CHAPTER 3 AN INTRODUCTION TO COALBED GAS DEVELOPMENT ON INDIAN LANDS DEVELOPMENT POTENTIAL, OWNERSHIP RIGHTS, AND OPERATIONAL ISSUES
| Jurisdiction | United States |
(Apr 1992)
AN INTRODUCTION TO COALBED GAS DEVELOPMENT ON INDIAN LANDS DEVELOPMENT POTENTIAL, OWNERSHIP RIGHTS, AND OPERATIONAL ISSUES
and Andrew W. Baldwin
Law Office of John Schumacher
Baldwin & Crocker
Ft. Washakie, Wyoming
Lander, Wyoming
TABLE OF CONTENTS
INTRODUCTION
I. COALBED GAS DEVELOPMENT POTENTIAL ON INDIAN LANDS
A. What Is Coalbed Gas
1. Origins of coalbed gas
2. Chemical Composition of Coalbed Gas
B. Current And Future Coalbed Gas Development On Indian Lands
1. San Juan Basin Indian Lands
2. Wind River Reservation
II. LEGAL OWNERSHIP OF COAL AND GAS IN RELATED SITUATIONS
A. Legal Ownership Of Coalbed Gas Pursuant To Private Conveyances
1. United States Steel Corp. v. Hoge
2. Rayburn, et al. v. USX Corporation
3. Impact of Hoge and Rayburn
B. Legal Ownership Of Coalbed Gas Pursuant To Public Conveyances
C. Analogous Legal Ownership Decisions
1. Uranium, lignite, potash, and sodium
2. Casinghead gas
3. Helium
4. Geothermal Steam
III. LEGAL OWNERSHIP OF COALBED GAS ON INDIAN LANDS
A. Characteristics, Origins, And History Of Indian Mineral Interests
1. Tribal Ownership Of Minerals
2. Allottee Ownership Of Minerals
3. Mineral Interests of the Indians On the Wind River Reservation
a. Tribal Ownership Of Mineral Interests
b. Allottee Ownership of Mineral Interests
4. Origins Of Coalbed Gas On Indian Reservations
a. History of Coalbed Development On Indian Lands
B. Legal Principles Of Coalbed Ownership On Indian Lands
1. Leasing Of Allotted Lands
2. Leasing of Tribal Lands
a. Omnibus Indian Mineral Leasing Act of 1938
b. Indian Mineral Development Act of 1982
c. Leasing Under Special Statutes
3. 1990 Solicitor's Opinion
C. Application Of The Factual And Legal Principles To Ownership Of Coalbed Gas On Indian Lands
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IV. OPERATING ON INDIAN LANDS
A. Federal Role
1. Statutory And Regulatory Requirements
a. Allotments
b. Tribal Lands
2. Environmental Considerations
3. Economic Considerations
4. Navigating the Approval Process
a. Recommendations to Tribes
b. Recommendations to Persons Doing Business with Indians
B. Tribal Role
1. Sovereign Immunity And Court Jurisdiction
2. Applicable Law
3. Taxes
CONCLUSION
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INTRODUCTION:
The development of coalbed gas is receiving increased attention in recent years throughout the United States due to enhancements in drilling and production technologies, favorable economic conditions (both tax and market driven), and depletion of conventional reserves. Likewise, increased focus is placed on the development of coalbed gas reserves on Indian lands. This focus on development of coalbed gas on Indian lands has generated questions by coalbed gas developers and Indian tribes in three general areas: (1) are the coalbed gas reserves on Indian lands sufficient to warrant development, (2) who owns the coalbed gas, and (3) what operational issues need to be addressed in development of the coalbed gas.
The goal of this paper is to provide, both coalbed gas developers and Indian tribes, with the general facts about coalbed gas development on Indians lands, including the nature of the resource and its development potential, an introduction to the legal issues concerning ownership of the coalbed gas on Indian lands, and an overview of the operational considerations to be addressed by the developer and the Indian tribe involved. This paper does not provide an exhaustive analysis of all issues for coalbed development on Indian lands. There are over 300 hundred Indian tribes within the United States1 each of which is a sovereign government. The land base of each tribe, including mineral resources, has developed under a unique set of legal, treaty, statutory, and factual conditions which will have to be considered and addressed by the parties.2 This myriad of
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diversity, however, should not cause the potential coalbed gas developer to avoid Indian lands. As will pointed out in this paper, there are general principles which will guide the developer and the tribe in resolution of any specific factual issues which might arise. Moreover, the unique attributes of Indian tribes and their lands provide specific enhancements to consummation and implementation of the coalbed gas development transaction.
