An Ugly History

INTERSTATE ROUTE 550 CUTS through the heart of northwest New Mexico, a sparse, rugged region dominated by huge mesas and a wide sky. There are no Wal-Marts (WMT), Home Depots (HD) or Rite-Aids (RAD) here. There are no major hospitals, either.

Pipelines, oil drills and gas flares abound, however. The region, known as the Checkerboard, is located square atop the San Juan Basin, which supplies all of the natural gas used by Southern California.

Passing through, one might think this land is deserted. But just a few miles off the highway, down a dusty, unpaved road, a scattering of ramshackle houses and motor homes appears on the horizon. The inhabitants are Navajo Indians who live outside the official Navajo Nation reservation to the west. Referred to as "allottees," they own individual parcels of land created by the General Allotment Act of 1887. Navajo allottees are among the poorest ethnic groups in the U.S. According to a 2001 report by the Navajo Nation Division of Economic Development, 56.1% of Navajo people live below the poverty level, with per-capita income of $6,217 and an unemployment rate of 43.65%.

Major energy companies such as Apache (APA), Burlington Resources (BR) and ChevronTexaco (CVX) do business on the San Juan Basin, extracting natural gas, coal and oil. With the price of natural gas and oil soaring during the past year, these companies have been posting record profits.

That's why allegations that the federal government has helped energy companies get sweetheart deals to operate on allotted Navajo land have captured the attention not only of Congress, but also of a federal district court in Washington, D.C. Testimony submitted to the court last week by an employee of the Interior Department alleges that a number of officials in the federal government were aware of these practices, possibly for years, and failed to stop them. (To read the first part of our series, click here.)

A Special Kind of Trust
Last Thursday, Deborah Lewis, an appraiser with the Office of the Special Trustee for American Indians (OST), a branch of the Interior Department, filed an affidavit with the U.S. District Court for the District of Columbia detailing allegedly illegal activities she uncovered in 2002.

Lewis's 18-page affidavit chronicling her assignment at the Navajo Regional Office of the Bureau of Indian Affairs in Gallup, N.M., reveals that she had found evidence of document destruction and improper appraisal methodologies that allegedly violated federal law and resulted in consistently low values for rights-of-way easements used by oil and gas companies on Indian land. (A rights-of-way easement is an agreement allowing a person, government or corporate entity the right to use private land.)

Lewis, herself a Navajo Indian from the Checkerboard with a master's degree in public administration from the University of New Mexico, found that the chief appraiser of the Navajo office, Anson Baker, had been approving rights-of-way appraisals for values ranging from $25 to $40 a rod on a major trunk pipeline. (A rod, the standard measurement for rights-of-way valuations, is a 16.6-foot length of pipe; widths can vary.) When Lewis asked Chief Appraiser Baker how he'd arrived at the $25 to $40 per-rod valuation, he was unable to give an adequate explanation, according to her affidavit.

Public records of pipeline rights-of-way agreements show that a $25-to-$40 per-rod valuation for a major trunk pipeline, as opposed to a much smaller gathering line, which transports natural gas or oil directly from a wellhead, is extremely low. Pipeline companies paid $37.9 million for rights-of-way in the U.S. in 2003, according to the trade magazine Oil & Gas Journal. According to construction-permit applications for pipeline rights-of-way filed with the Federal Energy Regulatory Commission (FERC), the average rights-of-way agreement came to $130.80 a rod in 2003.

In the San Juan Basin, a 36-inch-diameter pipeline — a major transportation pipeline — fetched an average of $469.20 a rod in 2003, according to FERC filings. Some private landowners in the San Juan Basin receive far more than the average, as Alan Balaran, special master overseeing the Cobell v. Norton class-action lawsuit, found in his 2003 investigation of the appraisal office at Navajo. A rancher with land in Bloomfield, N.M., told SmartMoney.com that he received more than $1,000 a rod for three major pipelines crossing his property (see the pipeline agreement here).

Appraisal regulations are laid out in the Uniform Standards of Professional Appraisal Practice (USPAP). Lewis believed that Baker was violating USPAP standards, according to her affidavit, since he was unable to produce any supporting documents to validate the $25-to-$40 valuations, and since Lewis suspected that $25 to $40 was much less than fair-market value.

In her attempt to find supporting documentation for previously approved appraisals, Lewis found that Baker, who'd worked at the Navajo office since 1984, had erased the database on his computer that contained his appraisal log and had made no hard copies, a violation of federal law and court orders mandating the protection of all records relating to Indian trust funds. Absent such records, the Indian beneficiaries are unable to determine whether they are getting the maximum value for their property, which the government is obligated to ensure as a matter of law, according to federal court rulings.

In a series of e-mails and conversations, Lewis described what she'd found at the Navajo Regional Office to several of her superiors. According to her affidavit, she received little to no response from these individuals, including her immediate supervisor, Eldred Lesansee, OST regional appraiser; Kenneth Rossman, OST Trust Funds chief of staff (Rossman has since resigned from the OST); Gabriel Sneezy, OST chief appraiser; and Steven Graham, BIA realty officer.

Dan Dubray is the Interior Department's spokesman on all matters related to the Cobell litigation. "It's premature to respond to anything that's in [the Lewis] affidavit," he says. "The department takes every issue raised in Cobell seriously, and we're going to conduct an internal investigation."

The fact that Lewis's superiors had been notified of potentially illegal conduct by a chief appraiser of the BIA — the destruction of trust-fund records, the inappropriate appraisal methodology — prompts the question about what they planned to do, if anything, about it.