLOGIES?

TO ASSIST YOU WITH THESE ISSUES, THE FOLLOWING DOCUMENTS ARE ATTACHED:

- A SUMMARY OF THE ISSUES;

- THE PLEADING FILED IN THE MOBILE OIL COMPANY'S LAWSUIT AGAINST THE SECRETARY OF THE INTERIOR, ET AL.;

- THE DIFFERENT LEASE FORMS USED DURING THE FEDERAL COAL LEASING PROGRAM; AND

- AN INTERPRETATION OF THE DILIGENT DEVELOPMENT REGULATIONS BY A FORMER INTERIOR ATTORNEY.

IF YOU HAVE ANY QUESTIONS ABOUT THE REQUEST, PLEASE CALL VERN INGRAHAM OR JOHN KELLY IN THE DENVER REGIONAL OFFICE ON FTS 327-4621, OR ME AT 254- 6937.

INDORSEMENT

DIRECTOR, EMD

RETURNED. YOUR DIVISION'S REQUEST FOR A LEGAL OPINION INCLUDED A COPY OF PLEADINGS IN MOBIL OIL CORPORATION V. CECIL D. ANDRUS, SECRETARY OF THE INTERIOR, ET AL., CIVIL NO. C79-110 (D. WYO., FILED APR. 25, 1979). ACCORD WITH THE POLICY STATED IN THE GAO REPORT MANUAL FOR DEALING WITH ISSUES IN LITIGATION (PAGES 5-17 TO 5-19), AND IN LIGHT OF THE ISSUES RAISED IN THE MOBIL OIL CASE, IT WAS AGREED BY MEMBERS OF OUR STAFFS AND BY THE DEPARTMENT OF JUSTICE ATTORNEY HANDLING THE CASE THAT THE AUDIT SCOPE BE NARROWED. THE REQUEST FOR OUR OPINION WAS SIMILARLY AMENDED. QUESTION 1 - "ISSUES PERTAINING TO THE DETERMINATION THAT EACH LEASE IS A LOGICAL MINING UNIT (LMU)" - IS COMPLETELY OMITTED. QUESTION 2 - "ISSUES PERTAINING TO LMU CRITERIA" - IS RETAINED IN ITS ENTIRETY. QUESTION 3 - "ISSUES PERTAINING TO MINIMUM PRODUCTION REQUIREMENTS" - IS IN THREE PARTS. PARAGRAPH 1 IS OMITTED. PARAGRAPH 2 IS RETAINED AS IT APPLIES TO NEW LEASES ONLY. PARAGRAPH 3 IS AMENDED TO EXCLUDE CONSIDERATION OF MARKET CONDITIONS AS A REASON FOR THE EXTENSION OF A DILIGENT DEVELOPMENT PERIOD.

WE NOW UNDERSTAND THAT THE MOBIL OIL CASE HAS BEEN SETTLED AND THAT THE PARTIES HAVE STIPULATED TO COMPLAINT'S DISMISSAL WITH PREJUDICE. SINCE WE ARE INFORMED THAT THE QUESTIONS OMITTED BECAUSE OF THE LITIGATION ARE OF CURRENT CONCERN TO YOUR STAFF, WE WILL ADDRESS THOSE ISSUES IN A LATER MEMORANDUM.

THE FIRST SECTION OF QUESTION 2 IS CONCERNED WITH WHETHER THE TERM "CONTIGUOUS," AS USED IN THE STATUTORY DEFINITION OF AN LMU, APPLIES TO A COAL SEAM AS A UNIT RATHER THAN TO THE SURFACE TOPOGRAPHY. YOUR STAFF EXPLAINS THAT SOME COAL SEAMS, BECAUSE OF EROSION, FOR EXAMPLE, MAY RUN INTERMITTENTLY THROUGH A SINGLE LMU.

