The Ute Paradox

A small Colorado tribe takes control of its energy resources and becomes a billion-dollar corporation — but has it gone too far?

  • Tradition meets modern glam in the parking lot of the new Sky Ute Casino on the Southern Ute Reservation in southwest Colorado.

    Paul Pennington
  • An eight-member delegation from the Ute Tribe, including Ouray, fourth from the right, traveled to Washington, D.C., in 1868 to sign the Kit Carson Treaty, granting the Utes 1.5 million acres of land in southwestern Colorado. Ouray would spend the rest of his life trying to get the U.S. government to honor the terms of the treaty.

    Western History/Genealogy Dept., Denver Public Library
  • Pumpjacks dot the landscape of the Southern Ute Reservation in southwest Colorado -- home to one of the richest gas deposits in the country.

    Paul Pennington
  • The Southern Utes developed the Three Springs "new urban" project outside Durango, and donated land for the Mercy Regional Medical Center.

    Paul Pennington
  • The new Southern Ute Growth Fund headquarters, gives tiny Ignacio, Colorado, a worldly look. The Growth Fund's mission: "... to provide economic prosperity for the Southern Ute Indian Tribe by managing the Tribe's businesses effectively, building new businesses prudently, and investing its money wisely."

    Paul Pennington
  • Orville Hood and James Jefferson say off-reservation energy-development projects are bad for the tribe. The two head up an effort to recall the tribal council.

    Paul Pennington
  • Southern Ute Tribal Chairman Matthew Box, right, tours the Solix plant near Ignacio, where the tribe is a partner in an effort to create biodiesel from algae.

    Jerry Mcbride/Durango Herald

Then-Interior Secretary Dirk Kempthorne flashed a big grin as he opened the Minerals Management Service's Lease Sale 206 in the Louisiana Superdome on March 19, 2008. Eighty-five oil companies were vying for the chance to drill in the Gulf of Mexico. With oil selling for over $100 per barrel, the Superdome hadn't seen such a frenzy since Beyoncé kicked off her tour here a year earlier.

High bids totaled more than $3.5 billion, a new record, for access to more than 28 million acres of sea-bottom. BP, the international energy giant, paid $34 million for the 5,760 acres known as Mississippi Canyon block 252 -- a disastrous purchase in retrospect, since the well that was eventually drilled there was the one that exploded and caused the current mess in the Gulf.

Also bidding for block 252 was Red Willow Offshore, LLC, with a $14 million offer that came up short. The company has made a splash in the Gulf of Mexico in recent years, typically partnering with others on deepwater endeavors. But Red Willow Offshore is not your average international oil company. It is the wholly owned subsidiary of a small American Indian nation -- the Southern Ute Tribe in southwestern Colorado.

Less than a century ago, the Southern Utes were barely hanging on, squeezed onto an unremarkable sliver of reservation land, a new and foreign way of life thrust upon them. Even as late as the 1950s, many had no running water or noticeable income. But today, as the bidding at the Superdome showed, the once-impoverished tribe is a financial powerhouse. With tribal businesses in 14 states, ranging from Gulf crude to upscale San Diego real estate, the 1,400 or so tribal members are, collectively, worth billions.

They didn't strike it rich on casino gambling. Instead, the Southern Utes built their empire slowly, over decades, primarily by taking control of the vast coalbed methane and natural gas deposits that lie under their land. They've achieved cultural, environmental and economic self-determination through energy self-determination -- a feat rarely accomplished, whether by Indians or non-Indians.

"The Southern Ute Indian Tribe is unique," one tribal Web site says matter-of-factly -- a statement few would argue with.

In the process, however, the Southern Utes have gone far beyond self-determination. These days, the tribe's oil and gas operations extend to other reservations as well as to private land, sometimes to places whose own residents oppose it. The tribe's influence reaches to Washington, D.C., affecting federal energy policy. And some observers can't help wondering: Where does the tribe stop and the corporate giant begin?

