CHAPTER 7 DRAINAGE ISSUES INVOLVING INDIAN LANDS

• Jurisdiction: United States

Federal Drainage Protection & Compensatory Royalties
(Mar 1994)
CHAPTER 7
DRAINAGE ISSUES INVOLVING INDIAN LANDS
Tim Vollmann
Regional Solicitor's Office U.S. Department of the Interior
Albuquerque, New Mexico

Indian lands, that is, lands owned by or on behalf of Indian tribes or lands allotted to individual Indians, are inalienable in the absence of a federal statute authorizing a conveyance or lease. There are three statutes which today generally authorize oil and gas lease development of Indian lands, all of them administered by the Bureau of Indian Affairs (BIA) of the Department of the Interior. These statutes have been interpreted as giving the Secretary of the Interior broad authority to regulate oil and gas development on Indian lands pursuant to the federal trust responsibility for Indian natural resources. However, BIA regulations often go into little or no detail on issues which periodically confront the oil and gas lessee or operator. Further, the large body of state statutory and case law which generally governs the oil and gas industry is often inapplicable.

The BIA relies on the Bureau of Land Management (BLM) for most of the operational responsibility for oil and gas development on Indian lands. But the principal subject of BLM regulations is oil and gas development on federal lands, and they often fail to address issues which are unique to Indian lands. Indian tribes themselves have recently begun to assume a greater role in the regulation of oil and gas development, sometimes supplanting federal agencies pursuant to an Indian Self-Determination Act contract. The day is coming when tribal regulatory schemes will almost entirely replace BLM and BIA regulations.

This paper surveys the statutory authorities and regulations governing oil and gas development on Indian lands, with a particular focus on the problems which arise in connection with spacing, communitization, and drainage of Indian lands. Jurisdictional conflicts and numerous gaps in statutory and regulatory guidance often require the practitioner to anticipate troublesome scenarios, and to be creative in designing agreements governing oil and gas production on Indian lands. This paper offers some suggestions in that regard, and also points to a number of situations which require the attention of Congress to clarify how orderly development can proceed, consistent with the wishes of the Indian landowners.¹

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I. Introduction: Indian title

An important legal principle that one must understand about Indian lands, if natural resource development and associated real estate transactions are planned, is that such lands are inalienable in the absence of federal legislative authority. Tribal lands are subject to the Indian Nonintercourse Act, originally enacted by the First Congress in 1790 and now codified at 25 U.S.C. § 177.² This statute applies to aboriginal Indian tribal lands, tribal lands within Indian reservations, lands acquired in trust for Indian tribes by the United States, and tribal fee lands which were the subject of Spanish land grants in New Mexico and historic reservations in the original 13 States.³ The Secretary of the Interior has broad authority to acquire fee lands in trust for the benefit of a tribe, thereby clearly subjecting the lands to general rules governing alienability, leasing, and nontaxability of Indian lands.⁴

Indian allotted lands are lands allotted in severalty to individual Indians pursuant to Indian treaties or federal statutes which specifically imposed restrictions against alienation on these allotments for a period of time. The most common of these authorities is the General Allotment Act of 1887, 25 U.S.C. §§ 331 et seq., which provided for the issuance of patents to be held in trust for 25 years,⁵ and for the subsequent issuance of fee patents and subjection to state jurisdiction.⁶ Such trust patents and restrictions against alienation were often extended by executive action, and they were extended indefinitely by Congress in 1934.⁷ However, the individual Indian owners may petition to have fee patents issued and/or restrictions removed.⁸ This takes the land

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out from under federal supervision, but also subjects it to state taxes, and thus is an option rarely chosen by Indian landowners to speed development plans.⁹

Today few original Indian allottees survive, and the current owners of trust or restricted allotments are ordinarily their Indian heirs or devisees. Devolution of interests in allotted land can be complicated, however, with some undivided interests owned by non-Indian heirs and some interests unrestricted even though owned by Indians. The Indian probate process is not a subject of this paper, but the mosaic of allotted Indian title is, of course, a matter of great concern to someone attempting to acquire an oil and gas lease on an allotment. The informed landman normally goes to the local BIA or tribal office to obtain the latest information on ownership of an allotted tract. Some problems posed by fractionated undivided Indian ownership are a subject of this paper.¹⁰