SECTION 5(B) OF THE FEDERAL COAL LEASING AMENDMENTS ACT OF 1976, PUB. L. NO. 94-377, AUGUST 4, 1976, 90 STAT. 1083, 1086 (30 U.S.C. SEC. 202A(1)) PROVIDES IN PERTINENT PART THAT:

"A LOGICAL MINING UNIT MAY CONSIST OF ONE OR MORE FEDERAL LEASEHOLDS, AND MAY INCLUDE INTERVENING OR ADJACENT LANDS IN WHICH THE UNITED STATES DOES NOT OWN THE COAL RESOURCES, BUT ALL THE LANDS IN A LOGICAL MINING UNIT MUST BE UNDER THE EFFECTIVE CONTROL OF A SINGLE OPERATOR, BE ABLE TO BE DEVELOPED AND OPERATED AS A SINGLE OPERATION AND BE CONTIGUOUS."

THE REPORT OF THE HOUSE COMMITTEE ON INTERIOR AND INSULAR AFFAIRS ON THE PROPOSED FEDERAL COAL LEASING AMENDMENTS ACT OF 1975 (H.R. 6721, 94TH CONGRESS), IN EXPLANATION OF SECTION 5, STATES THAT "A LOGICAL MINING UNIT IS A CONTIGUOUS TRACK OF LAND." H. R. REP. NO. 681, 94TH CONG., 1ST SESS. 23 (1975). THE REPORT REPRINTED PROPOSED REGULATIONS, PUBLISHED ON DECEMBER 11, 1974 BY THE DEPARTMENT OF THE INTERIOR, WHICH INCLUDED A DEFINITION OF AN LMU AS A "COMPACT AREA OF COAL LAND." IN HEARINGS ON H. R. 3265, A BILL TO AMEND THE MINERAL LEASING ACT OF 1920 (BEFORE THE SUBCOMMITTEE ON MINES AND MINING OF THE HOUSE COMMITTEE ON INTERIOR AND INSULAR AFFAIRS, 94TH CONG., 1ST SESS. 26-28, 34-35 (1975)), IN DISCUSSION BETWEEN THE CHAIRMAN OF THE SUBCOMMITTEE, MRS. MINK, AND THE ASSISTANT SECRETARY OF THE INTERIOR, LAND AND WATER RESOURCES, MRS. MINK SUGGESTED SUBSTITUTION OF "CONTIGUOUS" AREA FOR "COMPACT" AREA IN DEFINING AN LMU. IN ANSWERS FOR THE RECORD TO WRITTEN QUESTIONS, THE DEPARTMENT OF THE INTERIOR STATED THAT THE TERM "COMPACT" AREA WAS INTENDED TO INCLUDE ADJACENT TRACTS OF COAL LAND, WHETHER FEDERAL, PRIVATE OR STATE. (HEARINGS, 39).

FROM THE FOREGOING, IT APPEARS THAT THE REQUIREMENT OF CONTIGUITY APPLIES TO ALL TRACTS OF LAND INCLUDED IN AN LMU. THE REQUIREMENT IS NOT FRAMED IN TERMS OF WHERE COAL SEAMS MAY BE LOCATED BUT IN TERMS OF LAND BOUNDARIES. ACCORDINGLY, EVEN IF COAL SEAMS ARE CONTIGUOUS TO EACH OTHER, THIS, OF ITSELF, DOES NOT SATISFY THE STATUTORY REQUIREMENT FOR CONTIGUOUS LANDS AND, CONVERSELY, THE FACT THAT A COAL SEAM IS INTERRUPTED DOES NOT PREVENT THE LAND FROM BEING AN LMU IF THE LANDS ARE CONTIGUOUS.

APPARENTLY, IN DECLARING THAT ALL EXISTING LEASES WERE LMUS, THE SECRETARY IN EFFECT CREATED SOME LMUS IN WHICH THE LANDS ARE NOT CONTIGUOUS. WE ARE UNAWARE OF ANY AUTHORITY OF THE SECRETARY OF THE INTERIOR TO WAIVE THE STATUTORY REQUIREMENT OF PHYSICALLY CONTIGUOUS LANDS BUT WE HAVE NOT HAD THE OPPORTUNITY TO CONSIDER INTERIOR'S VIEWS. HOWEVER, IN VIEW OF THE STATUTE'S ADDITIONAL REQUIREMENTS THAT THE LANDS IN AN LMU BE UNDER THE CONTROL OF A SINGLE OPERATOR AND BE CAPABLE OF DEVELOPMENT AND OPERATION AS A SINGLE UNIT, THE ADVERSE EFFECT OF INCLUDING NONCONTIGUOUS LANDS IN AN OTHERWISE PROPER LMU IS NOT READILY APPARENT.

