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Land Grab Cheats North Dakota Tribes Out of $1 Billion, Suits Allege

A flurry of lawsuits allege the federal government failed to prevent energy companies from swindling the tribes.

| Tue Feb. 26, 2013 7:06 AM EST

Reservation lands are still held in trust by the U.S. government. As a trustee, the Department of the Interior has responsibility for overseeing the development of oil and gas on tribal lands, and for ensuring that any leases or sales of that land are made in "the best interest" of the Native Americans. When it comes to leases to drill for oil—even those negotiated directly between the tribal council and the oil industry—the Bureau of Indian Affairs is required to make sure the leases meet this standard.

The bureau did not respond to a list of written questions, but according to interviews and documents obtained by ProPublica, the bureau approved the leases even though some Interior Department staffers expressed misgivings. Other documents show that tribal members appealed to high-level Interior Department officials and others to reject the leases and step in on their behalf.

"Mr. Secretary, this company, Dakota-3, like the other companies in the oil business will turn around and sell the lease," wrote Russell Mason Sr., a tribal elder, to the Assistant Secretary for Indian Affairs in a December, 2007 letter. "We are making a plea to you that you exercise your trust responsibilities."

"The United States has uniformly failed in its duties to the Indian landowners," states one lawsuit in the U.S. Court of Federal Claims in Washington, D.C. that was brought by tribal landowners seeking restitution for the Dakota-3 leases sold to Williams.

The Dakota-3 deals are not the only controversial ones. For example, a company called Black Rock Resources purchased drilling rights to about 12,800 acres of land for $35 per acre and a 16.7 percent royalty. It later sold those rights to Marathon Oil for about $42 million, according to financial documents that describe the deal.

Messages left for multiple Black Rock Resources officials were not returned, and Marathon Oil did not immediately respond to a message seeking comment.

The Bureau of Indian Affairs approved the Black Rock deal, and documents obtained by ProPublica reveal the sometimes-contradictory advice the Bureau of Indian Affairs received from its own staff and other federal officials.

When Black Rock first offered to buy up reservation leases for $35 per acre beginning in 2005, some bureau staff justified the rates saying the cumbersome regulations and past problems with leasing on the reservation had driven down demand. "Unfortunately," wrote one staffer in a department letter, $35 per acre "is what the market will bear."

But in a review dated November, 2005, an expert at the Bureau of Land Management wrote that the offered price "appears to look low compared to those offered recently at both BLM and North Dakota State competitive oil and gas lease sales in the area." He cited other sales that same month for as much as $370 an acre. An Interior Department lawyer in Washington sent a letter to North Dakota BIA officials expressing similar concerns.

Even at the time, the tribe received higher offers. Jerry Nagel is a tribe member, businessman and former program analyst for the tribe who has been outspoken against leases he thought were being sold for too little. In an interview, he said that he financed a venture in 2006 that offered the tribe $140 per acre plus a royalty rate more than twice as high as the tribal council was offered for the big leases it ultimately signed. It's unclear why the tribal council didn't take that offer, but Nagel claims it's evidence that the council gave preferential treatment to certain suitors.

The tribal council's office did not immediately respond to questions about why the council passed over Nagel's offer.

Kyle Baker is a tribe member, geologist and former environment official for minerals and energy for the tribe. He said that his family struck deals to lease its acreage on and near the reservation for as much as $700 per acre around the same time as the Black Rock deal.

"Companies will come and find your weaknesses and then drive themselves in," Baker said on a recent wintery morning in his living room overlooking Lake Sakakawea. "Our laws, our setup wasn't ready for it."

Companies and the U.S. government have long known that the Ft. Berthold reservation lay in the heart of the oil-rich Williston Basin, a reserve thought by some to contain as much as 20 billion barrels of oil. But previous efforts to lease and drill on the Indian lands stalled in the 1970s, and again in the late 1990s, thwarted by a dense bureaucracy and a tangle of laws governing leasing on reservations.

Only after the advent of modern fracking—and after Congress passed a handful of laws to ease corporate access to the Ft Berthold reservation—did companies begin to invest seriously in drilling there.

Today it's estimated that the three tribes and individual Native American landholders are receiving some $50 to $80 million a year from the drilling leases and royalties, compared with revenues of about $5 million a year before the boom began in about 2006.

But that money has brought allegations of sweetheart arrangements that have left a few tribal members with disproportionate profits from oil development.

In 2011 a team of elders audited the tribal council's activities. They found widespread financial inconsistencies that they said indicated systemic misconduct. "We saw millions of dollars going out and hardly anything coming back" to the Three Affiliated Tribes, said Tony Foote a forensic auditor who chaired the team. "We're not just talking about cash. It's rooms, food, travel, donations, and there's only a handful of people that can get all this stuff."

Hall, the tribes' current chairman, had previously held that post from 1998 until 2006. He didn't deny that there had been corruption, but he said that since he came back into office in 2010 he has focused on reform and on making sure that the oil revenues benefit the broader tribal community. He said he has formed tribal entities to directly control a pipeline and refinery project, set up a $100 million trust fund for the tribes, and begun to sign lease agreements that are more favorable to the Native Americans on the reservation. He also demoted Wilkinson, who is now an administrative officer at the casino, not its CEO.

"I was called back because people were concerned about sweetheart deals, so we have totally changed the dynamic," he said.

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