# Opposition Brief — Southern Union Co. v. Jicarilla Apache Tribe > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385018_2327%3A04 ## Record - **Collection:** Supreme Court brief - **Document type:** Opposition Brief - **Published:** January 1, 1986 - **Citation:** 479 U.S. 970 ## Text i wMererires Vit, UL, | FILED Nos. 86-225 SEP 17 1066 86-219 ~ JOSEPH F. SPANIOL, JR, 86-224 - | ee ee IN THE Supreme Court of the GQnited States OCTOBER TERM, 1986 SOUTHERN UNION COMPANY, UNICON PRODUCING COMPANY, SOUTHLAND ROYALTY COMPANY, and EXXON CORPORATION, Petitioners, V. JICARILLA APACHE TRIBE, DONALD P. HODEL, Secretary of the United States Department of the Interior, and STATE OF NEW MEXIco, Respondents. On Petition For a Writ of Certiorari To The United States Court of Appeals For The Tenth Circuit BRIEF IN OPPOSITION OF RESPONDENT JICARILLA APACHE TRIBE ROBERT J. NORDHAUS B. REID HALTOM NORDHAUS, HALTOM, TAYLOR & TARADASH 507 Roma N.W. Albuquerque, New Mexico 87102 Tel: 505-243-4275 Counsel for Respondent Jicarilla Apache Tribe PRESS OF BYRON S. ADAMS, WASHINGTON, D.C. (202) 347-8203 QUESTIONS PRESENTED Petitioners have presented eleven different ques- tions in four separate Petitions for a Writ of Certiorari. Respondents submit, however, that the real issues are the following: 1. Whether the Secretary made an earlier admin- istrative determination of value or had in fact merely accepted the Petitioners’ royalty payments without review or audit. 2. Whether the Secretary’s determination that dual accounting was required was reasonable and in ac- cordance with the Secretary’s fiduciary obligation. 3. Whether the Secretary’s interpretation of the regulations and his requirement of an accounting by the Petitioners involves an important question of fed- eral law warranting consideration by this Court. ii LIST OF PARTIES In order to clarify the relationship of the parties at the times pertinent to this case, Respondent sets forth the following relationships of the parties that have existed during the periods the leases were en- tered into and amended and during the periods the gas purchase contracts in suit were executed by the parties. The predecessor of Southern Union Company was Southern Union Gas Company. Gas Company of New Mexico was the operating division in New Mexico of Southern Union Gas Company. As set forth in note 2 on page 6 of Southern Union Company’s (SUG) brief, Southern Union sold substantially all of the as- sets of Gas Company of New Mexico (GCNM) to Pub- lic Service Company of New Mexico (PNM). SUG claims that as part of that sale, SUG retained certain liabilities including liability up to date of sale for ad- ditional royalties which may be assessed in this liti- gation. SUG does not state what the disposition would be of royalties held by the District Court in escrow or additional royalties paid to the Tribe since judg- ment and reimbursed to the producing companies by SUG. Counsel for SUG has advised counsel for Respondent that the Public Service Commission of New Mexico would determine what the disposition would be of any proceeds heretofore paid by the tribe and reimbursed by SUG to the other producing Petitioners under contracts for reimbursement with SUG, in the event the District Court decision is re- versed. Southern Union Production Company (SUPC), pred- ecessor of Supron Energy Corporation (Supron), now iil Unicon Producing Company, was a wholly owned sub- sidiary of Southern Union Gas Company when the leases from the Jicarilla Apache Tribe (the Tribe) were issued to SUG, and the gas purchase contracts at issue herein were executed by SUG and SUPC. The predecessor of Southland Royalty Company (Southland), Aztec Oil and Gas Company (Aztec), was a wholly owned subsidiary of SUG when the leases from the Tribe were issued to SUG and the gas pur- chase contracts at issue herein were executed by SUG and Aztec. The importance of the relationships of these parties to the issues in this case is set forth below in this brief. iv TABLE OF CONTENTS Page COTIOOGD PUNT anc vasececd icccsdckecdeevcccicaincrerive i I is yin he. ease cadeneanignaies ientucrios il BA RIN wel ccusesivsusdccciapinndesndicieaveanetenion iv ER GF FTG varenscbnsicsvsscscdesnntasiccinsesvevens vl inks cai co vnnevacineieieecinlenaitinbeseestin 1 ASAD Raa eee EP ee SORA ER RRO oP eT 1 STATUTES AND REGULATIONS INVOLVED .............000 1 TE FE A iin evinces cneictivcnscestincgesdetes 1 Sy WE I a si esucaieraancnispccmietinnsevnns 5 REASONS FOR DENYING THE WRIT .............ccceeceeeees 11 I. THE SECRETARY’S REQUIREMENT OF DUAL ACCOUNTING AND DETERMINA- TION OF VALUE WAS REASONABLE UNDER STANDARDS OF ADMINISTRA- TIVE LAW AND REQUIRED BY HIS FI- DRUCTARY GCULIRA BIN vcccsnsncsssscensscarcticess 11 A. The Secretary Has a Broad Fiduciary Ob- ligation to the Tribe Which Mandates a Determination of Value Independent of PrOCOGGS £0 LPBSORS. ..cccscsscesssessesccssovseess 11 B. The Secretary Made No Determination of Value or Interpretation of Law and Reg- ulations as to Dual Accounting Prior to TO I TG crvirctecxcesetarsoncsenssayses 14 C. The Secretary Of The Interior Cannot Be Bound By a Prior Interpretation of “Value,” That Did Not Exist. ............... 