At least seven bands of Utes roamed a huge expanse of present-day Colorado and parts of Utah and New Mexico as far back as eight or nine centuries ago. They held off the Spanish colonizers that swept north from Mexico in the late 1500s, but had less success against the U.S. onslaught in the late 1800s. In 1895, members of the Mouache and Capote bands finally accepted allotments -- essentially Indian homesteads -- on the slice of high desert called the "Ute Strip." The rest of the strip was opened up to white homesteaders, laying the foundation for today's Southern Ute Reservation: a 75-mile-long by 15-mile-wide checkerboard on which whites still own roughly half the land, bordered on the south by New Mexico and on the west by the Ute Mountain Ute Reservation, where those who refused allotments ultimately settled.

In 1896, the Southern Utes started to fight back, using the weapons of their former enemies. A long series of lawsuits eventually brought multimillion-dollar judgments in the tribe's favor and stronger rights to water, land and hunting grounds. "With each encounter," writes Richard Young in The Ute Indians of Colorado in the 20th Century, "they became more confident in their ability to present their case and to maneuver among the various echelons of the vast and powerful federal government." Often the disparate Ute bands fought as one, but the Southern Utes were by far the most assertive.

Energy became the battlefield in the 1960s. Thanks to bad federal policy and lax oversight, many Southwestern tribes, including the Hopis and Navajos, were getting a raw deal. When a company wanted to gouge a reservation's land for coal, or drill for oil and gas, it would negotiate not with the tribe, but with the Department of Interior, which leased the land to the highest bidder. The tribes had to approve the leases but were otherwise powerless, and they generally lacked the expertise and data to make good energy decisions. The federal government managed, audited and collected royalties on the leases -- or at least it was supposed to -- without any input from the tribe in question.

Then, in 1966, the Southern Utes elected Leonard Burch -- a young leader who had done stints in the Air Force and the Bureau of Indian Affairs -- as tribal chairman. Two years later, the tribe hired Durango attorney Sam Maynes -- the son of a Silverton hardrock miner -- to be its general counsel. Burch and Maynes were already friends; they met when they played basketball against each other in 7th grade. Burch was known as a "quiet warrior," while Maynes was more like a rabid pit bull with a sense of humor. They became an indomitable team, demonstrating another distinctive Southern Ute trait -- the ability to forge effective alliances with non-Indians. (The Utes even allied with the Spanish on occasion and were close to Kit Carson, the renowned explorer who guided U.S. forces against the Navajos.)

By the time Burch and Maynes gained power, oil and gas companies had been drilling on the Southern Ute Reservation for two decades, shipping oodles of gas off the land. The tribe received less than $500,000 per year in royalties, a paltry fraction of what the oil companies were making -- and far less than it was owed. "It wasn't a level playing field," Maynes said in a 2004 radio interview, a few months before he died. "The Indians were not realizing the full potential of what they had."

Those were heady days for fossil fuels. The energy crisis brought high prices and sparked a drilling, strip-mining, oil shale frenzy. The Southern Utes -- sitting on one of the richest gas fields in the country -- could have cashed in by signing over the rights to drill the reservation. Instead, in 1974, the tribal council took Maynes' advice and imposed a moratorium on all new mineral leases. A year later, Burch and the Southern Utes joined 24 other tribal leaders to form the Council of Energy Resource Tribes, or CERT, modeled after the international OPEC cartel, to consolidate their political power.

The Southern Utes became part of a widespread transformation of federal energy policy. They used a federal grant to bring in experts to map their undeveloped energy resources along with their existing leases. They quickly realized that companies were cheating the tribe by undervaluing its gas. The Department of Interior had been lackadaisical, to say the least, in auditing and collecting royalties. This turned out to be a nationwide pattern. The general public woke up, and in 1982, in an effort to improve oversight, Congress created the Minerals Management Service and passed the Indian Mineral Development Act, which gave tribes the power to negotiate mineral leases. That same year, the U.S. Supreme Court made a favorable ruling in a case involving the Apaches, saying that tribes could levy a severance tax on oil and gas produced on their lands.

