Concerns still exist about Supreme Court ruling’s impact on Oklahoma’s energy industry


While the State Attorney General deals with dozens of criminal cases that could be reversed, refiled or at worst, dropped as a result of the recent Supreme Court decision, there remain many questions regarding the impact on Oklahoma’s energy industry.

We recently reported Attorney General Mike Hunter stated that oil and gas leases would not be impacted by the ruling that stemmed from a state criminal case involving a crime on Indian land. The ruling certainly caught the attention of some national media, including the Washington Post.

Here is how the Post reported what the ruling might mean for Oklahoma’s oil and gas industry.

A crash in prices. A round of bankruptcies. And wave after wave of layoffs.

On top of all the turmoil Oklahoma oil producers have had to deal with since the start of the coronavirus pandemic, the Supreme Court has added another item to that list: a landmark decision declaring 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.

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 of Oklahoma, oil producers may soon have to contend with both tribes and the federal government, which often manages land for Native Americans.

“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 across those 3 million acres — ones that 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.”

 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.

Still, after having dealt with federal restrictions to protect an endangered beetle while drilling in Indian country, which could hold him up for months at a time, he says his big fear now is federal regulation.

“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.

Brook A. Simmons, head of the petroleum alliance, said he was concerned about retaining property rights for existing owners. “Our focus, really, is just making certain that our members continue to have a stable, predictable regulatory and tax environment,” 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.

Elizabeth Kronk Warner, dean of the University of Utah’s law school, said a major consequence for oil producers on the reservation may be two layers of taxes — one from the state and another from the tribes.

“The biggest impact there would likely be taxation,” she said.

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

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.

“A differently disposed White House could create hurdles to the smooth transfer of regulatory oversight,” said Kevin Book, a managing director at the research firm ClearView Energy Partners.

And 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.

The Creek Nation is cautioning that no final decisions have been made about what they will ask of Congress. “There’s a lot of work to be done before we know what that looks like,” tribal spokesman Jason Salsman said.

But in the past, the Oklahoma tribes have asserted their rights over natural resources.

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

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

Bartlett, the former Tulsa mayor, has had to shut in about a quarter of its 100 or so wells because of the drop in oil prices since the coronavirus pandemic began.

He said he worries investors may be less interested in working with drillers in eastern Oklahoma — especially when similar opportunities exist in the western half of the state and across the border in Texas.

“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.

Already at least one company — Houston-based producer Alpha Energy Inc. — is warning investors it faces potential legal risks in its leasing of 3,400 acres in the state.

“The impact of this decision on title to the lands and leases included in the Project is uncertain at this point, and the Company will continue to monitor developments concerning the effects of this decision,” the company said Wednesday in a note to investors.
 As all these issues are worked out with yet more court cases, the uncertainties for Oklahoma oil producers are likely to linger longer than the coronavirus crisis — unless Congress acts.

“This will be a very, very lengthy process,” Bartlett said. “Several decades, I would think.”

Source: Washington Post