JurisdictionUnited States
Natural Resources Development in Indian Country
(Nov 2005)


Lynn P. Hendrix
Phillip R. Clark
Holme Roberts & Owen LLP
Denver, Colorado

Lynn P. Hendrix is a partner in the Denver office of Holme Roberts & Owen LLP. His practice emphasizes intellectual property law, energy and natural resources law, finance and lending law and general commercial and corporate law. He has been with the firm since 1978. His energy and natural resources practice is transactional based and covers mergers, acquisitions and financing, as well as day-to-day business matters, primarily in the oil and gas and mining areas. His finance and lending law practice emphasizes finance and lending law, primarily in connection with energy and natural resources and intellectual property, in addition to other industries. Lynn has authored several articles on intellectual property, energy and natural resources, and finance and lending law. In particular, he has authored or co-authored eight articles for Annual and Special Institutes of the Rocky Mountain Mineral Law Foundation. Lynn earned his J.D. from the University of Nebraska, with distinction, in 1978; B.S.E.E. from the University of Nebraska in 1973. Memberships and Associations: Rocky Mountain Mineral Law Foundation Vice-President, 2005-06; Treasurer, 2003-05; Trustee, 1992-94, 1997-05; American Bar Association, Oil and Natural Gas Exploration and Production Committee: Chair, 1994-95; Colorado Bar Association, Natural Resources and Energy Law Section: Chair 2000-01; American Bar Association, Section of Environmental, Energy and Resources Law; Denver Association of Petroleum Landmen; American Association of Professional Landmen; American Bar Association, Section of Intellectual Property Law; Colorado Bar Association, Patent, Trademark and Copyright Section; Computer Law Association; American Intellectual Property Law Association; Institute of Electrical and Electronics Engineers; and International Trademark Association. He is admitted in Colorado; Nebraska; Wyoming; Montana; New York; U.S. Patent & Trademark Office and in the U.S. Supreme Court; U.S. District Courts of Colorado and Nebraska; and U.S. Court of Appeals-10th Circuit.

Phillip R. Clark, a partner in the Denver office of Holme Roberts & Owen, LLP, joined the firm in 1976 and practices with the energy and natural resources and commercial law and securities practice groups. He represents a wide range of energy companies in a variety of issues involving the U.S. energy business, including: acquisitions and sales of oil and natural gas properties, gathering systems, processing plants and pipelines in the Rockies and other producing oil basins; mergers and combinations involving both privately held and publicly traded companies, including all aspects of data rooms, due diligence, merger agreement negotiations, seismic license issues and financing; exploration agreements, joint ventures, gathering agreements, forward sales of production, volumetric production payments and other sales arrangements; Federal royalty compliance, the appeal and settlement of additional royalty assessments by the Minerals Management Service, and compliance with tribal and public lands regulations; entity formation and governance issues for entities owning upstream and midstream oil and gas assets; financing transactions secured by oil and gas properties for both lenders and borrowers, including properties located on Indian lands; the structuring and unwinding of Section 29 tax credit transactions for both producers and tax credit monetizers; environmental due diligence on energy and natural resources properties and negotiation of environmental indemnity and consulting agreements. Phil earned his J.D. from Harvard University, cum laude, in 1976; A.B. from Wabash College, magna cum laude, in 1970; and was Phi Beta Kappa in 1976. Memberships and Associations: Colorado Oil & Gas Association, Board of Directors; Secretary and Board Counsel; Legal, Legislative and Regulatory Committee; Rocky Mountain Mineral Law Foundation; Trustee, Executive Committee; IPAMS Royalties Committee; Independent Petroleum Association Mountain States; listed in Best Lawyers In America. He has been admitted in Colorado since 1976.