17 D. The Oil Companies Were Correctly Re- uired to Employ Dual Accounting In Or- der To Determine Value Under The Leases And The Regulations. ................ 18 E. The Leases Require Royalties to be Paid Ce BNE URIBE ccevcsssssesnccasancraninceces. 23 II. THE DECISION OF THE COURT OF APPEALS IS NOT IN CONFLICT WITH ANY COURT OF APPEALS DECISION NOR ANY DECISION OF THE SUPREME COTTER © 0ibiéachasisadstbmapiaveeniniaidddeaiiiuniatanisiseeenion 5 Continental Oil Co. v. United States, 184 F.2d 802 SE PY. SIE ~ sercnecaehunesscmenetunainesummncnannsinsens 18 Hoover & Bracken Energies, Inc. v. Dept. of Inte- rior, 723 F.2d 1488 (10th Cir. 1988) ........... 13 Immigration & Naturalization Service v. Stanisic, 395 U.S. 62 (1969), reh. denied, 395 U.S. 987 EIT | sereortcnpnette secs. caks ests chsrmocsatennsneaencs ebomeasnenddadlec 18 Jicarilla Apache Tribe v. Supron, 728 F.2d 1555 I GE Oo sslhsssacPcaceeinnnciicenanieneenieoiegabaneaedeniss 4-5 Kenai Oil & Gas, Inc. v. Dept. of Int. of U.S., 671 if © Fi. ht Ae |) Beeenenrernmmnnnennnennn zi Lightcap v. Mobil Oil Corp., 221 Kan. 448, 562 P.2d 1, cert. dented, 434 U.S. 876 (1977) _ ............ 23 Marathon Oil Co. v. United States, 794 F.2d 1461 CR as TIE vanccssniensencaensnnecsscenst viens: 25 Mountain States Telephone & Telegraph Co. v. Pueblo of Santa Ana, 472 U.S. __, 105 es I, I pada acctearcicenctaseskévandinwns 24, 25 Nevada v. United States, 463 U.S. 110 SIE "cacao eeiiesaealic eabshs oascadieetanmbbketiemuaiapnen 5, 24, 25 Rice v. Sioux City Cemetery, 349 U.S. 70 SO ek ikiaiai ia Luda ea eaten aidaeie us iacabbiiesanclaivass 26, 27 Rudolph v. United States, 370 U.S. 269 INNIS “ssicsat ateacuabicuics ccapiidutentciatadseaneniiadetunes la APPENDIX B—Testimony of Mr. Jack Hertz, Vice President of Gas Company of New Mexico. (10 C.A. App. Vol.IV, A- SEL nisswisctcidcvutaniteniniinasiiaisiens 2a APPENDIX C—Natural Gas Prices—Summary. (Plaintiff's Exhibit 64).* ............ 5a APPENDIX D—Opinion No. 658, Federal Power Commission, p. 28 (10 C.A. App. VOR. Vek, BTR)... crevcnssecssrssseceess 6a APPENDIX E—Amendment of Gas Processing Agreement. (10 C.A. App. Vol. Wie PPR. pecavesncxensMbecrasessess 8a APPENDIX F—Gas Processing Agreement dated May 1, 1972 between Southern Union Gas Company and Southern Union Production Company. (10 C.A. App. Vol. VII, A-1221). ..... 10a APPENDIX G—Letter from Hubert Velarde, Pres- ident, Jicarilla Apache Tribal Coun- cil to Honorable Rogers C.B. Morton dated June 29, 1973. (10 C.A. App. Vol. I, A-20-22). ......... 13a * Plaintiff's trial exhibits are exhibits of Respondent herein. il APPENDIX H—Memorandum to Secretary of the Interior from Commissioner of In- dian Affairs dated July 29, 1974. (Plaintiff’s Exhibit 29, No. 10).* 17a APPENDIX I—Attachment A to Appellant’s Motion to Require Appellees to File Addi- tional Bond or Other Security. (Filed July 10, 1986 in 10th Circuit Court of Appeals, by Respondent FOUGTED, sccevssscecsedeoeeeiin. Abies 19a APPENDIX J—Stipulation for Settlement. (10 C.A. App. Vo:. VII, A-1297-1301). ....... 20a APPENDIX K—42 Federal Register 40263, August 9, 2907. ocnccicckcareeeee 25a SOUTHERN UNION GAS CO.* SOUTHERN UNION CO. * GAS CO. NEW MEXICO * DELHI OIL & GAS CO.* HONOLULU OIL la APPENDIX Summary—Lease Assignments and Ga (Plaintiff's Exhibit AZTEC OIL* (SOUTHLAND OIL) —T-1-55 ASSIGNED 100(/,), 101('/,), 103('/,), 105('/,), 106('/,) 145('/,), 150('/,), 153(/,), 12-17-66 ACQ. 397, 3-24-69 ACQ. . 12-12-53 1950-72 SOUTHERN UNION PRODUCTION CO.* (SUPRON)* 1972-76 71%, 1 1-1-61 ASSIGNED 10, 47, 100(‘/,), 103(/,), 104('/,), 105(*/,) 106('/,), 107('/,), 145(/,), 150('/,), 153('/,), 5-18-69 ACQ. 417 AND 41 1-1-61 HUMBLE OIL (EXXON) 5-20-52 ASSIGNED 104('/,) AND 107('/,) CONSOLIDATED 8-12-64 ASSIGNED 106('/,) 11-15-63, 12-4-63 TENNECO 9-1-64 ASSIGNED 108'/,), 109('/,), 110(*/,) 10-21-64 ATLANTIC (ARCO) 3-7-52 ASSIGNED 108('/,), 110('/,), 12-9-52 ASSIGNED 106 10-21-64 CONTINENTAL 9-1-64 ASSIGNED 108('/,), 109('/,), 110(*/,) 10-21-64 PANAM (AMOCO) 10-3-61 ASSIGNED 102 10-25-56 SKELLY = 198('/,) 11-2-60 SINCLAIR 198('/,) 11-23-60 A is Purchase Contracts 5) 116 _____. GAS PURCHASE CONTRACT SUG* (GCNM)* 100% GAS PURCHASE 976-PRESENT 28'/,% O&G 100% GAS PROCESSING CONTRACT SUG* (GAS PURCHASE CONTRACT SUG* (GCNM)* 3 _(3AS PURCHASE CONTRACT EL PASO NATL. GAS GAS PURCHASE CONTRACT SUGC* 9-27-54 _____ -. GAS PURCHASE CONTRACT SUG*(GCNM)* GAS PURCHASE CONTRACT SUG* _______ GAS PURCHASE CONTRACT SUG*(GCNM)* GAS PURCHASE CONTRACT EL PASO ____.