A decision by the 10th Circuit U.S. Court of Appeals giving theSouthern Ute Indian tribe rights and royalties to natural gasproduced on about 200,000 acres in the San Juan Basin of Coloradopotentially could be used as a precedent impacting 2.4 millionacres of producing properties in six western states, AmocoProduction Co. said last week.

The appellate court’s 6-3 decision (Docket No. 94-1579) reversesa 1994 decision by a lower court. That decision was in favor of keydefendant Amoco, 3,000 other mineral interest owners and a numberof other gas companies that have produced coal gas from the areafor years.

Amoco said about 300 of the 600 wells it operates in the SanJuan Basin of southern Colorado “are impacted,” and noted thedecision may eventually extend to some owned and operated by manyother companies. The company wouldn’t estimate the potential costother than to say it would be much less than $1 billion if thecourt decision stands. An attorney for the Ute Indians placed thecost to Amoco at several hundred million dollars. Amoco has forseveral years suspended royalty payments to mineral owners pendinga final, unappealable decision, the company said. The royalties arebeing held in interest-bearing escrow.

“There is lots of confusion around the issue right now,” said anAmoco representative in the company’s Denver office. The Court ofAppeals focused on natural gas from coal beds below some 200,000acres of the 700,000-acre Southern Ute Reservation, land originallyreserved to the U.S. government by Congress in the Coal Land Actsof 1909 and 1910. The government returned its interest in the coalto the Ute tribe in 1938, prompting the tribe to claim in itsoriginal 1991 court action that it owns not only the coal, but alsothe natural gas released by the coal as well.

Amoco and the other defendants acknowledged the Ute tribe ownsthe coal, but not the natural gas released by it. The gas, saidAmoco, is owned by the descendants of the homesteaders who movedonto the reservation at the turn of the century. It was thosehomesteaders who struck deals with Amoco and other companiesallowing the gas production. Amoco has produced coal-bed gas fromthe area since the mid-1980s.

To combat the decision, Amoco and the other defendants must takethe case to the U.S. Supreme Court within 90 days, a move that’scurrently being considered. Without being specific, Amoco said ithas “other defenses” it may use in a lower court that will restoreits position. Company attorneys are looking closely at variousoptions, the representative said. The Utes claim they are owedroyalties going back to 1991 when they filed suit. Amoco attorneysindicated one defense might be based on the statute of limitationsand the fact that by the time the suit was filed, coal-gasproduction was well-established.

The decision follows a three-judge appellate panel ruling inJuly 1997 that sided with the Ute tribe. Amoco was granted arehearing before the full 10th Circuit in mid-March. In short, the10th Circuit concluded the intentions of Congress in the 1909 and1910 legislation were not clear on the point of coalbed gas. Legalprecedent calls for “uncertainty” to be decided in favor of thegovernment 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, butthat was something the government could not foretell. This courtdecision, if allowed to stand,could also impact the royaltyrights to coal-gas production from 20 million acres ofgovernment-owned land in a number of western states.

“The direct legislative history of the coal land acts indicatesthat Congress intended a reservation of coal that encompassed boththe present and future economic value of the coal,” the court saidin its 42-page ruling.

“We will pursue this, we’re not giving up,” the Amocorepresentative said. Controversial court cases often swing back andforth from one party to another and this case “won’t be resolvedfor a very long time,” the company said.

Theo Mullen, Denver

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