Tribal council, Osage oil producers challenge impending regulations

Mike ErwinJournal-Capital

TULSA — Lawsuits challenging controversial regulations for Osage County oil-and-gas producers call a federally-imposed new rule “unconstitutional, arbitrary, capricious, ambiguous” and claim it is “detrimental to the oil producers as well as the Osage Mineral Estate.”

In separate petitions filed last Wednesday in United States District Court at Tulsa, the Osage Producers’ Association (OPA) and Osage Minerals Council (OMC) ask for a judicial review of the new regulations and call for an examination of the process which spawned them.

The rule revision was announced May 11 by the Department of Interior’s Bureau of Indian Affairs (BIA) and is scheduled to go into effect this Saturday — July 11.

The Minerals Council alleges the regulations are “unnecessary,” “needlessly burdensome” and would make it impossible for lease-holders to continue operating in Osage County. According to the OMC suit, the rule change “is destroying development of the (Osage) mineral estate.”

OPA members say the rules, “are not properly tailored to achieve the BIA’s legitimate government purpose in Osage County, which is to manage the Osage mineral estate for the benefit of the Osage Nation, taking into account the right of the Lessees to produce oil and gas in an economic and efficient manner.”

“To the contrary, the final rules do precisely the opposite,” OPA member Jamie Sicking said.

Producers also claim the rule “constitutes unlawful taking without just compensation” by the Government. Without proper and fair regulations, lease operators “will take their expertise and capital and will drill and operate wells elsewhere, and the Osage Nation mineral estate will suffer,” the OPA suit states.

Named as respondents/defendants in the suits were the U.S. Department of the Interior and Secretary Sally Jewell, as well as the BIA and its director, Michael Black. Both ask for judicial review of the final agency action regarding Leasing of Osage Reservation Lands for Oil and Gas Mining.

The BIA recently sponsored six informational sessions were recently held at Pawhuska’s Wah-Sha-She Cultural Center. When the sessions ended, “more questions had been left unanswered than were answered,” one participant said afterward.

The OMC petition states that input from the oil producers and landowners “fell on deaf ears, and the end result was higher royalty pricing would be imposed on all producers, thereby negatively impacting the returns to Osage shareholders.”

A unique arrangement approved a year before Oklahoma statehood allowed Osage tribal members to retained ownership of the mineral rights on their former reservation — which covered approximately 1,476,560 acres (or nearly 250 square miles).

The rule change ostensibly resulted from nearly three years of negotiations mandated as part of a 2011 settlement between the Osage Nation and Department of the Interior (BIA) after the federal government paid tribal members $380 million for alleged mismanagement of trust accounts.

Producers say their expenses would increase dramatically under the new plan. In addition, they contend the revised regulations are much more stringent and compliance will require considerably more time and effort.

“This will have devastating effects on the small-time lessees,” added Rob Lyon, a former OPA president. “Operators won’t be able to turn around without somehow being in non-compliance.”

Lyon said these regulations will impact Osage County’s entire economy. It also may forever alter the relationship between the BIA and the Osage Nation, he added.

“If this runs out all the operators, the BIA will have nothing to manage for the Osage Mineral Estate,” Lyon said.

A scheduling conference for the Osage Producers’ Association case is listed on the Wednesday afternoon docket of the Tulsa court’s Chief Judge, Gregory Frizzell. No mention of the Minerals Council case could be found in available online records. (Coincidentally, it was Frizzell who four years ago ruled against the Osage Tribe on its legal challenge to the construction of wind-energy developments in the county.)

Earlier this year, Sicking had made a prediction about the possibility of legally blocking implementation of the new oil-and-gas regulations.

“If the (Osage) Minerals Council gets involved, the fireworks will start,” the OPA member said.

Three days before the Fourth of July, those expectations were indeed validated.