THE SECOND PART OF QUESTION 2 RELATES TO THE POSSIBLE EXTENSION OF THE MAXIMUM 40-YEAR DEPLETION REQUIREMENT AS A RESULT OF MINE PLAN MODIFICATIONS. SECTION 5(D)(2) OF THE FEDERAL COAL LEASING AMENDMENTS ACT (30 U.S.C. SEC. 202A(2)) PROVIDES THAT:

"AFTER THE SECRETARY HAS APPROVED THE ESTABLISHMENT OF A LOGICAL MINING UNIT, ANY MINING PLAN APPROVED FOR THAT UNIT MUST REQUIRE SUCH DILIGENT DEVELOPMENT, OPERATION, AND PRODUCTION THAT THE RESERVES OF THE ENTIRE UNIT WILL BE MINED WITHIN A PERIOD ESTABLISHED BY THE SECRETARY WHICH SHALL NOT BE MORE THAN FORTY YEARS."

IN EXPLANATION OF SECTION 5 OF THE PROPOSED ACT, THE HOUSE REPORT (H. R. REP. NO. 94-681, SUPRA, 23) STATES THAT "ALL THE RESERVES WITHIN THE ENTIRE LMU MUST BE MINED IN A PERIOD NOT TO EXCEED FORTY YEARS, AND THE UNIT AS A WHOLE IS SUBJECT TO THE REQUIREMENTS OF DILIGENT DEVELOPMENT AND CONTINUOUS OPERATION." THE SENATE BILL, S. 391, ORIGINALLY CONTAINED NO 40-YEAR REQUIREMENT. HOWEVER, THIS BILL WAS AMENDED TO CONTAIN THE LANGUAGE OF THE HOUSE BILL, AND PASSED BY THE SENATE. IN A JOINT LETTER TO THE PRESIDENT (JUNE 24, 1976), URGING THAT HE APPROVE THE LEGISLATION, MRS. MINK AND SENATOR LEE METCALF, CHAIRMAN, SUBCOMMITTEE ON MINERALS, MATERIALS AND FUELS OF THE SENATE COMMITTEE ON INTERIOR AND INSULAR AFFAIRS, EXPLAINED THAT THE BILL WOULD "REQUIRE MANDATORILY THE MINING OUT OF THE COAL RESERVES CONTAINED IN THE LMU WITHIN A 40-YEAR PERIOD." (122 CONG. REC. 21358 (1976)).

CLEARLY, A PRINCIPAL PURPOSE OF THE LEGISLATION WAS TO EXPEDITE THE MINING OF FEDERAL COAL LANDS. THE AMENDMENT OF MINING PLANS WHICH MIGHT RESULT IN SUCCESSIVE 40-YEAR PERIODS (OR, AS IN THE EXAMPLES GIVEN IN ATTACHMENT I TO THE SUBMISSION, IN EXTENSIONS OF 40 YEARS FROM THE TIME A MINING PLAN IS REVISED TO CHANGE ANNUAL PRODUCTION RATES OR BOUNDARIES OF THE LMU) WOULD DEFEAT THIS PURPOSE. AS STATED IN THE HOUSE REPORT (AT 21), "IN ANY EVENT, ALL OF THE COAL RESOURCES OF A LOGICAL MINING UNIT MUST BE DEVELOPED WITHIN 40 YEARS."

SECTION 3400.0-5(CC) OF THE PROGRAM REGULATIONS (43 C.F.R.), IN DEFINING AN LMU, STATES THAT LMU LANDS MUST BE CAPABLE OF BEING DEVELOPED AND OPERATED AS A UNIFIED OPERATION "WITH COMPLETE EXTRACTION OF THE LMU RESERVES WITHIN 40 YEARS FROM THE DATE OF FIRST APPROVAL OF A MINING PLAN FOR THAT LMU."

