Are oil and gas Division Orders that companies share with county assessors public records under Arkansas FOIA?

Plain-English summary

State Senator Bruce Maloch asked the AG whether oil and gas "Division Orders," which set out mineral and royalty ownership down to the decimal interest for a drilling unit, are open to public inspection under the Arkansas Freedom of Information Act when private companies voluntarily share them with county assessors. The premise of the question was that assessors could use these orders to value mineral interests for ad valorem taxes, saving counties money, but operators only wanted to hand them over if disclosure were blocked.

AG Leslie Rutledge concluded that a reviewing court would very likely treat the Orders as exempt from disclosure under the FOIA's "competitive advantage" exemption at Ark. Code Ann. § 25-19-105(b)(9)(A). That exemption shields files whose disclosure would give advantage to competitors or bidders. The Arkansas Supreme Court in Pharmacy Assocs. read the exemption as the state-law analog of federal FOIA Exemption 4 (trade secrets and confidential commercial information), so the AG followed the federal Critical Mass framework: information given voluntarily is "confidential" if it would not customarily be released by the submitter, while information required by the government is "confidential" only if disclosure would impair the government's ability to get future information or cause substantial competitive harm.

The harder question was whether the Division Orders were "voluntary" or "compelled." Although there is no specific statute requiring companies to give Division Orders to assessors, Ark. Code Ann. § 26-26-910(b)(2) requires "any person... when called upon by the county assessor" to furnish information bearing on the location, amount, kind, and value of property. To be safe, the AG applied the more stringent "compelled" standard, which required a showing of (1) actual competition and (2) likelihood of substantial competitive injury. The background information about oil and gas leases, ready-made mineral-ownership maps, and operators' fear that competitors could buy royalty interests at a discount before a permit was filed gave the AG enough to find both elements satisfied under the facts presented. The exemption applied. No other statute compelled disclosure, so question 3 was answered "no."

Currency note

This opinion was issued in 2016. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

What is a Division Order in the oil and gas context?
A document that lays out the proportional ownership of produced hydrocarbons from a drilling unit established by the Arkansas Oil and Gas Commission. It typically lists property name, legal description, each owner's name and address, decimal ownership interest, and ownership type. Preparing one requires hundreds of hours of title research and a licensed attorney's title opinion. Operators spend significant money to compile them.

Does putting a private document in a public office make it public?
Usually yes. Records "maintained in public offices or by public employees within the scope of their employment" are presumed to be public records under Ark. Code Ann. § 25-19-103(7)(A). The Division Orders, once delivered to a county assessor for use in valuing minerals, met that definition. The question was whether an exemption applied.

Why does the "voluntary versus compelled" distinction matter?
Under the federal Critical Mass framework that the Arkansas Supreme Court has implicitly adopted, voluntary submissions get a lower bar for confidentiality: it is enough that the submitter would not customarily release the information to the public. Compelled submissions get a higher bar: substantial competitive harm or impairment of the government's ability to collect future information.

What competitive harm did the AG identify here?
A windfall to competitors. A competitor could obtain in a FOIA request, free, the mineral-ownership map that the submitting operator paid hundreds of hours of attorney and landman work to compile. Worthington Compressors put the "essential test" as whether release, given the information's commercial value to competitors and the cost of acquiring it through other means, will cause substantial harm. The facts in the request fit that test.

Did the AG rule that a court must reach this result?
No. The AG said a court "would very likely" reach it, but the application of the exemption is "substantially factual." If a FOIA case actually arose, a court could weigh evidence about actual competition, the cost competitors would otherwise face, and whether some of the data is already publicly available.

Background and statutory framework

Ark. Code Ann. § 25-19-105(a)(1)(A) (Supp. 2015) declares the general rule that all public records are open to inspection and copying by any Arkansas citizen during regular business hours, "[e]xcept as otherwise specifically provided by this section or by laws specifically enacted to provide otherwise." Ark. Code Ann. § 25-19-103(7)(A) (Supp. 2015) defines public records broadly and presumes records held in public offices to be public.

The competitive-advantage exemption is at Ark. Code Ann. § 25-19-105(b)(9)(A) (Supp. 2015): "[f]iles which, if disclosed, would give advantage to competitors or bidders." Two leading commentators (Watkins & Peltz) describe it as protecting trade secrets and proprietary information businesses submit to government for regulatory or other purposes. The Arkansas Supreme Court in Ark. Dep't of Fin. & Admin. v. Pharmacy Assocs., 333 Ark. 451 (1998), said the exemption may be invoked "for the benefit of the person who has provided commercial or financial information if it can be shown that public disclosure is likely to cause substantial harm to his competitive position," and treated it as the state-law parallel of 5 U.S.C. § 552(b)(4).