__GAS PURCHASE CONTRACT SUG*(GCNM)’* ______. GAS PURCHASE CONTRACT SUG*(GCNM)* ___... GAS PURCHASE CONTRACT SUG*(GCNM)* ______. GAS PURCHASE CONTRACT SUG*(GCNM)* __._ GAS PURCHASE CONTRACT SUG*(GCNM)* __... _—: GAS PURCHASE CONTRACT SUG*(GCNM)’* i ee an ee eee - “tes = 2a APPENDIX B TESTIMONY OF MR. JACK HERTZ, VICE PRESIDENT OF GAS COMPANY OF NEW MEXICO (10 C.A. App. Vol. IV, A-639-642) * * * * * Q Now, Mr. Hertz, I’m still a little bit unclear about all these corporate relations. As I understand it, Southern Union Company is a Delaware corporation, is that right? A Southern Union Corporation is a Delaware corporation. Q And it operates a public utility business through two separate divisions? A Yes. If I may, the company previously was Southern Gas Company. The Southern Gas Company owned util- ity operations in four states: Texas, Oklahoma, New Mexico and Arizona and April of 1976, the Board changed the name of Southern Union Gas Company to Southern Union Company, a Delaware corporation. Two public utility divisions were created; one, Gas Company of New Mexico, a Division of Southern Union Company, operating, owning and operating properties in New Mexico; and Southern Union Gas Company, a Division of Southern Union Company, owning and operating the natural gas public utility properties and in fact, a few water properties in Texas, Oklahoma and Arizona. The two divisions were then of about equal size. The division concept of operation is certainly not unusual. The reason for creating divisions rather than subsidiary cor- porations is very basic. It’s to avoid the complications of further requirements of the Public Utility Holding Com- pany Act of 1975, which basically requires that any cor- poration that owns more than ten percent of the stock of a corporation engaged in the public utility business is sub- ject to the Holding Company Act. 3a Q Now, as we're talking as of today, Gas Company of New Mexico is a Division of Southern Union Company and what was, and the name of Southern Union Gas Company belongs to another Division of Southern Union Company? A That’s correct. Q There’s no corporate relationship between Southern Union Company and Southland Royalty Company, is there? A There is not now nor has there ever been. Q And the only relationship between those two companies is the contractural relationship by virtue of the Natural Gas Purchase Contract that Southland succeeded to when it purchased Aztec? A That’s correct. Q Now, would you explain what the business of Gas Com- pany of New Mexico is? A Gas Company of New Mexico is engaged in the natural gas public utility operation, purchasing gas at various points throughout the State, through wellhead pur- chases and transportation of gas through its own gath- ering systems. Purchases of gas from Southern Union Gas Company, a wholly-owned gas company of Southern Union Company, operating in Northwest New Mexico and performing a swing function of being able to take gas production from the San Juan Basin, from the so-called jurisdictional or FPC-regulated gathering system and making those sales to the Gas Company of New Mexico when the market will not absorb those quantities of gas, namely in the sum- mertime. They sell those to El] Paso, executed in 1973. 4a The Gathering Company assumed this function in 1958. At times when the Gas Company of New Mexico requires this gas supply for its New Mexico market to meet its winter peaks and higher load demands, that gas swings to Gas Company of New Mexico from the interstate mar- ket. Q The Gathering Company is a separate corporation, though? A Gathering Company is a separate Delaware corporation, authorized to do business in New Mexico. Q And it’s a wholly-owned subsidiary of Southern Union Company? A Yes. Q What is Southern Union Refining Company? A Southern Union Refining Company is now a wholly- owned subsidiary of Southern Union Company and is also a Delaware corporation. * * kK * * 5a bI# 6L-08- Wodey sayseg aq ‘S’D'S'n Aq payddns weep uo paseg . ‘Sexo, “BWOYe|YQ ‘euvisino7y ‘sesuey ‘eIulosye) ‘Papnouy sayejg ‘Adisuqy jo ‘qdaq ‘maway hbsaug hyyjuop , ‘ava Aq SOLMBWUNG “UOISSIWIWOD Bununodoy Set) puke [IO OdIxa| MAN , ‘08h ‘(L99°) 8IF ‘EST ‘IST ‘OST ‘LPL ‘GPT ‘GZ ‘VEL ‘G21 ‘TZI ‘(OI") OIL (220°) BOT ‘ZOT ‘90T “SOT ‘KOT ‘gor “(ZIF) ZOL ‘LOT ‘OOT ‘LL ‘9L “68 ‘88 ‘(0S") OL¥ sasearT - ‘(L99') SIF ‘SST ‘OST ‘ShI ‘LOI ‘90T ‘col ‘POL “SOI ‘LOT ‘OOT ‘(0S*) OL¥ saseery , 6LI061'T PPCI'G-E9GL’ = SGT S-L S88" €hes" 8S9S'T [Evol LL6O1 8968" GGOLT9 [8861-0006 09Z0°2-1880'I L08¢° 0026° E868" 9L6I b0¢S" 6080S¢° PSL8'I-b2Sb° ss BZ BG" 1-0SS" L0ZP" 028" €ElLe SL6I GOS” O8ZzIe" L0Z¢ 09c8" 6165" PL6I 098F P8h6ES 96€S° LE9T" O19" €L6l 00F2 6I8E8l° b8sl° 6881" PLE oL6l 8SEs° OLZ6PT- 66ST 90FT SOFT IL61 00st" LEE8PI 6PPL bIPT SIP OL61 dg Se) Ber [Ty pepuswy 1Q sjzoRIQUOD MON Ug adviaay Sasta'] yng uy Suriag POM eseIaay pajyenosouay OlXAW MON LYE Saseyoung Sasta'] 97¥}S19}U] S9}IBIG paqoajag 104 ONS BeWNsy saseyoung 9d SOI SBF feINjeN azejsequy ONS eyewysy (F9 WqIYyxa S,jJztQUIe]G) AUYVWWNS—SHOId SVD IVUNALYN J XIGNUddV 6a APPENDIX D OPINION NO. 658 FEDERAL POWER COMMISSION (10 C.A. App. Vol. VII, A-1250) Before Commissioners: John N. Nassikas, Chairman Albert