The Southern Utes rode the wave, using their newfound knowledge of their own resources and taking advantage of court rulings and the shift in federal policy. The tribe negotiated more favorable leases with outside companies and enacted a severance tax on gas production, which has since brought in some $500 million. The tribe's energy department also took over the auditing of leasing from the feds, a move made by only a handful of other tribes, which helped uncover potential cheating. Just last month, based on information from Southern Ute auditors, the feds fined BP America $5.2 million for underreporting the amount of gas it had been producing on Southern Ute lands.

"Burch and his cohorts were just -- to the finest detail -- great tacticians and strategists," says David Lester, a national leader in Native American economic development since 1969 and leader of the Council of Energy Resource Tribes since 1982. "Their motive wasn't money, although money was important to them. ... The money was a means to higher ends. It was about protecting the tribe and developing a foundation and developing a cultural community distinct from surrounding communities."

The Southern Utes also overcame internal obstacles to good governance and economic development. When tribes set up governments under the Indian Reorganization Act -- a sort of New Deal for Native Americans instituted in the 1930s -- they modeled them after federal, state and local governments. But while every other government can simply tax its citizens to fund its own operation, tribal governments have virtually no tax base to draw from -- there's generally little or no income, property or sales to tax. The system fosters a kind of desperation: Tribes are forced to rely on federal funding and are sometimes tempted by apparently self-destructive money-raising schemes -- opening up their lands to high-level nuclear waste, for example.

When Burch's moratorium stanched new royalty revenue in 1974, he took a huge risk. Not only did he put his government in financial danger, but he also effectively reduced the per capita payments to tribal members, many of whom relied on the meager sums -- not much more than $1,000 per year -- for their entire income. Burch -- who led the tribe for three decades with Maynes at his side -- made a similarly risky move in 1992. As part of the Colorado Ute Indian Water Rights Settlement Agreement, the tribe received $8 million from the feds. Rather than leverage it for short-term gain, the tribe formed its own gas production company, the first iteration of Red Willow. If outsiders could get rich drilling the tribe's land, Ute leaders and advisers figured, why couldn't the tribe itself? As obvious as the idea may sound, it was revolutionary at the time.

Thus, while federal policy shuffled toward granting tribes more political sovereignty, the Southern Utes took giant leaps toward what's known as practical sovereignty. They took "advantage of the federal self-determination policy … promised by law but denied by federal paternalism and control," report Stephen Cornell and Joseph Kalt at the Harvard Project on American Indian Economic Development. That's important, they say, because it creates a different, more sustainable model for economic development, one that provides stronger stewardship. "In general," write Cornell and Kalt, "Indian nations are better decision-makers about their own affairs, resources and futures because they have the largest stake in the outcomes."

When Red Willow took over 54 gas wells in 1995, it quadrupled their production within nine months. And the economics changed radically. If an outside company operates a gas well on a reservation, the state and county can impose property and severance taxes on it, and the feds can tax the company's income. This not only cuts into a company's profits, it also leaves less for the tribes to tax. But when the tribe takes over a well, it's exempted from many of the outside taxes, cutting overhead by as much as 30 to 40 percent. "That gave the tribe a huge competitive margin," says Lester. "Plus, they hired experienced hands to run the company. They really did a good job of recruiting and hiring quality, honest, really good employees so that the core team really could produce what the tribe wanted done."

Tom Shipps, one of the key hires, joined Maynes' law firm in 1979, fresh out of law school, and became a national expert on Indian energy law. He served on advisory committees to the Minerals Management Service and handled a grueling lawsuit in the 1990s, taking on Amoco (now part of BP) over coalbed methane contained in a massive coal deposit owned by the tribe. Shipps argued that the coalbed methane was part of the coal -- the way chips are part of a chocolate chip cookie -- and that the tribe was entitled to $1 billion in back payments from Amoco. Amoco and the other companies involved said the owners of the oil and gas rights owned the methane. The U.S. Supreme Court eventually ruled against the tribe. But the companies got cold feet before that happened, and they agreed to settle. The Southern Utes got a 32 percent stake -- with an estimated value of a half-billion dollars or more -- in the coalbed methane deposits.

