Southern Ute case

Patrick Crow
Washington, D.C.
[email protected]

The U.S. Interior Department has undercut Amoco Production Co. in a case about ownership of coalbed methane gas around the Southern Ute reservation in Colorado.

The reservation area is a patchwork of private and tribal land holdings.

In the Coal Lands Acts of 1909 and 1910, Congress claimed the rights to coal under the area and later awarded them to the tribe. Nothing was said about the methane, then considered both hazardous and worthless.

In the last 2 decades, methane has become a valuable resource, and oil companies began producing it from tribal and private lands in the reservation.

In 1991, the tribe sued Interior and oil companies, alleging it owned the coalbed methane because it owned the coal. It lost in district court but won last July before the 10th Circuit Court of Appeals.

Amoco, the lead oil company in the case, appealed to the U.S. Supreme Court, which should decide soon whether it will hear the case on its fall docket.

Appeal

The oil companies' case relied heavily on a May 12, 1981, opinion by the Interior solicitor general that the tribe did not own the coalbed methane. But early this year, the Interior solicitor disavowed that opinion, saying it was based on "a relatively simple analysis that, in retrospect, did not fully appreciate the complexities of the issue."

As a result, the U.S. solicitor general has asked the Supreme Court to reject the appeal.

Amoco said, "The government's new position contradicts almost 90 years of Department of Interior policies and regulations recognizing that coal and gas are distinct, definable substances."

The Independent Petroleum Association of Mountain States said the case could affect the ownership of coalbed methane underlying more than 20 million acres of western lands.

Cookie argument

Congress has noticed the ramifications of the 10th Circuit's ruling.

Last year Sen. Mike Enzi (R-Wyo.) pushed through a law that, although it did not apply to the Southern Ute case, protected other holders of current federal coalbed methane leases (OGJ, Oct. 19, 1998, p. 37).

The tribe, which has settled out of court with some oil companies, said the remaining ones, and 2,000-3,000 holders of royalty rights in La Plata County, may owe it more than $1 billion in royalties and interest.

The county government has estimated it may lose $2-2.5 million/ year in revenues because it cannot tax tribal earnings.

In court, oil company lawyers had argued coal and coalbed methane were like a sponge that holds water: despite their "intimate association," the water and the sponge are separate and distinct.

Tribal lawyers used a chocolate chip cookie analogy: the coal was a cookie, and the methane was chips, and a chocolate chip cookie was just not the same without the chocolate.

To illustrate their point, they brought a large chocolate chip cookie to court. The trial judge rejected their argument, but jokingly asked if they had any more cookies to enter into evidence.