## Facts

- Woods Petroleum Corporation and related companies held an oil and gas lease covering allotted Indian mineral interests in Oklahoma.
- Oklahoma established a state drilling/spac­ing unit combining the Indian tract with adjacent non-Indian tracts.
- Working-interest owners executed a communitization agreement to pool interests within the state unit; the producing well was located off the Indian tract.
- Federal approval of the communitization agreement was necessary for unit production to extend Woods’s Indian lease beyond its primary term.
- A Bureau of Indian Affairs (BIA) Area Director approved the communitization agreement.
- Indian lessors appealed within the Department of the Interior (DOI); another company, Tomlinson Properties, Inc., offered a substantial bonus to the lessors if Woods’s lease expired and could be replaced.
- The Assistant Secretary reversed the Area Director and disapproved the communitization agreement, with the practical effect that unit production would not extend Woods’s lease.
- Woods’s lease expired at the end of its primary term, and DOI confirmed the expiration.
- The lessors then executed new leases with Tomlinson; DOI later approved an identical communitization agreement for the same state unit with Tomlinson as lessee and allowed the lessors to receive retroactive unit benefits.
- Woods sued under the Administrative Procedure Act (APA), alleging the disapproval and resulting expiration were arbitrary, capricious, and an abuse of discretion; the district court upheld DOI’s decision.

## Issues

1. Whether the Secretary of the Interior may disapprove a communitization agreement involving Indian mineral interests solely to cause an existing lease to expire so the lessors can enter a new, more lucrative lease.
2. Whether disapproval on that basis is arbitrary, capricious, or an abuse of discretion under 25 U.S.C. §§ 396, 396d and the APA, given DOI’s trustee role and its communitization evaluation criteria.

## Decision

- The en banc Tenth Circuit reversed the district court.
- The court held DOI acted arbitrarily and abused its discretion by disapproving the communitization agreement for the purpose of forcing expiration of a valid lease to facilitate a replacement lease.
- The court remanded with instructions to approve Woods’s communitization agreement.

## Legal Principles

- Under 25 U.S.C. § 396d, the Secretary’s review of communitization agreements must be a reasoned decision based on relevant considerations, not a tool to terminate an otherwise valid lease.
- Agency action is arbitrary and capricious when it relies on impermissible considerations, fails to consider important aspects of the problem, or conflicts with the administrative record and the agency’s stated standards.
- DOI’s trust responsibility to Indian lessors permits seeking favorable economic results, but it must be exercised within statutory limits and consistent with valid lease rights and applicable decision criteria.
- In evaluating communitization, the agency must consider the agreement’s merits under relevant factors (including economic effects, technical and conservation concerns, and lessee performance), rather than focusing only on obtaining a higher bonus through rel­easing.

## Conclusion

The en banc court required DOI to approve Woods’s communitization agreement because DOI disapproved it not on the agreement’s merits but to engineer lease expiration and enable a higher-bonus substitute lease, which constituted arbitrary and abusive agency action under federal Indian leasing statutes and the APA.


Woods Petroleum Corp. v. U.S. Dep’t of the Interior, 47 F.3d 1032 (10th Cir. 1995) (en banc)