B. Brooke, Jr., and Rush Moody, Jr. Docket No. R-425 Area Rate for the Rocky ) Mountain Area OPINION NO. 658 OPINION AND ORDER ESTABLISHING JUST AND REASONABLE RATES AND INITIAL RATES IN THE ROCKY MOUNTAIN AREA (Issued April 11, 1973) * * * [page 28] We must take note also that producer bargaining in Rocky Mountain is less effective than elsewhere in the country and that the structure of the buyer segment could well have had a regressive impact upon exploration and development. El Paso is the sole interstate purchaser in the San Juan area, the Aneth subarea and in Apache County, Arizona; Montana-Dakota Utilities and Northern Natural are the sole purchasers in the Montana-Dakota subarea; only three transmission companies purchase in the Uinta-Green River subarea; and only two interstate pipe- lines purchase in the Colorado-Julesburg subarea. Pin Sty See a eT © Ta We are not persuaded that time will correct the problem of the low rate levels prevalent in Rocky Mountain. From 1959 to 1969, average revenue for all deliveries of Rocky Mountain gas to interstate pipelines increased by only 1.2 cents from a level of 13.5 cents/Mcf to 14.7 cents. In contrast, since 1959, gas-well drilling costs have increased by 55 percent, wage levels in the oil and gas industry by 56 percent, and the general price level in the economy by 40 percent. We note also that in the early 1950’s, the contract prices in the San Juan area were roughly the same as for the Permian Basin. For the composite Rocky Mountain Area, the contract prices differed but little from the average prices for the Southwest market as a whole. The differ- ential between prices in the Rocky Mountain Area and in other parts of the market widened thereafter. In the Southwest, gas prices increased through 1960 as the mar- ket became more competitive on the buying side. In the Rocky Mountain region, however, new contract prices have been virtually unchanged for a period of 20 years. Over this period, there have been sharp increases in price levels in the economy, in the value of gas as a commodity, in the costs of alternate fuels, and in the costs of doing business. ... 8a APPENDIX E AMENDMENT OF GAS PROCESSING AGREEMENT (10 C.A. App. Vol. VII, A-1219) THIS AGREEMENT made and entered into this lst day of December, 1971 by and between SOUTHERN UNION GAS COMPANY, a Delaware corporation (herein referred to as ““Gas Company’), and SOUTHERN UNION PRODUCTION COMPANY, a Delaware corporaticn (herein referred to as “Production Company’’) WITNESSETH THAT: WHEREAS, Gas Company and Production Company en- tered into a Gas Processing Agreement dated so as to be effective as of. January 1, 1971 respecting the processing of natural gas through the Lybrook Plant and the Huer- fano Plant of Production Company (such agreement being herein called the ‘Processing Agreement’’), NOW, THEREFORE, Gas Company and Production Company do hereby mutually agree as follows: 1. Section 6 of Article I entitled ‘‘Definitions’” of the Processing Agreement shall be and the same is hereby modified and amended so as to hereafter read and provide as follows: “Section 6. “Residue Volume” as used herein shall mean the Gathered Volumes of natural gas remaining after shrinkage arising out of (a) use of gas for processing plant fuel, (b) the plant processing of the gas for extraction of gasoline and other hydrocarbon constituents other than methane.” 2. Section 2 of Article II entitled ‘“‘Processing of Gas”’ of the Processing Agreement shall be and the same is 9a hereby modified and amended so as to hereafter read and provide as follows: “Section 2. The Gathered Volumes of gas that are gathered by Gas Company in the East Gath- ering System shall be processed by Production Company through the Lybrook Plant for extrac- tion of gasoline and other hydrocarbon constit- uents other than methane; and likewise the Gathered Volumes of gas that are gathered by Gas Company in the West Gathering System shall be processed by Production Company through the Huerfano Plant for extraction therefrom of gas- oline and such other hydrocarbon constituents other than methane as Production Company may elect from time to time. ...” : } 4 ‘ 10a APPENDIX F GAS PROCESSING AGREEMENT DATED MAY 1, 1972 BETWEEN SOUTHERN UNION GAS COMPANY AND SOUTHERN UNION PRODUCTION COMPANY. (10 C.A. App. Vol. VII, A-1221) GAS PROCESSING AGREEMENT THIS AGREEMENT made and entered into so as to be effective as of the 1st day of May, 1972, by and between SOUTHERN UNION GAS COMPANY, a Delaware cor- poration (herein referred to as “Gas Company’’), and SOUTHERN UNION PRODUCTION COMPANY, a Del- aware Corporation (herein referred to as “production Com- pany’): IV. PAYMENT Section 1. As consideration in addition to the benefits accruing to Gas Company from processing of gas delivered into its pipelines and as payment in full for all Plant Prod- ucts removed from the Gathered Volumes and for gas used as fuel for plant operations and flared in connection with plant