The federal lodestar is Critical Mass Energy Project v. Nuclear Regulatory Comm'n, 975 F.2d 871 (D.C. Cir. 1992), splitting voluntary and compelled submissions for confidentiality analysis. Center for Auto Safety v. NHTSA, 244 F.3d 144 (D.C. Cir. 2001), and the substantive cases on competitive harm (Worthington Compressors v. Castle, 662 F.2d 45 (D.C. Cir. 1981); CNA Financial Corp. v. Donovan, 830 F.2d 1132 (D.C. Cir. 1987)) flesh out the test.

On the question of whether the Division Orders were "compelled," the AG pointed to Ark. Code Ann. § 26-26-910(b), which requires any person called upon by the county assessor to furnish proof "demanded as to... information requested and pertaining to the location, amount, kind, and value of his or her own property or that of another person." This is in furtherance of the assessors' duty to "assess all producing mineral interests in the county" (Ark. Code Ann. § 26-26-1110 (Repl. 2012)). The AG declined to firmly classify the submissions and applied the more stringent compelled-information standard as a precaution.

Citations

Statutes: Ark. Code Ann. §§ 25-19-105(a)(1)(A), 25-19-105(b)(9)(A), 25-19-103(7)(A), 26-26-910(b), 26-26-1110 (Supp. 2015 and Repl. 2012); 5 U.S.C. § 552(b)(4); Acts 1997, No. 1335.

Cases: Ark. Dep't of Fin. & Admin. v. Pharmacy Assocs., 333 Ark. 451, 970 S.W.2d 217 (1998); Arkansas Highway & Transp. Dep't v. Hope Brick Works, Inc., 294 Ark. 490, 744 S.W.2d 711 (1988); National Parks & Conservation Ass'n v. Morton, 498 F.2d 765 (D.C. Cir. 1974); Critical Mass Energy Project v. Nuclear Regulatory Comm'n, 975 F.2d 871 (D.C. Cir. 1992); Center for Auto Safety v. Nat'l Highway Traffic Safety Admin., 244 F.3d 144 (D.C. Cir. 2001); Madel v. U.S. Dep't of Justice, 784 F.3d 448 (8th Cir. 1992); Biles v. Dept. of Health and Human Services, 931 F. Supp. 2d 211 (D.D.C. 2013); Center for Auto Safety v. U.S. Dept. of Treasury, 133 F. Supp. 3d 109 (D.D.C. 2015); Worthington Compressors, Inc. v. Castle, 662 F.2d 45 (D.C. Cir. 1981); CNA Fin. Corp. v. Donovan, 830 F.2d 1132 (D.C. Cir. 1987).

Prior AG opinions cited: 2012-001, 2008-099, 2005-238.

Source

• Landing page: https://arkansasag.gov/divisions/opinions-foia/attorney-general-opinions-search/

Original opinion text

Opinion No. 2016-053
May 31, 2016
STATE OF ARKANSAS
ATTORNEY GENERAL
LESLIE RUTLEDGE

The Honorable Bruce Maloch
State Senator
650 Columbia Road 258
Magnolia, AR 71753

Dear Senator Maloch:

You have requested my opinion on the application of the Arkansas Freedom of Information Act ("FOIA") to certain documents that you say are "voluntarily provided by private companies to county assessors." As background for your specific questions, you state:

A Division Order, as utilized in the oil and gas industry, is an instrument which sets forth the proportional ownership of produced hydrocarbons, including oil and natural gas, from a drilling unit established by the Arkansas Oil and Gas Commission (AOGC). While the Division Order for each unit is only a couple of pages in length, it requires hundreds of hours of research to compile the ownership documents, and the cost incurred to have a licensed attorney prepare a title opinion setting forth the respective ownership interests shown on the Division Order. The Division Order document directs the distribution of proceeds from the sale of any hydrocarbons eventually produced from the unit. Typically Division Orders are assimilated and maintained by the oil and gas exploration and production companies and contain the property name, legal description, each owner's name, address, decimal ownership interest and type of ownership interest in the subject property. Preparation of Division Orders was and is performed at each oil and gas company's sole cost and expense.

