 Fort Berthold in North Dakota
Fort Berthold in North Dakota
By Abrahm Lustgarten,
 
ProPublica
Native Americans on an oil-rich North Dakota reservation have been cheated 
out of more than $1 billion by schemes to buy drilling rights for lowball 
prices, a flurry of recent lawsuits assert. And, the suits claim, the federal 
government facilitated the alleged swindle by failing in its legal obligation to 
ensure the tribes got a fair deal. 
This is a story as old as America itself, given a new twist by fracking and 
the boom that technology has sparked in North Dakota oil country. Since the late 
1800's, the U.S. government has appropriated much of the original tribal lands 
associated with the Fort Berthold reservation in North Dakota for railroads and 
white homesteaders. A devastating blow was delivered when the Army Corps of 
Engineers dammed the Missouri River in 1953, flooding more than 150,000 acres at 
the heart of the remaining reservation. Members of the Three Affiliated Tribes — 
the Mandan, Hidatsa and Arikara — were forced out of the fertile valley and up 
into the arid and barren surrounding hills, where they live now. 
But that last-resort land turns out to hold a wealth of oil, because it sits 
on the Bakken Shale, widely believed to be one of the world's largest deposits 
of crude. Until recently, that oil was difficult to extract, but hydraulic 
fracturing, combined with the ability to drill a well sideways underground, can 
tap it. The result, according to several senior tribal members and lawsuits 
filed last November and early this year in federal and state courts, has been a 
land grab involving everyone from tribal leaders accused of enriching themselves 
at the expense of their people, to oil speculators, to a New York hedge fund, to 
the federal government's Bureau of Indian Affairs. 
The rush to get access to oil on tribal lands is part of the oil industry's 
larger push to secure drilling rights across the United States. Recent estimates 
show that the U.S. contains vast quantities of oil and gas. As fracking has 
opened new fields to drilling, and the U.S. has striven to get more of its 
energy from within its borders, leases from Louisiana to Pennsylvania have been 
gobbled up. Now the pressure is increasing on one of the last sizeable holdouts 
— lands owned by Native Americans. 
A review of tribal and federal records as well as lawsuit documents reveals a 
dizzying array of lowball, non-competitive deals brokered by numerous companies, 
often entwined with the tribal council and with individual landholders on the 
reservation. But at heart the alleged practices are simple: Tribal leaders and 
outsiders set up companies to buy drilling rights cheap and flip them later for 
spectacular profits — in one case earning as much as a 200-fold return in just 
four years. 
"Hundreds of millions of dollars were lost," said Tex Hall, the current 
chairman of the Three Affiliated Tribes, in an interview. "It's just a huge loss 
and we'll never get it back." 
At the center of that particular alleged scheme, according to one of the 
suits, was Spencer Wilkinson, Jr., longtime manager of 4 Bears Casino, a 
time-worn warehouse of slot machines, swirling cigarette smoke and stained 
carpets that serves as the reservation's entertainment nexus and its financial 
hub. Wilkinson also sat on the board of the tribe's development corporation, 
where he was charged with finding new opportunities to enhance the economy of 
the reservation. 
According to interviews with tribal members, former employees of the Three 
Affiliated Tribes, and a class action lawsuit filed in federal district court in 
Bismarck, ND against Wilkinson and others, Wilkinson used his access to casino 
funds — and to the development corporation — to gain influence and craft an oil 
deal that would leave him one of the richest men on the reservation. 
In 2006 he became an owner of a company, Dakota-3, with Richard Woodward, a 
white consultant who, records show, was receiving more than $20,000 a month from 
tribal funds for his work at the development corporation. Together, the suit and 
other legal filings allege, Wilkinson and Woodward planned to raise money and 
buy up rights to much of the remaining land not yet slated for drilling, all the 
while maintaining their work with the tribes and employing Wilkinson's 
relationship with the council to help get the oil leases approved. 
Leases for oil rights generally work like this: A company purchases the right 
to drill for oil underneath an acre of land by paying a one-time upfront 
payment, called a bonus, and a percentage of the profits earned on the well, 
known as a royalty. On Indian lands additional laws also apply, dictating who 
can negotiate for whom and how the government has to oversee the agreements. 