operations, Production Company shall pay to Gas Company the following amounts: (a) Thirty-three and one-third percent (33-1/3% of the gross proceeds of sale of all Plant Prod- ucts extracted from the Gathered Volumes and sold by Production Company that remain after deduction of any taxes based on the sale and any trucking or transportation charges lla incurred by Production Company in the de- livery of such products from the plants to the point of sale; plus (b) An amount equal to that by which (i) the ag- gregate quantity of gas used by Production Company as fuel for operation of the Lybrook Plant and the Huerfano Plant, respectively, plus the quantity of gas that is flared by Pro- duction Company in operation of such plants determined in accordance with Section 1 of Article III hereof, plus the shrinkage in the Gathered Volumes of gas that is attributable to extraction of Plant Products therefrom de- termined in accordance with Section 2 of Ar- ticle III hereof shall exceed (ii) 55 cubic feet of gas per gallon of Plant Products removed by Production Company from the Gathered Volumes, priced at the applicable General Ser- vice Rate Schedule of Gas Company on file and in effect from time to time with the New Mexico Public Service Commission covering sales of gas to industrial consumers on an interruptible basis. Section 2. On or before the 15th day of each calendar month Production Company shall deliver to Gas Company a statement showing: (a) The number of gallons of Plant Products ex- tracted from the Gathered Volumes during the preceding month and the gross proceeds of sale therefrom after deduction of any taxes based on the sale and any trucking or trans- portation charges; (b) The quantities of gas (i) that were used during the preceding month by Production Company as fuel for operation of the Lybrook Plant and the Huerfano Plant, respectively; (ii) that OD in HAA Maile Sa se BRB na Mane ca Yel SRG ei AN Shh he 12a were flared by Production Company in op- eration of such plants during the preceding month; (iii) that constitute shrinkage in Gath- ered Volumes attributable to extraction of Plant Products during the preceding month, and | (c) The amount due to Gas Company on account of plant processing during the preceding month. Amounts due and owing to Gas Company because of proc- essing during each calendar month shall be paid by Pro- duction Company to Gas Company on or before the 25th day of the next succeeding calendar month. 13a APPENDIX G LETTER FROM HUBERT VELARDE, PRESIDENT, JICARILLA APACHE TRIBAL COUNCIL TO HONORABLE ROGERS C.B. MORTON DATED JUNE 29, 1973. (10 C.A. App. Vol. I, A-20-22) THE JICARILLA APACHE TRIBE June 29, 1973 Honorable Rogers C.B. Morton Secretary of the Interior United States Department of Interior Interior Building 18th and C Street Northwest Washington, D. C. 20240 Re: Oil and Gas Leases, Jicarilla Apache Tribe Sir: Referring to our letter of March 23, 1973, with respect to royalty payments by the various lessees of the Jicarilla Apache Tribe under oil and gas mining leases, please be advised that our attorneys have been engaged in investi- gation of royalty payments made by various lessees for the past three months. Our attorneys find a number of apparent violations of the provisions of these leases. Please address any corre- spondence with respect to these matters to Robert J. Nor- dhaus, attorney, 610 Simms Building, Albuquerque, New Mexico 87101, with a copy to the Jicarilla Apache Tribe. 1. Under provisions of paragraph 2(c), ““Rental and Roy- alty’’ the lease provides that the ‘‘value”’ for the purpose of computing royalties shall be calculated on the basis of the highest price paid or offered—at the time of production Ce ae a wt VO aes 1m hs. owe eee * l4a for the major portion of oil of the same gravity and gas and/or natural gasoline and/or all other hydrocarbon sub- stances produced and sold from the fields where the leased lands are situated and the actual volume of the marketable product less content of foreign substances as determined by the Oil and Gas Supervisor. The actual amount realized by the lessee from the sale of said products may, at the discretion of the Secretary, be deemed evidence of or con- clusive evidence of such value. Royalties currently being paid for gas production on tribal lands are based on prices ranging from approxi- mately 13¢ to over 30¢ for the same quality of gas pro- duced. Further, the ‘‘value’’ for the purposes of the lease, should be based on the commodity value of gas, not a price artificially maintained at a low level by one or two purchasers of gas in a non-competitive market. The Tribe demands that the Secretary take immediate action to determine the proper price basis for royalties paid to the Tribe and to secure an accounting from the companies for past royalties based on prices which do not reflect the ‘‘value’”’ of the gas, as defined in the leases. 