THE REGULATION, IN CALLING FOR EXTRACTION OF RESERVES WITHIN 40 YEARS OF FIRST APPROVAL OF THE MINE PLAN, APPEARS TO PRECLUDE EXTENSION OF THE 40- YEAR PERIOD BECAUSE OF SUBSEQUENT CHANGES OF PLAN. ALTHOUGH THERE IS DISPUTE AS TO WHETHER THE PERIOD SHOULD BEGIN ON THE DATE OF ESTABLISHMENT OF THE LMU, OR, AS INDICATED IN THE REGULATION, ON THE DATE OF ACCEPTANCE OF THE MINE PLAN, IT SEEMS CLEAR THAT THE 40-YEAR PERIOD MAY NOT BE TOLLED OR EXTENDED BECAUSE OF MINE PLAN CHANGES.

THE LAST PART OF QUESTION 2 IS CONCERNED WITH A SITUATION IN WHICH A REVISED MINE PLAN CHANGES THE BOUNDARIES OF AN LMU. IN SUCH AN INSTANCE, COULD THE REVISED PLAN EXTEND THE LIFE OF THE LMU BEYOND 40 YEARS? CONSIDERATIONS SIMILAR TO THOSE DISCUSSED ABOVE ALSO APPLY IN THIS CASE. TO PERMIT THE EXTENSION OF THE AGGREGATE TIME PERIOD UNDER THE ORIGINAL AND REVISED MINE PLANS BEYOND 40 YEARS WITHOUT SUBSTANTIVE JUSTIFICATION WOULD RESULT IN AT LEAST SOME OF THE LMU'S COAL NOT BEING MINED WITHIN 40 YEARS. THE CONCEPT OF AN LMU IS A UNITARY ONE: AFTER INCLUSION IN THE LMU, ALL LANDS MUST MEET THE CRITERIA ESTABLISHED FOR THE UNIT, INCLUDING EXHAUSTION OF THE COAL RESOURCES WITHIN THE 40-YEAR PERIOD ORIGINALLY APPLICABLE TO THE LMU.

THE SPECIFIC QUESTION POSED IN THE SECOND PARAGRAPH OF QUESTION 3 IS WHETHER A LESSEE UNDER A LEASE ISSUED AFTER AUGUST 4, 1976, MUST MEET THE DILIGENT DEVELOPMENT AND CONTINUED OPERATION LEVELS PRESCRIBED BY REGULATION, OR THE 40-YEAR EXHAUSTION REQUIREMENT. THE ANSWER IS THAT HE MUST MEET BOTH.

THE REGULATIONS (43 C.F.R. SEC. 3400.0-5(M)(1)) PROVIDE THAT "DILIGENT DEVELOPMENT" FOR A LEASE ISSUED AFTER AUGUST 4, 1976, MEANS PRODUCTION OF ONE PERCENT OF THE RESERVES OF THE LMU OF WHICH THE LEASE IS A PART BY THE END OF THE 10TH YEAR FROM THE EFFECTIVE DATE OF THE LEASE. UNDER SUBSECTION 3400.0-5(J), "CONTINUED OPERATION" MEANS THE PRODUCTION OF ONE PERCENT OF THE LMU RESERVES FOR EACH OF THE FIRST 2 YEARS AFTER ACHIEVEMENT OF DILIGENT DEVELOPMENT AND AN AVERAGE ANNUAL AMOUNT OF PRODUCTION OF ONE PERCENT OF THE LMU RESERVES THEREAFTER. AS PREVIOUSLY DISCUSSED IN ANSWER TO THE SECOND PART OF QUESTION 2, THE LMU RESERVES ARE REQUIRED BY THE STATUTE TO BE EXHAUSTED WITHIN 40 YEARS. THE DILIGENT DEVELOPMENT AND CONTINUED OPERATION PROVISIONS ONLY ESTABLISH MINIMUMS AND ARE THEREFORE NOT INCONSISTENT WITH THE 40 YEAR REQUIREMENT. THAT IS, PRODUCTION OF LESS THAN ONE PERCENT BY THE END OF THE 10TH YEAR MEANS THAT DILIGENT DEVELOPMENT HAS NOT BEEN ACHIEVED; PRODUCTION OF LESS THAN ONE PERCENT IN ANY YEAR THEREAFTER MEANS THAT CONTINUED OPERATION HAS NOT BEEN ACHIEVED. HOWEVER, THE LEASEHOLDER MUST EXCEED THOSE MINIMUMS IN AT LEAST SOME OF THE YEARS IN ORDER TO MEET THE 40-YEAR REQUIREMENT. THE LAST PART OF QUESTION 3 DEALS WITH THE SECRETARY'S AUTHORITY TO EXTEND THE TIME FOR ACHIEVING "DILIGENT DEVELOPMENT" ON LEASES ISSUED EITHER BEFORE OR AFTER AUGUST 4, 1976, FOR REASONS (EXCLUDING SPECIFIC CONSIDERATION OF MARKET CONDITIONS) SUCH AS THE DEVELOPMENT OF ADVANCED TECHNOLOGIES. FOR PRE AUGUST 4, 1976 LEASES, THERE IS NO STATUTORY TIME FRAME FOR DILIGENT DEVELOPMENT. FOR POST-AUGUST 4, 1976 LEASES, NO EXTENSION BEYOND THE 10- YEAR STATUTORY LIMIT MAY BE ALLOWED.

