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Appellate Court Rules Utes Own Rights to Colorado Coal-Seam Gas

Appellate Court Rules Utes Own Rights to Colorado Coal-Seam Gas

A decision by the 10th Circuit U.S. Court of Appeals giving the Southern Ute Indian tribe rights and royalties to natural gas produced on about 200,000 acres in the San Juan Basin of Colorado potentially could be used as a precedent impacting 2.4 million acres of producing properties in six western states, Amoco Production Co. said last week.

The appellate court's 6-3 decision (Docket No. 94-1579) reverses a 1994 decision by a lower court. That decision was in favor of key defendant Amoco, 3,000 other mineral interest owners and a number of other gas companies that have produced coal gas from the area for years.

Amoco said about 300 of the 600 wells it operates in the San Juan Basin of southern Colorado "are impacted," and noted the decision may eventually extend to some owned and operated by many other companies. The company wouldn't estimate the potential cost other than to say it would be much less than $1 billion if the court decision stands. An attorney for the Ute Indians placed the cost to Amoco at several hundred million dollars. Amoco has for several years suspended royalty payments to mineral owners pending a final, unappealable decision, the company said. The royalties are being held in interest-bearing escrow.

"There is lots of confusion around the issue right now," said an Amoco representative in the company's Denver office. The Court of Appeals focused on natural gas from coal beds below some 200,000 acres of the 700,000-acre Southern Ute Reservation, land originally reserved to the U.S. government by Congress in the Coal Land Acts of 1909 and 1910. The government returned its interest in the coal to the Ute tribe in 1938, prompting the tribe to claim in its original 1991 court action that it owns not only the coal, but also the natural gas released by the coal as well.

Amoco and the other defendants acknowledged the Ute tribe owns the coal, but not the natural gas released by it. The gas, said Amoco, is owned by the descendants of the homesteaders who moved onto the reservation at the turn of the century. It was those homesteaders who struck deals with Amoco and other companies allowing the gas production. Amoco has produced coal-bed gas from the area since the mid-1980s.

To combat the decision, Amoco and the other defendants must take the case to the U.S. Supreme Court within 90 days, a move that's currently being considered. Without being specific, Amoco said it has "other defenses" it may use in a lower court that will restore its position. Company attorneys are looking closely at various options, the representative said. The Utes claim they are owed royalties going back to 1991 when they filed suit. Amoco attorneys indicated one defense might be based on the statute of limitations and the fact that by the time the suit was filed, coal-gas production was well-established.

The decision follows a three-judge appellate panel ruling in July 1997 that sided with the Ute tribe. Amoco was granted a rehearing before the full 10th Circuit in mid-March. In short, the 10th Circuit concluded the intentions of Congress in the 1909 and 1910 legislation were not clear on the point of coalbed gas. Legal precedent calls for "uncertainty" to be decided in favor of the government or its successors, in this case the Ute tribe.

At the time of the government's action, coalbed gas was known, but considered a serious hazard to coal miners, not a resource. Technology and other changes evolved the gas into a resource, but that was something the government could not foretell. This court decision, if allowed to stand, could also impact the royalty rights to coal-gas production from 20 million acres of government-owned land in a number of western states.

"The direct legislative history of the coal land acts indicates that Congress intended a reservation of coal that encompassed both the present and future economic value of the coal," the court said in its 42-page ruling.

"We will pursue this, we're not giving up," the Amoco representative said. Controversial court cases often swing back and forth from one party to another and this case "won't be resolved for a very long time," the company said.

Theo Mullen, Denver

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