Oil and gas and other mineral development requires a significant amount of capital. This capital is raised by companies in a variety of ways, including capital markets and loans from financial institutions. Loans can take on a variety of forms, but the most common in the mineral industries are loans secured by liens on the properties that will be explored and developed. This is a type of "asset based financing" which is common not only in the mineral industries, but other industries as well. The typical loan structure is in the form of a revolving line of credit that allows the borrower to draw down on the loan as needed and repay from time to time as its needs for capital and ability to pay change.

This paper analyzes the concerns lenders have when loans are secured wholly or partially by liens on real property interests arising out of leases or mineral development agreements covering Indian lands. 2 In this respect, this paper discusses the concerns financial institutions have when lending to companies that have leased Indian lands for oil and gas or other mineral development; it does not address concerns arising from loans made directly to tribes, which raise other unique issues. Unfortunately, the concerns addressed herein are impediments (often real, but often only perceived) to loans collateralized with Indian leases.

The authors note that tribal laws vary significantly from tribe to tribe, and this paper assumes that the applicable tribe has not adopted a statute or rule of law dealing with the issues addressed herein; which is generally the case. It is always important, however, to review the applicable tribal code, constitution and other governing documents as well as any available resolutions and ordinances adopted by applicable tribal agencies and departments to determine whether a tribe has adopted a law, rule, regulation or order that affects the issues addressed in this paper. The authors also caution that, although state real property laws are similar in result, certain specific variances may affect the issues addressed herein. 3


When determining how much a lender is willing to loan against particular assets, typically the lender looks to the value of the assets and the cash flow those assets will produce. In determining the value of the underlying assets the lender looks at a number of quantifiable factors. Although these factors differ from lender to lender, in the mineral industries they generally have a common theme. Primarily, a lender relies on a reserve report prepared by an engineer that estimates the amount and value of recoverable reserves. Reserve reports look at the amount of the recoverable reserves based on empirical and historical data and various price and cost assumptions, and then assign a value to the properties. Implicitly, reserve reports do not take into account other factors that could negatively affect the value of the properties. Accordingly, the value assigned by the reserve report is then discounted by the lender for such factors, including production and pricing risks, environmental concerns, potential claims and litigation, regulatory framework, and other factors that may affect the particular properties. Lenders are accustomed to discounting reserves for these types of factors.

Lenders, however, are not accustomed to discounting reserves to account for the potential risk that they might not be able to realize upon the collateral (i.e. foreclose the liens) in the event the borrower is not able to repay or otherwise defaults on the loan, or the potential risk that the lender may not have priority over subsequent conveyances, liens and claims or over a trustee in bankruptcy. 4 It is not that lenders could not evaluate these risks (and, in fact, they often do when lending in foreign countries), but rather that they are not accustomed to doing so because they are used to dealing primarily with collateral that enjoys the benefits of fairly rigid, clear and specific perfection and foreclosure laws, and courts with jurisdiction to enforce those laws. Even with these fairly rigid, clear and specific laws, lenders invariably require a borrower to provide a formal legal opinion confirming the perfection and enforceability of all liens. In short, lenders require certainty: certainty that their liens will achieve priority over subsequent conveyances, liens or claims; certainty that their liens will withstand any challenge by a trustee in bankruptcy; and certainty that if the loan goes bad they can mitigate their losses by selling the property at a foreclosure sale.

Unfortunately, when dealing with Indian lands, they do not have this certainty; there are no well-established, specific recording and foreclosure statutes or rules of law with respect to Indian lands. The reasons for this uncertainty are because it is not clear that state recording and foreclosure laws apply to allotted lands or tribal lands located within a reservation, most tribes do not have recording or foreclosure laws and there are no clearly applicable federal statutes or regulations. In addition, it is uncertain which courts (federal, state or tribal), have jurisdiction.

While the uncertainty with respect to perfection and foreclosure law is the major impediment to lending in Indian Country, it is not the only one; and there are other uncertainties that impact loans secured by Indian leases. 5 There are, however, procedures that can be followed to reduce the risks associated with those uncertainties. 6


As stated above, the greatest impediments to lending in...

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