Supreme Court decision declaring half of Oklahoma Indian land raises big questions for oil drillers

Source: By Dino Grandoni, Washington Post • Posted: Monday, July 20, 2020

Oklahoma’s oil industry, already beset by the coronavirus pandemic, now is dealing with the uncertainty stemming from a major Supreme Court decisiondeclaring nearly half of eastern Oklahoma to be Native American land.

With the high court’s ruling, oil and gas drillers in the nation’s fourth largest oil-producing state suddenly find themselves operating within the Muscogee (Creek) Nation and four other tribal reservations.

About a quarter of Oklahoma’s recent oil and gas wells and around 60 percent of its refinery capacity now lie within the territory of five tribes — the Cherokee, Chickasaw, Choctaw, Creek and Seminole — according to the research firm ClearView Energy Partners.

Perhaps more importantly, the network of pipelines pumping crude to and from Cushing, Okla. — a crucial oil terminal for the Keystone XL — spider-web across the redrawn reservation borders.

Instead of dealing with business-friendly regulators from the state, oil producers may soon have to contend with both tribes and the federal government.

“The reality is that there’s something potentially that could be very detrimental to the oil and gas industry,” said Dewey Bartlett, a former Tulsa mayor who runs Keener Oil & Gas Company, a five-person oil and gas production and exploration firm with most of its wells now in Indian country.

With Americans driving and flying less during the viral outbreak, U.S. oil prices have dropped by a third since the start of the year. Oklahoma’s shale fields, where extraction costs are relatively high, are among the hardest hit during the pandemic. One of the state’s biggest energy firms, the fracking pioneer Chesapeake Energy, has already declared bankruptcy.

The 5-to-4 decision, written by Justice Neil M. Gorsuch and joined by the court’s liberals, ostensibly deals with criminal law for the ancestors of those forced to march the 19th century Trail of Tears into present-day Oklahoma.

But the majority opinion writers acknowledge the ruling raises big questions over taxation and the enforcement of environmental rules.

Those questions may take years to settle. “In reaching our conclusion about what the law demands of us today, we do not pretend to foretell the future and we proceed well aware of the potential for cost and conflict around jurisdictional boundaries, especially ones that have gone unappreciated for so long,” Gorsuch wrote in McGirt v. Oklahoma. “But it is unclear why pessimism should rule the day.”

One major consequence for oil producers on the reservation may be two layers of taxes — one from the state and another from the tribes.

And the Bureau of Indian Affairs and other federal agencies may end up getting authority to run clean-air programs in new areas and crucially, to renew right of way grants for existing pipelines. Seven major crude oil pipes cross into Creek territory.

State officials are trying to reassure the industry at an already uneasy moment.

In a teleconference organized by the Petroleum Alliance of Oklahoma trade group soon after the July 9 decision, Oklahoma Attorney General Mike Hunter (R) sought to reassure oil producers that their business wouldn’t be upended and the state would keep their interests in mind.

Robert Sullivan Jr., an independent Tulsa-based oil producer who once served as Oklahoma’s energy secretary, took comfort in Hunter’s comments. “Oklahoma has been a very good place to do business,” he said.

He says his big fear now is federal regulation. Complying with federal restrictions to protect an endangered beetle while drilling in Indian country, for example, have held him up for months in the past. 

“One of the things we were concerned about in the McGirt aftermath is that we, being Oklahoma producers, would lose the source of regulation from one place, the Oklahoma Corporation Commission, and start getting regulated by somebody from Washington,” he said.

On Thursday, Hunter and the five tribes came to an agreement for a legislative proposal to Congress that would give the Native American groups the right to collect taxes and grant them some authority over anything deemed to threaten the “welfare” of a tribe — a potential, though not certain, opening for environmental regulations.

The Petroleum Alliance of Oklahoma said it needed to study the agreement more before commenting.

Oklahoma’s Republicans in Congress are eager to pass a version of the proposal from Hunter and the tribes. But congressional Democrats, concerned about climate change, may not be if doing so denies Joe Biden, the party’s presumptive presidential nominee, leverage over the state’s oil and gas activity.

The Creek Nation cautions no final decisions have been made about what they will ask of Congress.

But the Oklahoma tribes have asserted their rights over natural resources before.

“There’s a lot of work to be done before we know what that looks like,” tribal spokesman Jason Salsman said.

In 2011, the Chickasaw and Choctaw sued Oklahoma City for withdrawing water from Sardis Lake. They settled out of court.

Even if President Trump wins a second term, environmentalists are increasingly joining with Native American groups to protest and sue to stop pipeline projects — most notably Dakota Access pipeline in North Dakota.

Ultimately, all that uncertainty weighs heavily on oil producers and their financial backers when making decisions about where to drill next.

“There would be that overlying concern that would be in addition to the investment itself in an industry that is somewhat risky already,” Bartlett said.