Allowing county assessors access to Division Orders would provide the assessors with valuable assistance in locating and valuing the mineral ownership interests in the lands of the State of Arkansas for ad valorem tax purposes. This access would help reduce or eliminate costs that would otherwise be incurred by each county assessor's office in collecting and assimilating this information from the real property records on a county by county basis and would also result in savings to the respective school districts in each affected county.

Currently, there exists no statutory requirement that owners of the Division Orders provide those documents to the county assessors. However, while they are not obligated to provide the documents to county assessors, they have expressed a willingness to do so as long as those documents are not subject to public disclosure. Public disclosure of the Division Orders' assimilated content would provide competitors of the oil and gas companies with a competitive advantage by eliminating the need for those competitors to expend the cost, time, effort and resources to duplicate the work product of the owners of the Division Orders. This ready access to those documents would enable those competitors to efficiently and economically attempt to undermine the Division Order owners' existing leases as described above.

Additionally, there is concern for the protection of the royalty/mineral owners from unscrupulous individuals/competitors who, when they learn that a new well is to be drilled in the unit, and before the operator files for a permit with the Arkansas Oil and Gas Commission or prepares the location, the competitor attempts to buy the royalty/mineral owners' interests at a discount.

In light of the foregoing background information, you have posed the following questions:

1. Are Oil and Gas Division Orders, provided voluntarily to county assessors, exempt from public disclosure pursuant to Ark. Code Ann. § 25-19-105(b)(9)(A)?
2. If your response to Question 1 is "no," would any other exemption apply to prevent public disclosure of these Division Orders?
3. If the Oil and Gas Division Orders are not subject to public disclosure under the Arkansas Freedom of Information Act, is there any applicable statute that would require public disclosure of the documents?

RESPONSE

It is my opinion in response to your first question that a reviewing court would very likely hold that the Division Orders you describe are exempt from public disclosure under the facts you have recited. I must emphasize, however, that the application of the FOIA's so-called "competitive advantage" exemption (Ark. Code Ann. § 25-19-105(b)(9)(A)) is a substantially factual matter. Because I am not a fact-finder in the issuance of official opinions, I am not situated to address any factual questions that your background statements might invite.

My response to your first question renders your second question moot. The answer to your third question is "no." I am unaware of any other statute that would apply to the Division Orders and require that they be disclosed to the public.

DISCUSSION

Question 1 - Are Oil and Gas Division Orders, provided voluntarily to county assessors, exempt from public disclosure pursuant to Ark. Code Ann. § 25-19-105(b)(9)(A)?

The FOIA requires that a custodian must disclose "public records" upon receiving a valid FOIA request, unless some exception specifically shields the records from disclosure. Records "maintained in public offices or by public employees within the scope of their employment" are "presumed to be public records."

It is my opinion that the Division Orders you describe meet the FOIA's definition of "public records" once in the hands of county assessors. They would therefore be subject to public disclosure, absent an applicable exemption.

The exemption you have asked about applies in relevant part to "[f]iles that if disclosed, would give advantage to competitors or bidders":

It is the specific intent of this section that the following shall not be deemed to be made open to the public under the provisions of this chapter:... [f]iles which, if disclosed, would give advantage to competitors or bidders.

This is the so-called "competitive advantage" exemption.

I. Competitive advantage

As stated by two leading commentators on the FOIA, this exemption "protects trade secrets and other proprietary information that businesses submit to governmental entities to satisfy regulatory requirements or for other purposes." It is "intended to prevent competitors from obtaining information about others seeking the same type of work or furnishing material to the state." The Arkansas Supreme Court has said that "the exemption may be invoked for the benefit of the person who has provided commercial or financial information if it can be shown that public disclosure is likely to cause substantial harm to his competitive position."

The court in Pharmacy Assocs. cited federal case law construing the "parallel" federal FOIA provision that exempts "trade secrets and commercial or financial information obtained from a person and privileged or confidential." It thus seems clear that our court will follow federal precedent when addressing Arkansas's competitive-advantage exemption. The pivotal federal case is Critical Mass Energy Project v. Nuclear Regulatory Comm'n. The Critical Mass test for determining when commercial or financial information is "confidential" has been summarized as follows:

In Critical Mass, the court held that material may be withheld as "financial or commercial" information under Exemption 4 of FOIA under two circumstances. First, "financial or commercial information provided to the Government on a voluntary basis is 'confidential' for the purpose of Exemption 4 if it is of a kind that would customarily not be released to the public by the person from whom it was obtained." 975 F.2d at 879. Second, financial or commercial information provided to the Government on a mandatory basis is "confidential" if "disclosure would be likely either '(1) to impair the Government's ability to obtain necessary information in the future; or (2) to cause substantial harm to the competitive position of the person from whom the information was obtained.'" Id. at 878.

