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Refineries An Option for Native Americans to Overcome Energy Growth Roadblocks, Says Expert

With numerous roadblocks to energy development on Native American tribal lands, the complex industrial development that accompanies petroleum refineries may be a way for some tribes to get into the energy sector in a big way, according to Denver-based attorney.

 "Because the bulk of the U.S. refineries are on the Gulf Coast, every time the hurricanes roll in, the nation loses a lot of its refining capacity," said attorney Scot Anderson of Hogan Lovells US LLP in Denver. He spoke Tuesday in Albuquerque, NM, at Law Seminars International's "Tribal Energy in the Southwest" conference.

U.S. refining capacity today is principally geared to breaking down heavy crudes such as the ones imported from overseas in places like Saudi Arabia, he noted.

"So having more refining capacity off the Gulf Coast that can handle U.S.-generated lighter supplies would be a great thing because there is just not enough of that capacity.”

Refining could be one of the prospective energy development areas that the numerous tribal reservations in the Mountain West region could look at in the years ahead, Anderson said. However, development on tribal lands is complex.

Louis Denetsosie, CEO of the Navajo Nation Oil & Gas Co., said various permitting among the federal agencies involved and the tribal regulatory structure can easily consume three years before a project is even close to breaking ground.

"According to our own analysis, the overall permitting process can take three to eight years, although I think eight years is an outlier," Denetsosie said.

Congressional committees regularly have tribal leaders testify, and they often ask why developing natural resources on reservations takes so long, he said. Tribes generally are first and foremost concerned about the stewardship and control of their own resources and getting "fair value" for those resources.

"The No. 1 comment I always hear is 'too many permits,’” Denetsosie said.

Paraphrasing a leader of the Southern Ute Indian Reservation, a major oil and gas developer in southwest Colorado, Denetsosie said Native Americans are "the best stewards of our own resources, and the best stewards of our own destiny."

For the Navajo oil and gas executive, "that pretty much says it all,” because the Southern Utes have had a “successful and focused" approach to energy development that other tribes are trying to emulate.

A key for a prospective refinery or any other large energy development is to determine early what its capital return would be to a tribe, said Anderson. He said a full range of economic multipliers also need to be taken into account from jobs to operational impacts on the reservation.

From a tribe’s standpoint, leaders “want to determine where the optimum point is to key a fair return for the sovereign [tribe] and still not chase investment away from making it an economic project," Anderson said. A reputable third-party is needed to make that calculation on the economics, aside from another source making a similar assessment of political risks, involving the issues of tribal sovereignty, he said.

Agreements can be made between a tribe and project developer, "but if you don't get a waiver for sovereign immunity, then the agreement is not enforceable," Anderson said.

Finally, there are legal issues, particularly procedural issues, and whether energy developers are open to having disputes resolved by the tribal court system. Companies often have to understand and get comfortable with "things peculiar to tribal decision-making,” he said.

One aspect companies also have to understand is the array of federal agencies involved in oil and gas projects, including the Bureau of Land Management, Bureau of Indian Affairs and the Environmental Protection Agency.

"It may be a matter of deciding whether to drill an oil or gas well on tribal lands or state lands, and the regulations will vary greatly between the two," Anderson said.

Feasibility studies are a key component, again from the tribes' and companies' perspectives, needing to know the project's flexibility and what the potential returns are.

Asked Anderson, "If I drill my first hole and it's a duster, not as good as I thought it was, can I get out [of the agreement] or do I have to drill five more dry holes before I am done?" 

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