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Family seeks big rent payoff Heirs of Native allotment holder sue for more than $180 million in damages; charges U.S., BP with wrongdoing in Prudhoe Bay lease negotiated by Bureau of Indian Affairs Rose Ragsdale For Petroleum News
An Alaska Native family has filed a lawsuit in federal court seeking back rent and interest that could exceed $180 million for the use of 10 acres they own in the Prudhoe Bay unit on the North Slope.
The descendants of Andrew Oenga said the elderly Inupiat who once lived at Heald Point, a strip of land on the northern edge of Prudhoe Bay, did not understand terms of a lease the federal government negotiated for him with Standard Alaska Production Co., predecessor of BP Exploration (Alaska) Inc., in 1989.
Oenga, who did not speak, write or understand English, had acquired surface rights to the acreage in 1971 in a Native allotment. He died in April 1990.
The Native allotment granted Oenga surface rights to the parcel; the government had earlier assigned its subsurface oil and gas rights to the State of Alaska.
Oenga’s eight heirs, who now live in Anchorage, Atqasuk, Barrow and Fairbanks, filed suit in June in the U.S. Court of Federal Claims in Washington, D.C., and amended their complaint Sept. 18.
The U.S. Department of Justice in an Oct. 5 response to the lawsuit said the lease was made properly and the family has been paid what it is owed — about $670,000 from 1994 to 2001.
BP: Not our dispute The lawsuit targets the government, specifically the Bureau of Indian Affairs which acted as Oenga’s agent in negotiating the lease, in the suit but also points to BP.
A BP spokesman said Oct. 18 that the family’s dispute is with the federal government, but the company intervened in the case to closely watch and monitor the progress of the lawsuit.
ConocoPhillips Alaska Inc., ExxonMobil Alaska Production Co., Chevron U.S.A. Inc., and Forest Oil Corp. joined BP in filing Sept. 25 as intervenors-defendants in the suit.
Levick Strategic Communications, a Washington, D.C., firm hired by the Oengas to publicize their case, said BP is ultimately responsible for monetary damages because the company has taken advantage of the government’s errors at the expense of the Oengas.
Daren Beaudo, BP’s spokesman in Anchorage, said the oil company has paid all the money owed under the government’s appraisal of the Oenga property and has no further obligation.
The appraisals must be updated every four or five years. Recently, BP even reminded the BIA that an appraisal was past due, and was charged with a year’s interest penalty for its trouble, Beaudo said. BP has contested that interest penalty, he added.
Not best use According to the lawsuit, Andrew Oenga signed a lease for 10 acres of his allotment to be used for a road and pipeline. The BIA negotiated and approved this contract.
In 1993, BP secured an amendment to the lease so it could use the land as a drilling pad to reach the Niakuk oil field, according to the lawsuit.
The company subsequently granted ARCO Alaska Inc. and Exxon Mobil Corp. access to the acreage and allowed pipelines to corrode and create oil leaks that have harmed the fragile Arctic ecosystem. The Oenga family finds all of the actions objectionable, according to Levick.
The family claimed that the government and BP undervalued the use of the land as a drilling pad because the BIA used the wrong leasing method in the amendments, adhering to the original road-pipeline valuation method after the oil company began producing oil from a drilling pad on the parcel.
According to the Department of Justice, BP’s lease was never amended. When BP wanted to use the land for a drilling pad, it merely wrote a letter notifying BIA that it would exercise an option to which it had every right under the original lease.
The lease “establishes unambiguously” that BP’s rights were not “in any way limited to use solely for a road and pipeline,” according to the Justice Department.
Justice, however, admitted that the government’s appraisal of the property was not based on a determination of its “highest and best use” as a drilling pad, but also noted that such an appraisal method was only “suggested by plaintiffs nine years after the fact,” according to the filing.
No proper valuation The litigation follows more than a decade of legal wrangling between the Oengas and the government over the proper valuation of the lease, through which all of the crude from the Niakuk Participating Area as well as oil from the Prudhoe Bay Unit have been produced.
The Oengas claim the government’s appraiser also was not properly qualified to appraise commercial property.
“Neither the 1994 BP appraisal reviewed or the 1997 BIA “Limited Appraisal” appraised the property in its highest and best use as a drill pad for a multiple well-head long reach oil production facility and did not use similar oil production facilities as comparables,” the complaint said.
Instead of the less than one-tenth of 1 percent they were paid, the Oenga family argues that a fair annual rent for the lease should range between 2 1/2 percent and 4 1/6 percent royalty on the value of all oil or gas produced through the drilling pad and production facility covered by the lease, an amount estimated to total between $25 million and $40 million.
Further, the Oengas argue that the government breached its fiduciary obligation and trust responsibility by mismanaging the asset when it made no effort to negotiate a lease agreement with ARCO Alaska Inc. in 1993 for access to the West Niakuk oil pool, owned 50-50 by ARCO (eventually transferred to ConocoPhillips) and Exxon (now ExxonMobil Production Co. in Alaska).
BP ultimately negotiated an access agreement with ARCO, but the Oengas received no additional rent for the contract, through which virtually all of the oil from West Niakuk was produced.
The Oengas said they did not even learn of ARCO’s interest in a lease agreement for West Niakuk until a decade later.
The family argues they are owed back rent for both Niakuk and West Niakuk production and back interest of 18 percent annually on the unpaid rent, a sum that could total more than $180 million in damages, according to a Levick spokeswoman.
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