Wilkinson declined to comment and Woodward could not be reached. Wilkinson 
has filed a motion to dismiss the case. The suit alleges that Wilkinson and 
others aided and abetted the U.S. government in failing to fulfill its fiduciary 
responsibility to the tribes; Wilkinson's motion argues, among other things, 
that the government had no such responsibility. Woodward has not yet filed a 
response to the suit in court. 
Many details of Dakota-3's deals remain murky. There is limited transparency 
into tribal government affairs, no public access to documents, no annual 
reporting on accounts, and limited communication about what tribal council 
members discuss in their meetings. 
But, according to separate lawsuits and records filed with the North Dakota 
Secretary of State, Dakota-3 partnered with an Oklahoma-based oil speculator 
named Robert Zinke and his company Zenergy to buy leases and form additional 
joint venture companies. Documents from two law suits mention the involvement of 
the New York based hedge fund Och-Ziff Capital Management Group but do not 
specify the firm's role. The hedge fund is publicly traded and, according to its 
web site, has more than $33 billion under management. 
A spokesman for Och-Ziff declined to comment, and Zinke did not return a 
telephone message. 
The interlinked companies, the documents show, purchased drilling rights to 
some 42,500 acres of lands owned by individuals and families through dozens of 
separate small deals. Those rights were ultimately controlled by Dakota-3, which 
also purchased from the tribal council drilling rights to another 44,000 acres 
of lands managed by the council. Altogether, Dakota-3 accumulated rights to 
about a fifth of the 420,000-odd acres of leasable land on the reservation, 
having bought much of those rights for as little as $50 per acre and royalties 
of around 18 percent. At about the same time, records and interviews show, other 
companies were purchasing drilling rights to land on and near the reservation 
for $300 to $1,000 per acre plus royalties as high as 22.5 percent. 
One of the lawsuits alleges that the difference in the one-time bonus 
payments, plus the difference in royalty payments, "could mean billions of 
dollars" over the life of the oil field. 
In late 2010, an Oklahoma-based oil production company, Williams, bought 
Dakota-3 for $925 million. At the time of the purchase, Dakota-3 was pumping a 
small amount of oil, but the bulk of its assets were the drilling rights. Two 
lawsuits allege that by buying Dakota-3, Williams effectively paid more than 
$10,000 per acre for those rights — as much as 200 times what Dakota-3 had paid 
for the leases. 
At issue is not just the question of how Dakota-3 managed to win the tribal 
council's approval for the deal, but whether the federal government should have 
stepped in to ensure that the tribes were paid higher rates. 
Reservation lands are still held in trust by the U.S. government. As a 
trustee, the Department of the Interior has responsibility for overseeing the 
development of oil and gas on tribal lands, and for ensuring that any leases or 
sales of that land are made in "the best interest" of the Native Americans.
When 
it comes to leases to drill for oil — even those negotiated directly between the 
tribal council and the oil industry — the Bureau of Indian Affairs is required 
to make sure the leases meet this standard. 
The bureau did not respond to a list of written questions, but according to 
interviews and documents obtained by ProPublica, the bureau approved the leases 
even though some Interior Department staffers expressed misgivings. Other 
documents show that tribal members appealed to high-level Interior Department 
officials and others to reject the leases and step in on their behalf. 
"Mr. Secretary, this company, Dakota-3, like the other companies in the oil 
business will turn around and sell the lease," wrote Russell Mason Sr., a tribal 
elder, to the Assistant Secretary for Indian Affairs in a December, 2007 letter. 
"We are making a plea to you that you exercise your trust responsibilities." 
"The United States has uniformly failed in its duties to the Indian 
landowners," states one lawsuit in the U.S. Court of Federal Claims in 
Washington, D.C. that was brought by tribal landowners seeking restitution for 
the Dakota-3 leases sold to Williams. 
The Dakota-3 deals are not the only controversial ones. For example, a 
company called Black Rock Resources purchased drilling rights to about 12,800 
acres of land for $35 per acre and a 16.7 percent royalty. It later sold those 
rights to Marathon Oil for about $42 million, according to financial documents 
that describe the deal. 