SECTION 7(B) OF THE MINERAL LANDS LEASING ACT, AS AMENDED BY THE FEDERAL COAL LEASING AMENDMENTS (30 U.S.C. SEC. 207(B)), PROVIDES THAT:

"EACH LEASE SHALL BE SUBJECT TO THE CONDITIONS OF DILIGENT DEVELOPMENT AND CONTINUED OPERATION OF THE MINE OR MINES, EXCEPT WHERE OPERATIONS UNDER THE LEASE ARE INTERRUPTED BY STRIKES, THE ELEMENTS, OR CASUALTIES NOT ATTRIBUTABLE TO THE LESSEE."

IN ADDITION, SUBSECTION (A) OF SECTION 207 PROVIDES IN PART THAT "ANY LEASE WHICH IS NOT PRODUCING IN COMMERCIAL QUANTITIES AT THE END OF TEN YEARS SHALL BE TERMINATED." THESE PROVISIONS, AS NOTED ABOVE, WERE EFFECTIVE AUGUST 4, 1976.

DILIGENT DEVELOPMENT IS DEFINED IN THE REGULATIONS. FOR PRE-AUGUST 4, 1976 LEASES, IT MEANS THAT COAL PRODUCTION IN COMMERCIAL QUANTITIES MUST BE ACHIEVED BY JUNE 1, 1986 (WITH EXCEPTIONS DISCUSSED BELOW). FOR POST- AUGUST 4, 1976 LEASES, IT MEANS PRODUCTION IN COMMERCIAL QUANTITIES WITHIN 10 YEARS OF THE EFFECTIVE DATE OF THE LEASE. 43 C.F.R. SEC. 3400.0-5(M) (1979).

THE REGULATIONS PROVIDE FURTHER THAT, IN THE CASE OF COAL LEASES ISSUED BEFORE AUGUST 4, 1976, THE JUNE 1, 1986 DATE BY WHICH DILIGENT DEVELOPMENT MUST BE ACHIEVED, MAY BE EXTENDED NOT ONLY BECAUSE OF DELAYS ATTRIBUTABLE TO STRIKES, THE ELEMENTS, OR CASUALTIES, BUT ALSO BECAUSE OF THE DEPARTMENT'S ADMINISTRATIVE DELAY OR EXTRAORDINARY CIRCUMSTANCES (NOT INCLUDING NORMALLY FORESEEABLE BUSINESS RISKS). 43 C.F.R. SEC. 3475.4(B). EXTENSIONS MAY ALSO BE GRANTED BECAUSE OF TIME NEEDED FOR DEVELOPMENT OF ADVANCED TECHNOLOGY, THE MAGNITUDE OF THE PROJECT, OR A CONTRACT WHICH IS A FIRM COMMITMENT FOR THE SALE OR USE OF THE FIRST 1/40TH OF THE LMU RESERVES AFTER THE 10-YEAR PERIOD.