2. With respect to production under the majority of leases, no royalty is currently being paid on the value of natural gasoline and other hydrocarbon substances pro- duced and saved from the leased land, contrary to the provisions of the leases. 3. As of March 31, 1973, Lessees owed past due amounts of over $400,000.00 for royalties, according to the audit reports of the accounting division of the U.S.G.S. in Ros- well, New Mexico. In some cases these past due balances have been owing in lesser or greater amounts for 12 months or more. The attorneys for the Tribe are presently determining the status of past due balances. Demand is made that you require that these companies pay interest on past due balances, or that the penalty provisions of 15a Section 171.22 of the Regulations pertaining to leasing of tribal lands be invoked (25 CFR Sec. 171.22). 4. Section 3(c) of the leases in question provide that royalties shall be due and payable monthly on the last day of the calendar month following the calendar month in which produced. Uniformly over the period of production royalties have been paid sixty to ninety days after the end of the calendar month in which produced. Lessees should be required to pay estimated royalties in advance, or to pay interest on amounts past due under the provisions of the lease. 5. The monthly statements provided by the lessees under many leases currently do not show the value of by-products produced and saved, and no royalties are paid on such by- products. Reports currently show only gas and the price received from the producer. Under paragraph 2(f) the lessees are required to exercise reasonable diligence in drilling and operating wells for oil and gas on the lands covered hereby while such products can be secured in paying quantities. It is believed that your department has failed to require diligence in drilling and developing the properties of the Tribe. 6. Under paragraph 4(b) the Tribe has the right to use sufficient gas free of charge for any buildings belonging to the Tribe by making connection at its own expense with well or wells thereon. Under this provision, your depart- ment should secure gas for school and other buildings be- longing to the Tribe, at a cost that reflects only the cost of transporting the gas from the well head to tribal build- ings. 7. It is the opinion of the Tribal Council of the Jicarilla Apache Tribe that as a result of various factors and in- fluences, including price ceilings maintained by the Federal Power Commission, in which you have acquiesed, that roy- alties which have been paid to the Tribe over a period of ET eT EC RS To Tee ee ee Pv asin 16a years have not been based upon the “‘value’’ of gas within the meaning of the above leases and that you have failed to protect the rights of the Tribe by securing for the Tribe royalties based on such “value’’. Your acquiescence in ac- ceptance of royalties based on the prices maintained at an artificially low level as above stated has constituted a con- demnation of the Tribe’s property for public use without due process of law, with complete disregard for your ob- ligation as guardian and trustee for the Tribe. Demand is therefore made upon you for immediate ac- tion to correct the above mentioned discrepancies, or the Tribe will take action on its own behalf. Yours very truly, /s/ HUBERT VELARDE, HUBERT VELARDE, President Jicarilla Apache Tribal Council 17a APPENDIX H MEMORANDUM TO SECRETARY OF THE INTERIOR FROM COMMISSIONER OF INDIAN AFFAIRS DATED JULY 29, 1974. (Plaintiff's Exhibit 29, No. 10) United States Department of the Interior BUREAU OF INDIAN AFFAIRS WASHINGTON, D.C. 20245 Trust Services Minerals Memorandum To: Secretary of the Interior Acting Deputy From: Commissioner of Indian Affairs Subject: Jicarilla Apache Tribe—Oil and Gas Royalty Issue In letters dated March 23, 1973, and June 29, 1973, copies of which are enclosed, the Jicarilla Apache Tribe requested the Secretary to determine the true value of oil and gas produced on the Jicarilla Reservation since 1953 and take steps for collection of any delinquent royalties not paid, and further stated that if satisfaction of the request were not forthcoming the tribe would institute whatever legal action was deemed advisable. By letter dated June 25, 1973, from the Deputy Assistant Secretary to the Presi- dent of the Jicarilla Apache Tribe, the Tribe’s March 23 letter was acknowledged and by copy thereof, the Director, USGS, was requested to prepare a report on the matter. At this time, no report as requested has been received. In a meeting in the Commissioner’s office on June 25, the tribal representatives made a further request that the USGS, through the Secretary’s Office, be asked to provide the tribe with the data previously requested, which would include the determination of: 18a 1. The true value of the oil and gas produced on the Jicarilla Reservation from 1953 to present, which should be used in royalty computations. 2. The by-products and amounts thereof derived from the subject production. (These should be accounted for in the future.) 