The first segment of this paper will discuss the nature of coalbed gas and the current status and development potential of coalbed gas on Indian lands. As background to the issue of coalbed gas ownership on Indian lands, the second segment will discuss the legal issues surrounding the ownership of coalbed gas on private and federal lands. The third segment will present the factual and legal issues affecting coalbed gas ownership on Indian lands. Finally, the fourth segment will identify the legal and practical issues which need to be addressed to commence and conduct coalbed gas operations on Indian lands.
I. COALBED GAS DEVELOPMENT POTENTIAL ON INDIAN LANDS3
A. What Is Coalbed Gas.
Key to an understanding of coalbed gas development both on and off Indian lands is an understanding of the characteristics of the substance. The assumptions or predisposition a party takes regarding the substance, i.e., is coalbed gas more in the nature of
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"coal" or in the nature of "natural gas",4 can significantly impact the direction of analysis and the conclusions reached.
1. Origins of coalbed gas.
In coal analysis there are four recognized constituents: fixed carbon, volatile matter, moisture and ash; coalbed gas is one of the substances designated "volatile matter."5 Coalbed gas is given off while the coal is located in place, during mining, and for a substantial period after coals has been taken from the mine.6
Coalbed gas is present in all coal beds and is formed by biochemical and physical processes during the conversion of accumulated plant material into coal. It is generally believed that the gas found in coalbeds was generated largely in situ rather than having migrated into the coal from other sources.7 Methane is a major component of the volatile material driven off during coalification8 of humic material brought about by increased temperatures during burial.9 In addition to methane, carbon dioxide, nitrogen, and water are also released during
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coalification.10 Because most Rocky Mountain coals are classified as common or humic coals (derived primarily from the woody constituents of complex terrestrial plants) and contain dominantly type III vitrinitic kerogen, they are considered to be dry, gas-generating source rocks when they reach proper thermal maturity.11
Biogenic12 methane is generated during the early stages of coalification as plant material undergoes thermal alteration and bacteria metabolize any free oxygen left in the plant remains. At a temperature of about 50° C, most of the biogenic methane has been generated, about two-thirds of the original moisture has been expelled, and the plant material has reached the rank of subbituminous coal.13 As the temperature increases, additional moisture plus carbon dioxide and nitrogen are generated as coalification produces coal of high volatile bituminous rank. At about 150° C, maximum methane generation from coal occurs. This temperature corresponds to the approximate divisions between the medium and low volatile bituminous coal ranks. With even higher temperatures (and higher rank coals), methane is still generated but at somewhat lower rates and volumes.14 Coals with a rank of high-volatile bituminous B or higher have been found to contain the most methane.15
The methane generated by coal beds may migrate to the surface, may migrate into an adjacent reservoir, or may be retained with the coal itself. The coalbed gas escapes mostly by percolating through the minute spaces or pores between the coal
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grains and also in part through fissures most of which are minute.16 About 7 million cubic feet of methane can be generated for each ton of coal that has matured from lignite to anthracite,17 but the amount of methane retained by coal can range from less than 10 cubic feet per ton ("cf/t") to more than 500 cf/t. The methane can occur in coal as adsorbed18 or absorbed19 molecules on the surface of micropores in the coal, as free gas existing within fractures or pores, and as dissolved gas in formation waters.20 Ninety percent or more of the total methane retained by the coal is probably adsorbed or absorbed within coal micropores.21
When coal is mined and broken up in the process, gas escapes rapidly from the pores and crevices, but under ordinary conditions mined coal is in compact lumps so that much time is required for complete liberation.22 Volumes of methane present in coalbed reservoirs are dependent on the depth, coal rank, and hydrogeologic environment. The ability of gas to flow through a reservoir depends on structural setting and position, depth, variations in coal maturation history, and water saturation. Depth of the reservoir is extremely important in coalbed methane reservoir quality in that permeability decreases more rapidly with depth than conventional sandstone and carbonate reservoirs and that viscoelastic23 flow of the coal may occur beyond a certain depth.
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On the positive side, coalbed methane reservoirs often exhibit negative decline curves as they are produced.24
2. Chemical Composition of Coalbed Gas.
Coalbed gas generally contains in excess of 95% methane, trace to minor amounts of higher hydrocarbons (ethane, propane, etc.) and less than 3% of nitrogen gas and 3% of carbon dioxide.25 With a typical heating value of 1000 Btu, coalbed gas comes out of the ground practically ready for the pipeline.26 Because the primary component of natural gas produced from conventional gas reservoirs and gas...
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