THE ATTACHMENT TO THE SUBMISSION SUGGESTS (P. 18) THAT, WITH RESPECT TO PRE-AUGUST 4, 1976 LEASES, INTERIOR'S REGULATIONS ARE INCONSISTENT WITH THE LAW BECAUSE THEY ALLOW EXTENSION BEYOND THE 10-YEAR PERIOD IN WHICH DILIGENT DEVELOPMENT MUST BE ACHIEVED FOR REASONS IN ADDITION TO THOSE IN THE STATUTE. HOWEVER, THE STATUTORY 10-YEAR PERIOD FOR ACHIEVING DILIGENT DEVELOPMENT DOES NOT APPLY TO PRE-1976 LEASES BECAUSE IT WAS ADDED BY THE 1976 AMENDMENTS. AS TO BOTH PRE AND POST 1976 LEASES, IT APPEARS TO BE INTERIOR'S POSITION THAT THERE ARE NO STATUTORY CONDITIONS FOR EXTENSION OF THE TIME FOR ACHIEVING DILIGENT DEVELOPMENT; THE THREE CONDITIONS STATED IN 30 U.S.C. SEC. 207(B), BOTH BEFORE AND AFTER THE 1976 AMENDMENT - STRIKES, THE ELEMENTS, AND CASUALTIES NOT ATTRIBUTABLE TO THE LESSEE - ARE NOT APPLICABLE TO THE REQUIREMENT OF DILIGENT DEVELOPMENT BUT RATHER TO THAT OF CONTINUED OPERATION.

THE REGULATIONS ARE BASED ON THE ASSUMPTION THAT DILIGENT DEVELOPMENT AND CONTINUED OPERATION, ALTHOUGH RELATED, ARE DISTINCT REQUIREMENTS. DILIGENT DEVELOPMENT MEANS ACCOMPLISHING ALL THE PREPARATION NECESSARY TO START PRODUCING COAL IN COMMERCIAL QUANTITIES, WHILE CONTINUED OPERATION MEANS THAT, ONCE A LESSEE STARTS PRODUCING COAL - THAT IS, ONCE HE HAS COMPLETED DILIGENT DEVELOPMENT AND BEGUN PRODUCTION IN COMMERCIAL QUANTITIES - HE MUST CONTINUE TO DO SO. INTERIOR HAS SUCCINCTLY DESCRIBED THE RELATIONSHIP OF THE TWO REQUIREMENTS:

"WHEN READ TOGETHER, THE PHRASES *** INDICATE A STATUTORY INTENT THAT HOLDERS OF COAL LEASES SHOULD PROMPTLY REACH A REASONABLE LEVEL OF PRODUCTION DILIGENT DEVELOPMENT AND THEN MAINTAIN IT (CONTINUED OPERATION)." 40 FED. REG. 60070 (1975).

ACCORDING TO INTERIOR'S CURRENT READING OF SECTION 207(B) AS ORIGINALLY ENACTED, AS TO THE PRE-1976 LEASES TO WHICH IT APPLIES, THE THREE CONDITIONS - STRIKES, THE ELEMENTS, OR CASUALTIES - APPLY TO THE REQUIREMENT OF CONTINUED OPERATION, AND NOT TO THAT OF DILIGENT DEVELOPMENT:

"LEASES SHALL BE FOR INDETERMINATE PERIODS UPON CONDITION OF DILIGENT DEVELOPMENT AND CONTINUED OPERATION OF THE MINE OR MINES, EXCEPT WHEN SUCH OPERATION SHALL BE INTERRUPTED BY STRIKES, THE ELEMENTS, OR CASUALTIES NOT ATTRIBUTABLE TO THE LESSEE ***." 41 STAT. 439 (1920).

THE PHRASE "SUCH OPERATION" APPEARS TO REFER ONLY TO THE CONDITION OF "CONTINUED OPERATION".

ALTHOUGH THE WORDING IN THE NEW VERSION OF SECTION 207, AS AMENDED IN 1976 AND QUOTED ABOVE, IS SLIGHTLY DIFFERENT, IT ALSO REFERS EXPRESSLY TO INTERRUPTIONS OF "OPERATIONS UNDER THE LEASE" WHEN SETTING FORTH THE THREE CONDITIONS. THERE IS NO INDICATION THAT ANY SUBSTANTIVE CHANGE WAS INTENDED IN THIS RESPECT BY THE REVISION OF SECTION 207.