The standard for determining whether information is confidential therefore differs depending on whether the information was submitted to the government voluntarily or whether the government required that it be submitted.

"Information is considered 'required' if any legal authority compels its submission...." As acknowledged by at least one court, it is easier to establish confidentiality in the case of "voluntary" submissions:

The bar is lower for withholding confidential information voluntarily provided to the Government, making withholding an easier burden for the agency to meet: voluntarily submitted information need only be "of a kind that would customarily not be released to the public by the person from whom it was obtained" to be withheld as confidential. Critical Mass, 975 F.2d at 878. "[I]n assessing customary disclosure, the court will consider how the particular party customarily treats the information, not how the industry as a whole treats the information." Ctr. for Auto Safety, 244 F.3d at 148. "A party can voluntarily make protected disclosures of information, and as long as the disclosures are not made to the general public, such disclosures do not constitute customary disclosures." Id.

II. Application

A. Voluntary vs. involuntary

In your request for my opinion, you refer to the Division Orders at issue as "documents voluntarily provided by private companies to county assessors." You also point out that there is "no statutory requirement that owners of the Division Orders provide those documents to the county assessors." While I believe it is correct to say that companies are not required to submit Division Orders to the county assessors, I cannot absolutely opine that this means the less stringent test for "voluntary" submissions will automatically apply when determining whether these records are exempt from public disclosure under the FOIA. The statute governing property valuation requires "any person..., when called upon the county assessor," to "furnish proof demanded as to... information requested and pertaining to the location, amount, kind, and value of his or her own property or that of another person." This statute is in furtherance of the assessors' duty to "assess all producing mineral interests in the county." I do not address whether the property valuation statute specifically requires the information at issue here, but merely note that in some circumstances a court might conclude that it does.

To the extent state law compels submission of the information contained in the Division Orders you describe, I believe that information could be considered "required" as opposed to "voluntary" for purposes of the competitive-advantage exemption. Because the characterization of the information is unclear, I will apply the more stringent standards for application of the exemption.

B. Competitive harm

If I am correct that the information contained in the Division Orders must be considered compelled, then the question turns to whether release of the Division Orders will cause substantial competitive harm to the companies submitting the records. To show substantial harm, the companies resisting release of the records need not show actual competitive harm. Instead, they must show (1) actual competition, and (2) a likelihood of substantial competitive injury. The review is highly factual. Specific factual or evidentiary material must be presented showing actual competition and the likelihood of substantial competitive injury from disclosure of the records.

The background information provided in your request for my opinion includes statements regarding oil and gas leases and royalty/mineral owners' interests that evidence both actual competition and the likelihood of substantial competitive harm from release of the Division Orders. Under the facts stated, the harm would be the windfall to competitors who would otherwise have to expend considerable cost, time and effort acquiring the information contained in the Division Orders. Courts have recognized the likelihood of substantial competitive harm based on this type of windfall "because competition in business turns on the relative costs and opportunities faced by members of the same industry...." In Worthington, the D.C. Circuit identified the "essential test" as "whether release of the requested information, given its commercial value to competitors and the cost of acquiring it through other means, will cause substantial harm to the business that submitted it." The court further observed in this regard:

If the information is freely or cheaply available from other sources,... it can hardly be called confidential and agency disclosure is unlikely to cause competitive harm to the submitter. If on the other hand, competitors can acquire the information only at considerable cost, agency disclosure may well benefit the competitors at the expense of the submitter.

The facts outlined in your request for my opinion evidence the type of competitive harm with which the Worthington court was concerned. I, of course, am not in a position to evaluate, determine, or make legal conclusions concerning disputed facts (should a dispute arise). I can only opine based on the information before me. In my opinion, a reviewing court would very likely hold that the Division Orders you describe are exempt from public disclosure under the facts recited in your correspondence.

Question 2: If your response to Question 1 is "no," would any other exemption apply to prevent public disclosure of these Division Orders?

This question is rendered moot by the above response.

Question 3: If the Oil and Gas Division Orders are not subject to public disclosure under the Arkansas Freedom of Information Act, is there any applicable statute that would require public disclosure of the documents?

No. I am unaware of any other statute that would apply to the Division Orders and require their public disclosure.

Sincerely,
LESLIE RUTLEDGE
Attorney General