Messages left for multiple Black Rock Resources officials were not returned, 
and Marathon Oil did not immediately respond to a message seeking comment. 
The Bureau of Indian Affairs approved the Black Rock deal, and documents 
obtained by ProPublica reveal the sometimes-contradictory advice the Bureau of 
Indian Affairs received from its own staff and other federal officials. 
When Black Rock first offered to buy up reservation leases for $35 per acre 
beginning in 2005, some bureau staff justified the rates saying the cumbersome 
regulations and past problems with leasing on the reservation had driven down 
demand. "Unfortunately," wrote one staffer in a department letter, $35 per acre 
"is what the market will bear." 
But in a review dated November, 2005, an expert at the Bureau of Land 
Management wrote that the offered price "appears to look low compared to those 
offered recently at both BLM and North Dakota State competitive oil and gas 
lease sales in the area." He cited other sales that same month for as much as 
$370 an acre. An Interior Department lawyer in Washington sent a letter to North 
Dakota BIA officials expressing similar concerns. 
Even at the time, the tribe received higher offers. Jerry Nagel is a tribe 
member, businessman and former program analyst for the tribe who has been 
outspoken against leases he thought were being sold for too little. In an 
interview, he said that he financed a venture in 2006 that offered the tribe 
$140 per acre plus a royalty rate more than twice as high as the tribal council 
was offered for the big leases it ultimately signed. It's unclear why the tribal 
council didn't take that offer, but Nagel claims it's evidence that the council 
gave preferential treatment to certain suitors. 
The tribal council's office did not immediately respond to questions about 
why the council passed over Nagel's offer. 
Kyle Baker is a tribe member, geologist and former environment official for 
minerals and energy for the tribe. He said that his family struck deals to lease 
its acreage on and near the reservation for as much as $700 per acre around the 
same time as the Black Rock deal. 
"Companies will come and find your weaknesses and then drive themselves in," 
Baker said on a recent wintery morning in his living room overlooking Lake 
Sakakawea. "Our laws, our setup wasn't ready for it." 
Companies and the U.S. government have long known that the Ft. Berthold 
reservation lay in the heart of the oil-rich Williston Basin, a reserve thought 
by some to contain as much as 20 billion barrels of oil. But previous efforts to 
lease and drill on the Indian lands stalled in the 1970s, and again in the late 
1990s, thwarted by a dense bureaucracy and a tangle of laws governing leasing on 
reservations. 
Only after the advent of modern fracking — and after Congress passed a 
handful of laws to ease corporate access to the Ft Berthold reservation — did 
companies begin to invest seriously in drilling there. 
Today it's estimated that the three tribes and individual Native American 
landholders are receiving some $50 to $80 million a year from the drilling 
leases and royalties, compared with revenues of about $5 million a year before 
the boom began in about 2006. 
But that money has brought allegations of sweetheart arrangements that have 
left a few tribal members with disproportionate profits from oil development. 
In 2011 a team of elders audited the tribal council's activities. They found 
widespread financial inconsistencies that they said indicated systemic 
misconduct. "We saw millions of dollars going out and hardly anything coming 
back" to the Three Affiliated Tribes, said Tony Foote a forensic auditor who 
chaired the team. "We're not just talking about cash. It's rooms, food, travel, 
donations, and there's only a handful of people that can get all this stuff." 
Hall, the tribes' current chairman, had previously held that post from 1998 
until 2006. He didn't deny that there had been corruption, but he said that 
since he came back into office in 2010 he has focused on reform and on making 
sure that the oil revenues benefit the broader tribal community. He said he has 
formed tribal entities to directly control a pipeline and refinery project, set 
up a $100 million trust fund for the tribes, and begun to sign lease agreements 
that are more favorable to the Native Americans on the reservation. He also 
demoted Wilkinson, who is now an administrative officer at the casino, not its 
CEO. 
"I was called back because people were concerned about sweetheart deals, so 
we have totally changed the dynamic," he said.