THUS, FOR PRE-1976 LEASES, THERE WAS NO STATUTORY TIME LIMIT FOR ACHIEVING DILIGENT DEVELOPMENT, AND APPARENTLY NO EXPRESS STATUTORY CONDITION FOR EXTENDING THE TIME TO ACHIEVE IT. THE EFFECT OF THE 1976 AMENDMENT WAS TO SET A 10-YEAR LIMIT, APPLICABLE TO LEASES EXECUTED AFTER ITS ENACTMENT, FOR ACHIEVING DILIGENT DEVELOPMENT, BUT NOT TO ESTABLISH CONDITIONS FOR EXTENDING THAT TIME.

THE WORDING OF SECTION 7 IS, ARGUABLY, SUSCEPTIBLE OF ANOTHER INTERPRETATION, THAT DESPITE THE REFERENCE TO "SUCH OPERATION" THE THREE CONDITIONS FOR SUSPENDING THE REQUIREMENT OF CONTINUED OPERATION ALSO APPLIED TO THE REQUIREMENT OF DILIGENT DEVELOPMENT. THE LEGISLATIVE HISTORY IS SILENT ON THIS POINT BUT CONTEMPORARY COMMENT SUGGESTS THAT THE TERMS DILIGENT DEVELOPMENT AND CONTINUED OPERATION MAY NOT HAVE BEEN UNIVERSALLY UNDERSTOOD AS SEPARATE AND DISTINCT REQUIREMENTS, AS INTERIOR NOW CONSTRUES THEM. 56 CONG. REC. 7046 (1918), REMARKS OF REP. ROBBINS. HOWEVER, WE CANNOT SAY THAT INTERIOR'S REGULATIONS ARE INCONSISTENT WITH THE STATUTE.

WITH REGARD TO THE 10 YEAR REQUIREMENT, INTERIOR HAS NOT SOUGHT TO APPLY THE STATUTORY 10-YEAR LIMIT TO LEASES ENTERED INTO BEFORE AUGUST 4, 1976, WHEN THE LAW INCORPORATING THAT LIMIT BECAME EFFECTIVE. INSTEAD, PRESUMABLY BY ANALOGY TO THE 10-YEAR STATUTORY REQUIREMENT, INTERIOR HAS BY REGULATION GIVEN PRE-1976 LESSEES APPROXIMATELY 10 YEARS FROM ENACTMENT OF THE NEW LAW (UNTIL JUNE 1, 1986) TO ACHIEVE DILIGENT DEVELOPMENT (NO MATTER HOW LONG THEY HAVE ALREADY HELD THEIR LEASES), AND IT HAS PROVIDED FOR EXTENSIONS PAST THAT DEADLINE FOR A VARIETY OF REASONS, INCLUDING STRIKES, THE ELEMENTS, AND CASUALTIES. 43 C.F.R. SEC. 3400.0-5(M)(2); 43 C.F.R. SEC. 3475.4(B). THE APPLICABLE LAW - THE PRE-1976 VERSION OF THE MINERAL LEASING ACT - DOES NOT DEFINE DILIGENT DEVELOPMENT, DOES NOT SET A DEFINITE TIME WITHIN WHICH IT MUST BE ACHIEVED, AND ARGUABLY DOES NOT SPECIFY REASONS FOR EXTENDING THE TIME FOR ACHIEVING IT. HOWEVER, AS WAS PREVIOUSLY NOTED WE HAVE NOT CONSIDERED THE ISSUE OF WHETHER OR NOT INTERIOR'S ESTABLISHMENT OF A 10-YEAR DILIGENT DEVELOPMENT PERIOD FOR PRE- EXISTING LEASES CONSTITUTES A UNILATERAL ADJUSTMENT OF THE LEASE TERMS - QUESTION 3, PARAGRAPH 1 - WHICH WAS IN ISSUE IN THE MOBIL OIL CASE. (FOR POST-1976 LEASES, THE REGULATIONS, CONSISTENTLY WITH THE STATUTE, ALLOW 10 YEARS FOR ACHIEVING DILIGENT DEVELOPMENT, WITH NO PROVISION FOR EXTENSION. 43 C.F.R. SEC. 3400.0-5(M)(1)).