Bob Zahradnik, a one-time petroleum reservoir geologist who had worked with Exxon, drew up Red Willow's business plan and continues to head the tribe's energy operations. John Jurrius, who has a background on the financial side of the oil industry, brought capital from a huge private equity firm, with which the tribe was able to buy more energy production and distribution companies.

All this helped Burch realize his dream of an economically self-reliant society. Yet it was lopsided: The Southern Utes were almost entirely dependent on revenues from reservation oil and gas. So, in order to diversify, the tribe opened the Sky Ute Casino in 1993 and tasked Jurrius with creating what would become known as "The Plan."

One of the major handicaps to any tribe's economic development, says Jurrius, is the fact that the typical tribal corporation is managed by a government that has frequent elections and resulting turnover. That creates instability in the corporations and is anathema to outside capitalists interested in partnering with or investing in a tribe. Jurrius set out to build a financial structure that provided corporate-style continuity, even as tribal councils came and went. The council retains ultimate decision-making power, but micro-management is kept to a minimum. "It was a very sophisticated plan," says Jurrius, with a thick Texas accent, "(and) it became a road map from which they could make great decisions."

The plan divides the finances into two branches: The Permanent Fund and the Growth Fund. The Permanent Fund invests energy royalties and casino profits in securities, which generate a steady revenue to pay for government and social services. Other revenue goes into the Growth Fund, which in turn invests in what is now a myriad of companies in energy, real estate and private equity. That fund then distributes dividends to tribal members between the ages of 26 and 59 and retirement benefits to those over 60. The numbers vary year by year and the tribe won't reveal them, but one Southern Ute in his 70s says his share last year totaled $77,500.

"They've converted a non-renewable resource into a renewable financial resource because of the way they are investing and because of their strategy," says Lester. "If they stick with their principles, those funds will grow more rapidly than their population and inflation, keeping them on a steady rock of financial security."

With its three-story wall of mirrored, curved glass and steel, the Southern Ute Growth Fund headquarters has the glossy, enigmatic appearance of something in a business park in metro Denver or San Jose. But it's located in Ignacio, a town of 800 nestled among the irrigated pastureland, pinon, juniper and sage of southwestern Colorado. About half the residents of Ignacio are Hispanic and the rest are Natives or whites; 20 percent live below the poverty line. The town has a beaten-down, working-class flavor, and the tribe's modern administrative and financial complex -- including the Growth Fund building and the new casino, with its 124-room hotel and 24-lane bowling alley -- seems oddly out of place.

From this nerve center, the tribe's energy arm has reached into at least eight other states. The real estate arm owns or invests in developments and buildings in Denver and its suburbs, the San Diego suburb of Oceanside, as well as Kansas City, Houston and Albuquerque. The tribe's GF Private Equity portfolio -- for which the tribe is reportedly seeking a buyer, so that it can concentrate more on oil and gas -- includes biotech ventures and defense contractors. Closer to home, the tribe is developing Three Springs, a "new urban" community between the reservation boundary and Durango. To help launch it, the tribe donated land for a new Durango hospital, to serve as an anchor for as many as 2,200 new residential units. The tribe's net worth now stands at somewhere between $3.5 billion and $14 billion.

The tribe also has its own environmental standards, which are as strong as or stronger than state or federal regulations, and it is on the brink of getting federal approval for its sovereign air quality code. The first of its kind in the U.S., the code will empower the Southern Utes to tighten air-quality standards and administer permits under the federal Clean Air Act. The tribe has put parts of the reservation off-limits to all drilling, and it's partnered with Solix Biofuels to create an algae-to-biofuel facility on the reservation. It took control of the tribal medical clinic in order to improve care, built a state-of-the-art recreation center, and has a groundbreaking Ute language program in its school. The Southern Ute Community Action Program runs alcohol and substance abuse treatment centers, a senior center, and job-training programs. Every member has the option of accepting a full college scholarship from the tribe. And the Southern Utes continue to follow older traditions such as the Bear and Sun Dances, which draw huge crowds each summer.