3. The cost of the manufacture of the above named by-products. 4. The value of the above by-products. In compliance with the Tribe’s wishes, we respectfully ask that you again request the Director, USGS, to provide the data previously indicated. ce: Albuquerque Area Director, USGS 19a APPENDIX I Attachment A to Appellant’s Motion to Require Apyellees to File Additional Bond or Other t Court of Appeals by Respondent herein) ircui 10th C in (Filed July 10, 1986 Security 6L'LLE'99L$ 8L'Z8E'0G 0€°99S'ST O€ brr'ZI 96°208'6 oS'SE8'8 29°SPE'ST OF LET'SE 96° VSP oP LEL'ZS €9°hE0'9Z 19°ZE2'6E 68216 ZE LZ LEL‘LZ 10°068'92 6h'6h9'22% bL'9S0'FZ 6L'6S2'9T bE'200'F EE Thh'8zZ 08°299'FZ 2S'66E SE LE6L6'SE 18°S88°9E b8'E8'8 €2'6EL'T 8L'Eh9'F GZ°E96 99°228' €0°L60°2 0S°0L8'E 8S T0L'ST LL’SES'01 b6°SZb'6 ES LOT'IT El'8cr'h GS'err Le 9F'068'FT G6'Eh8'9 3L'0Zh'SI +()- 90°EE'T LO 9LE'9Z 8E°690'FZ 6L'S6S'EZ 60° TEP €h°S06'8T 610898 $ [BIOL oe €e°801 = a | -0- b0'F92'0T eh P88 b9'LLO‘SI 6L°Z0E'0T OL T0E'FT bL'L9SN‘ST 62°916'ST 28 068° €6'08S G0°900°2 | E8°SSL 26 SES" 1 09°081'9 61'°9F9'F 66282 F 08°L26'h €8°L86'1 LL'SIL'St LL'6Z8'9 8E°Lb9'S 66°029'S = -0- 09°069'0T LL’S9$'01 86°F28'L * IP 08L' $ pue[yynog ~ os IP'€1S'6I S8e'OLP LZ'8SE'E1 19°SE2'6E 6E°S16'ZE LZ LEL‘LZ 6h 6F9'SS GE'8L9'EI * 8e°180'e 08°L02'91 GE"802'FT 6L'S16'8I P6'81S'0Z G6'E2L‘02 Zr IPS? 6S 9EI'T 80°6L9'2 GZ'892 GO'LEP'T 29'L28'T L0°862'2 L8'LSP'L 69°88L'¢ 20°Z01' L8°811'9 gS°Z9P'Z Gg°9¢8'6I 98°G69'L Z2'e9l'b Gh'b69'9 ={)- go'eee'T v6 &Pr'si 9L'PLS‘Z1 68°0S¢'FT 96°S67S OF LLL'6 18°g09'F $ woadng INGW9dGNf OL INVASUNd SINVONGAAd NOUdNSs Ad dIVd SAILTVAOU TVNOLLIGGV TVLOL GNVU9 E861 “AON E861 “deg S861 “Sny S861 Aqne E861 eunr S86l AeW S861 [dy ERET Youre E861 Your E861 “G94 S861 “ues Z861 “20d Z861 “AON Z861 “390 2861 “3deg 2861 ‘Ssny 2861 Aine 2861 eunr 2861 ABW 2861 ‘Ady Z861 “AR 2861 “G94 2861 “uer I86I ‘29d I86I ‘AON I86I 290 1861 “3dag 1861 ‘sny 1861 Ajne I86I oun 1861 Ae T861 “ady I86I ‘Je 1861 “494 IS6I ‘ues 0861 “20q 0861 “AON 0861 “390 0861 “3dag 0861 ‘sny Og6I Aqne O86 eunr O86 Ae O86I ‘Ady 0861 “JRA 0861 “G94 O86 “uer 6L6I ‘20d 20a APPENDIX J (10 C.A. App. Vol. VII, A-1297-1301) IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW MEXICO THE JICARILLA APACHE TRIBE, Plaintiff, V. No. —— Civil SOUTHERN UNION GAS COMPANY, a Delaware corporation, et al., Defendants. STIPULATION FOR SETTLEMENT Come now the Plaintiff, The Jicarilla Apache Tribe, an Indian Tribe organized and incorporated under the laws of the United States of America, (the ‘‘Tribe’’), Defendant Gas Company of New Mexico, a division of Southern Union Gas Company, a Delaware corporation, (formerly Southern Union Gas Company), (““GCNM”’’), and Defendant Southern Union Gathering Company and hereby stipulate and agree as follows: 1. The Tribe and GCNM have entered into a Settlement Agreement, a Royalty Gas Gathering Agreement and a Royalty Gas Purchase Contract, all of even date herewith settling other matters in dispute between the Tribe and GCNM, which Agreements are incorporated herein by ref- erence. 2. The Jicarilla Apache Tribal oil and gas leases covering Tribal lands in Rio Arriba County, New Mexico, give the 2la Tribe the right to take its royalty gas in kind upon the giving of notice as provided for therein. It is agreed with respect to all of the tribal oil and gas leases on Tribal lands that if and to the extent the Tribe takes its royalty gas in kind, and if and to the extent GCNM may at such time have gathering systems connected to such wells, then subject to the payment of reasonable transportation charges therefor, GCNM agrees to gather and deliver, anc to permit the Tribe to take its share of the royalty gas from wells from which GCNM purchases gas at a point on the Tribal reservation lands from the GCNM gathering pipeline system, upon reasonable written notice, which shall be not less than ninety (90) days, from the Tribe to GCNM, any necessary tap, connections and other facilities neces- sary to effect such delivery shall be installed by GCNM at GCNM’s expense, and the Tribe shall provide rights-of- way and other surface rights therefor free of cost to GCNM. The point of delivery to the Tribe shall be at a point on GCNM’s existing gathering system having the pipeline capacity to deliver such royalty gas without con- struction of any additional pipeline or compression facili- ties. 3. GCNM’s performance under the Royalty Gas Gath- ering Agreement with the Tribe is excused until it is es- tablished by a court of competent jurisdiction or by agreement of the parties hereto and the parties claiming otherwise that GCNM has the right to gather and deliver the Tribe’s royalty gas taken in kind. Until such deter- mination has been made, GCNM’s performance under said agreement is subject to the claims of Southern Union Pro- duction Company and other parties having contractual rights to process said gas or to the liquid products