WITH REGARD TO CONTINUED OPERATION, THE REGULATIONS ALLOW SUSPENSION OF THAT REQUIREMENT ONLY FOR THE THREE REASONS STATED IN THE LAW (AS WELL AS ONE OTHER NOT RELEVANT HERE BUT ALSO STATED IN THE LAW). THE REGULATION CORRECTLY MAKES NO DISTINCTION FOR THIS PURPOSE BETWEEN PRE 1976 AND POST- 1976 LEASES SINCE, IN THIS RESPECT, THE LAW IS UNCHANGED. 43 C.F.R. SECS. 3400.0-5(J) AND 3475.4(A)(2).

DIGESTS

1. SECTION 5(B) OF FEDERAL COAL LEASING AMENDMENTS ACT OF 1976, PUB. L. NO. 94-377, ESTABLISHES "LOGICAL MINING UNIT" (LMU) OF ONE OR MORE FEDERAL LEASEHOLDS WHICH MAY INCLUDE INTERVENING OR ADJACENT LANDS IN WHICH U. S. DOES NOT OWN COAL RESOURCES, BUT ALL LAND IN LMU MUST BE CONTIGUOUS. LEGISLATIVE HISTORY OF ACT INDICATES CONTIGUOUS REQUIREMENT REFERS TO TRACTS OF LAND, NOT IN TERMS OF LOCATION OF COAL SEAMS BUT OF LAND BOUNDARIES. CONSEQUENTLY, WE ARE UNAWARE OF SECRETARY OF INTERIOR'S AUTHORITY TO WAIVE REQUIREMENT OF PHYSICALLY CONTIGUOUS LANDS.

2. SECTION 5(D)(2) OF FEDERAL COAL LEASING AMENDMENTS ACT OF 1976, PUB. L. NO. 94-377, PROVIDES THAT MINING PLAN FOR "LOGICAL MINING UNIT" (LMU) MUST REQUIRE DILIGENT DEVELOPMENT, OPERATION AND PRODUCTION SO RESERVES OF ENTIRE UNIT ARE MINED IN NOT MORE THAN 40 YEARS. LEGISLATIVE HISTORY SHOWS COAL RESERVES ARE TO BE EXHAUSTED WITHIN 40 YEARS. REQUIREMENT PRECLUDES EITHER MINING PLAN AMENDMENTS PROVIDING SUCCESSIVE PERIODS OR LMU BOUNDARY REVISIONS PROVIDING MORE TIME BECAUSE OF LAND ADDITIONS TO LMU.

3. UNDER SECTION 7(B) OF MINERAL LANDS LEASING ACT OF 1920, EACH COAL LEASE IS SUBJECT TO CONDITION OF DILIGENT DEVELOPMENT, WHICH MEANS ACHIEVING PRODUCTION IN COMMERCIAL QUANTITIES. FEDERAL COAL LEASING AMENDMENTS ACT OF 1976 SET 10 YEARS AS LIMIT FOR ACHIEVING DILIGENT DEVELOPMENT. BY REGULATION, INTERIOR ESTABLISHED JUNE 1, 1986, AS DATE BY WHICH LEASES ENTERED INTO BEFORE AUGUST 4, 1976 (DATE OF AMENDMENTS) MUST ACHIEVE DILIGENT DEVELOPMENT, BUT PERMITTING EXTENSIONS FOR STRIKES, THE ELEMENTS, OR CASUALITIES NOT ATTRIBUTABLE TO LESSEE, PLUS OTHER REASONS. ALTHOUGH SECTION 7(B) IS CAPABLE OF INTERPRETATION RESTRICTING REASONS FOR EXTENSIONS TO STATUTORY LIST OF STRIKES, ELEMENTS, OR CASUALTIES, WE CANNOT SAY PERMITTING EXTENSIONS FOR THESE REASONS AS WELL AS SEVERAL OTHERS IS INCONSISTENT WITH STATUTE.