Family seeks $200 million in Prudhoe Bay oil-field dispute (May 17, 2009)

RENT: They say BP broke contract by expanding drilling operations.

May 17, 2009 

An Inupiat Eskimo family says it is owed up to $200 million in unpaid rent after a major oil company siphoned oil from offshore Prudhoe Bay fields for years by using a drill site on the family's land.

The federal Bureau of Indian Affairs should collect the unpaid rent and turn it over to the Oenga family, which 40 years ago acquired its Native allotment on the edge of the vast Prudhoe Bay oil field, the family said in a court filing this month.

The money is owed, the family says, because BP violated its decades-long contract with the family when it expanded its drilling from the allotment to access several offshore deposits.

BP disagrees that it violated the contract and says in court filings that little or no money is owed to the family.

Rather than suing BP directly, the family is targeting the federal Bureau of Indian Affairs, which was in charge of gathering BP's lease payments for the allotment.

"It wasn't collecting proper rent," said Joe Delia, a family member.

The fight has been winding through the Court of Federal Claims for three years. Ten months ago, the family won a key victory: A federal judge ordered BP to stop using a drill site on the 40-acre allotment -- which juts into the Beaufort Sea -- to access the offshore Lisburne oil pool. Also, the judge said the BIA, which did not act on the family's complaints, neglected its duty as a trustee to protect the family's financial interests.

The judge still has to determine whether BP's use of the allotment to access two other oil pools, West Niakuk and Raven, also violates its contract with the family.

In a recent court filing, the government argued it had no duty to monitor how BP was using the allotment and said the sum the family seeks is too high.

The Oengas' suit has now reached another turning point: the judge will soon decide whose math to use to figure out what the family is owed -- if anything -- for the improper use of the allotment.

In 1971, the late Andrew Oenga applied for and received the 40-acre finger of land at Heald Point.

He chose the spot because it was a great place to hunt for seals, which rested there, said Delia, Oenga's grandson.

"It was hard living in those days," Delia said, recalling how his dad used to run dog teams out to the spot.

In the 1980s, BP asked Oenga and the BIA about getting a right-of-way for the allotment to build a road and pipeline. The oil giant wanted to develop the Niakuk oil discovery offshore just to the north of Heald Point.

When federal regulators later rejected BP's plan to build offshore to tap Niakuk, Oenga's allotment suddenly became more valuable. It was the nearest land on which BP could build a sizeable drilling pad and sink horizontal wells to reach the oil.

Oenga signed a contract with BP in 1989, and since then he and his heirs have received just over $1 million in rent. At one point, BP offered to buy the allotment for $600,000, but the deal was never completed.

Suspecting that they were being shortchanged while BP pumped billions of dollars worth of oil from Niakuk, Oenga's heirs complained to the BIA. When the BIA didn't investigate, the family sued in 2006. That's when they learned that BP was also tapping the Lisburne, West Niakuk and Raven fields.

In the lawsuit, the family claims that BP allowed Exxon Mobil and Conoco Phillips to trespass on its allotment too. Exxon and Conoco are part owners of the Lisburne field.

In recent weeks, the family members, oil companies and the government have each made a pitch to the judge, describing in considerable detail how she should rule on compensation to the family.

In an order last year, Judge Nancy Firestone said the case would go to trial.

At this point, Firestone is just considering how to measure the damages against the family. Then, the trial can proceed.

In a court filing late last week, the Oengas said the government must pay roughly $200 million from BP and its partners for their use of the allotment to pump oil from several oil deposits. The government owes the money because it failed to collect it from the oil companies, the family says.

The large sum is based, in part, on a consultant's calculation of how much BP charged other oil companies for use of the allotment to produce oil, according to the Oengas' filing.

Federal attorneys say the payment the Oenga family seeks is "grossly disproportionate" to any harm it suffered as the result of the breach of the lease.

Yes, the Bureau of Indian Affairs can collect money from the oil companies to cover any lost rental income, but first the family has to prove that BP owes it money, according to the government's filing.

The government didn't specify how much it thinks the Oengas might be owed.

BP and its partner oil companies said the family isn't entitled to any money, and if the judge decides otherwise, the family should get only "some fraction" of what it already receives in rent for BP's use of the allotment.

Court filings show the rent paid to the Oenga family totals about $80,000 a year.


Find Elizabeth Bluemink online at adn.com/contact/ebluemink or call 257-4317.

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