II. Oil and Gas Leasing

A. 1938 Tribal Mineral Leasing Act

Indian tribal lands were the subject of a variety of narrowly-drawn mineral leasing statutes as federal Indian policy evolved in the early part of this century. In 1938 Congress enacted an omnibus authority for the mineral leasing of tribal lands, which is still used today. The Act of May 11, 1938,¹¹ provides in section 1, 25 U.S.C. § 396a, that

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lands owned by any tribe ... may, with the approval of the Secretary of the Interior, be leased for mining purposes, by authority of the tribal council or other authorized spokesman for such Indians, for terms not to exceed ten years and as long thereafter as minerals are produced in paying quantities.

The 10-year-plus term limitation proved to be a problem for the hardrock mining industry, because ten years may not be long enough to amortize a large capital investment, and the provision of the common oil-and-gas lease habendum clause, extending leases during production "in paying quantities" often proved unworkable for mines which close seasonally or are subject to labor strikes or other unplanned shutdowns. This problem was resolved with the enactment of the Indian Mineral Development Act of 1982, 25 U.S.C. §§ 2101 et seq., discussed in Section II.C., below. The statutory reference to "paying quantities" has also raised questions about when a lease expires. BIA regulations do not attempt to define the term.

This issue is now the subject of litigation in federal court in Colorado, involving the expiration of tribal oil and gas leases on the Southern Ute Reservation when the lessee shut in its wells for six months during the "paying quantities" habendum period of the leases, evidently due to the termination of gas purchase contracts with a pipeline company.¹² On appeal from the BIA Superintendent's 1989 notice of expiration, the Albuquerque Area Director determined that whether "paying quantities" are being produced should be judged on a monthly cycle, and that the 6-month period of non-production was more than enough to result in expiration of the lease by its own terms.

The Interior Board of Indian Appeals (IBIA) affirmed the expiration determination, noting that the lessee had obtained no agency permission or tribal consent before shutting in, and that the only BIA regulation authorizing suspension of mineral production, 25 CFR § 211.14a , states:

The Secretary of the Interior or his authorized representative, after obtaining the consent of the tribe, may authorize suspension of operating and producing requirements on mining leases for minerals other than oil and gas whenever during the primary terms of the leases, it is considered that marketing facilities are inadequate or economic conditions unsatisfactory. [Emphasis added.]

The Board further observed that Congress had addressed a similar issue for oil and gas development on federal lands in 1954 when it amended section 17 of the Mineral Leasing Act of 1920, requiring BLM notice prior to expiration plus 60 days within which a lessee

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may place a shut-in lease into producing status in order to avoid termination of the federal lease.¹³ Because Congress made no similar change in the 1938 Act, notwithstanding a published 1942 Solicitor's Opinion on the issue, the Board felt bound to uphold the determination of expiration due to non-production:

[T]he Federal policy governing Indian mineral resources includes a Federal trust responsibility to manage those resources for the benefit of the Indian owners and a rule requiring interpretation of ambiguities in the relevant statutes and regulations in favor of those Indian owners. These characteristics clearly distinguish the Federal policy for Indian mineral resources from the policy concerning mineral resources on the public lands.¹⁴

The question remains, under what circumstances may a lessee shut in a well during the habendum clause period without triggering expiration of the lease for non-production. The Board did not directly address the issue of the validity of the Area Director's "monthly cycle" assessment, in the absence of a regulation providing such guidance, commenting, "[I]nasmuch as neither the [1938 Act] nor 25 CFR Part 211 allow any grace period following cessation of production, appellant's leases technically expired immediately upon cessation of production."¹⁵

However, in a later appeal from a BIA determination that a Navajo tribal lease had expired for want of production, the Board vacated the BIA decision on the ground that the lessee had offered evidence that the well had been shut in because he was trying to comply with another provision of the lease obliging him to prevent waste.¹⁶ The Board's rationale is similarly tied to its interpretation of the government's trust responsibility:

It is simply not reasonable to conclude that...