derived therefrom. In the event GCNM, Southern Union Company, or any other subsidiary or division of Southern Union Com- pany does not acquire ownership of the Lybrook Process- ing Plant, and/or successfully negotiate contractual arrangements to permit GCNM to gather and deliver the 22a Tribe’s royalty gas taken in kind and to permit the Tribe to process such gas at the point of such delivery, by March 1, 1977, the parties hereto agree to resume negotiations to arrange an alternate method of delivery of the’ Tribe’s royalty gas. GCNM further agrees to purchase, and the Tribe agrees to sell to GCNM, under the terms of the Gas Purchase Contract of even date herewith, any portion of the Tribe’s royalty gas taken in kind which is in excess of the Tribe’s daily requirements. 4. If the Tribe does not elect to take its natural gas in kind, but a producer selling under a contract to GCNM is ordered by the Court or voluntarily agrees to make ac- counting to the Tribe for its royalty interest on the basis of a net realization method, other liquids method or BTU adjustment method of accounting, then GCNM agrees to cooperate with said producer in furnishing information for such accounting to the Tribe. 5. GCNM shall pay the Tribe within ten (10) days after the approval of this stipulation by the Court and entry of the same as its judgment, the sum of Six Hundred Thou- sand Dollars ($600,000.00) for settlement of all claims made by the Tribe against GCNM and Southern Union Gathering Company in this case and for execution concurrently here- with of an agreement concerning pipeline rights-of-way, facility sites and other surface leases or easements and for agreement that all claims and causes of action of the Tribe against GCNM and Southern Union Gathering Com- pany set forth and alleged in the First Amended Complaint on file herewith are released and discharged and all such claims and causes of action are dismissed with prejudice as to the defendants GCNM and Southern Union Gathering Company. 6. GCNM’s agreement to gather and deliver the Tribe’s royalty gas may be subject to regulations by State or Federal authorities having jurisdiction. To the extent that such State or Federal authorities have jurisdiction, the parties agree that this agreement is subject to such rules 23a and regulations as may be imposed by such authorities. The parties agree to cooperate in seeking. any approvals which may be required by such authorities, if any, and to secure the agreement provided for in Paragraph 3 above, to effectuate the intent of this agreement. 7. This Stipulation shall be construed to pertain to all claims of the Tribe against GCNM and Southern Union Gathering Company relating to oil and gas, including rights-of-way matters, accruing to the date of this Stipu- lation. All of said claims merge into this Stipulation and are governed by its terms. 8. All matters in controversy in this case between the Tribe and the Defendants GCNM and Southern Union Gathering Company having been settled, the parties hereto request the Court to enter this Stipulation as its Final Judgment in this case, and the case shall be dismissed with prejudice in its entirety as to GCNM and Southern Union Gathering Company, each party to bear its own costs. Executed this 21st day of October, 1976, in several coun- terparts, each of which shall be considered an original. THE JICARILLA APACHE TRIBE ATTEST: /s/ Barbara Gonzales By /s/ Dale Vigil Secretary Acting President NORDHAUS, MOSES & DUNN By /s/ RoBERT J. NORDHAUS Robert J. Nordhaus Attorneys for The Jicarilla Apache Tribe GAS COMPANY OF NEW MEXICO ATTEST: /s/ Tllegible Secretary /s/ JACK HERTZ Jack Hertz Vice President and General 24a By /s/ W. T. Baumhouse President MONTGOMERY, FEDERICI, ANDREWS & HANNAHS By /s/ William Federici Counsel for Gas Company of New Mexico Attorney for Gas Company of New Mexico ATTEST: /s/ Illegible Secretary SOUTHERN UNION GATHERING COMPANY By /s/_Illegible Vice President MONTGOMERY, FEDERICI, ANDREWS & HANNAHS By /s/ William Federici Counsel for Southern Union Gathering Company 25a APPENDIX K 42 FEDERAL REGISTER 40263, AUGUST 9, 1977 Geological Survey [NTL-5] VALUE OF NATURAL GAS FOR ROYALTY PURPOSES On May 4, 1977, the Geological Survey published in the FEDERAL REGISTER (Vol. 42, No. 86, pp. 22610-22611) its final notice to Lessees and Operators, NTL-5. This Notice sets forth the procedures to be utilized for royalty computation purposes in determining the value of natural gas produced from Federal and Indian oil and gas leases under the jurisdiction of the Geological Survey. Pursuant to a request by the Acting Deputy Commis- sioner of Indian Affairs, the application of NTL-5 to oil and gas leases on the Jicarilla Apache Indian Reservation in New Mexico is hereby suspended for an indefinite pe- riod, effective as of 7 a.m., June 1, 1977. V.E. McKELVEY, Director. --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385018_2327%3A04. Public record. Not legal advice.