Yet a small contingent of rebels, while generally happy with the benefits brought by wealth, is not pleased by the direction "the Plan" is taking the tribe. The rebels have launched efforts to recall the tribal council in recent years. Tribal elders James Jefferson and Orville Hood lead the opposition, while Sage Remington, a longtime tribal gadfly, offers philosophical support. Jefferson believes that the tribal council is being "taken for a ride" by its white managers and advisers. Similar accusations have dogged the leadership team since the 1990s. Nor are they limited to the Southern Utes: When Jurrius went on to help Utah's Northern Utes create their own energy company and financial plan a decade ago, he was eventually criticized by one branch of that tribe for trying to take control of tribal matters and getting rich in the process. He and his staff received $62,500 per month from the Northern Utes, plus $1 million for every $10 million he earned for the tribe, according to the Salt Lake Tribune; the Northern Utes ended up kicking Jurrius out and suing him. (That case was settled out of court.)

More specifically, Hood and Remington believe that the Southern Utes' off-reservation energy exploration ventures are folly, for both economic and environmental reasons, especially in the Gulf of Mexico in light of the BP disaster. Hood, citing information provided by a former employee of the tribe's financial branch, claims that the tribe lost $573 million on off-reservation energy exploration between 2002 and 2008.

It's difficult to verify such claims because the tribal government is veiled in secrecy. "Theoretically, we're all supposed to be stockholders in all of this," says Remington. "But we're not. We reap financial benefits, but that's about it. Our finances are like a Swiss bank account. We don't know what's going on."

Nor does the press. Over the weeks spent reporting this story, High Country News made repeated attempts to interview either a Southern Ute tribal council member or a high-level employee. The only response was a terse letter saying the tribal government had "decided not to participate at this time." Other journalists covering the tribe get the "no comment" treatment often, especially amid the recent political turmoil. And tribes are generally not subject to states' open records laws and the federal Freedom of Information Act. "We still feel like we're walking on a very narrow road, and there's a lot of reluctance to allow the outside world to look at us," says CERT's Lester. "Sometimes, the Southern Utes are reluctant to talk to me. And I respect … their right to control that dialogue."

Remington is less charitable: "They (current tribal leaders) are very secretive. They never give out interviews. No one can speak logically or reasonably to the press, because they might commit a faux pas or something and perhaps give out the wrong information."

Lester and off-the-record sources within the tribal administration say the secrecy is a reaction to biased or incomplete news coverage in the past. When the outside press covers the Southern Utes, it tends to emphasize the pitfalls of wealth, including the political infighting. The implication is clear: Those savages can't handle money any better than they can handle liquor. Yet the problems supposedly brought by prosperity -- crime, drugs, alcohol, greed, loss of culture and corruption -- existed long before the money started pouring in, perhaps to a greater extent. And the tangled politics and bitter accusations mirror the problems in many small towns, whether wealthy or not.

"Despite all of our differences," says Remington, "I see a great future for the tribal membership, because we are educating our young people, sending people to college to get Ph.Ds." Jefferson, Remington and Hood are a case in point. All three grew up on the reservation, then went off to college; Jefferson earned a Ph.D. in history from the University of Arizona and taught school; Remington, who is gay and was "listening to opera at age 10," went to the University of California-Berkeley and became a community organizer in Denver's Chicano, black and Native neighborhoods before returning to the reservation; Hood attended the University of California-Los Angeles law school for a while and then worked for the BIA for 30 years.

Hood is one-quarter Southern Ute -- enough to qualify him as a tribal member -- and one-half Navajo. A lot of Southern Utes are of mixed ethnicity and race; hundreds are even part African-American, descended from John Taylor, a black soldier who married a Ute named Kitty Cloud in the late 1800s. This diversity has become another tribal strength.

"We reap a lot of benefits," Remington says, "but that doesn't mean we have to be compliant. We have to question authority. We are Ute. Not Anglo."

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