Case Name: NAVAJO TRIBE OF INDIANS v. THE UNITED STATES
Court: United States Court of Claims
Jurisdiction: United States
Decision Date: 1966-07-15
Citations: 176 Ct. Cl. 502
Docket Number: No. 49692
Parties: NAVAJO TRIBE OF INDIANS v. THE UNITED STATES
Judges: Before CoweN, Qhief Judge, Jones, Senior Judge, Laea-more, Davis, and Cousins, Judges.
Reporter: United States Court of Claims Reports
Volume: 176
Pages: 502–633

Head Matter:
364 F. 2d 320
NAVAJO TRIBE OF INDIANS v. THE UNITED STATES
[No. 49692.
Decided July 15, 1966.
Defendant’s motion for rehearing denied October 14, 1966]
Marvin J. Sonoshy for plaintiff; Norman M. LitteTl, attorney of record. S. King Funhhouser, Rufus G. King, Jr., and Charles J. Alexander, of counsel.
Floyd L. France, with whom was Assistant Attorney General Edwin L. Weisl, Jr., for defendant.
Before CoweN, Qhief Judge, Jones, Senior Judge, Laea-more, Davis, and Cousins, Judges.

Opinion:
Collins, Judge,
delivered the opinion of the court:
As the result of a series of transactions beginning in 1942, the United States acquired certain oil and gas rights with respect to the Rattlesnake field, an area within the Navajo Indian Reservation. In this suit, which is based in part upon a special jurisdictional act and in part upon 28 U.S.C. §1505 (1964), plaintiff seeks additional compensation for those rights.
Three separate claims are presented. The first relates to an oil and gas lease, covering part of the Rattlesnake field, which was originally granted to Continental Oil Company in 1942. Subsequent to the discovery of a reserve of helium-bearing gas, Continental assigned the lease to the United States. Plaintiff asserts that the assignment should have been taken on its behalf. The second claim pertains to a lease, executed in 1923, the subject of which was another part of the Rattlesnake field. Plaintiff contends that the Government took from the tribe, without compensation, ownership of the lessee's interest in the gas deposit underlying the 1923 leasehold.
The basis for the third claim, is an agreement, entered into in 1945 by the United States and the Navajo Tribe, which permitted the United States to increase its control over the reserve of helium-bearing gas. This agreement, dated December 1, 1945, became effective on July 1, 1947, after its approval by Congress. Plaintiff takes the position that the consideration which it received pursuant to the agreement was inadequate.
We have concluded, for reasons to be explained, that plaintiff is entitled to recover with respect to the 1942 lease and the 1945 agreement, but that plaintiff's claim as to the 1923 lease must be denied.
The three claims will be discussed separately. Detailed findings of fact were made by the trial commissioner, the late Robert K. McConnaughey. His report, as modified by the court, is set forth infra.
X. The 1942 Lease.
Before turning to the precise issues relevant to the assignment of the 1942 lease, we must consider the general assertion of plaintiff that, in judging the conduct of the Government, "the most exacting fiduciary standards" must be applied. Defendant does not challenge this concept as such, and we are of the opinion that plaintiff's view is basically correct.
As indicated in finding 6(a), the United States was responsible for supervision of the affairs of the tribe, including, in particular, supervision of oil and gas leases on tribal property. Numerous cases have expressed the notion that, when dealing with Indian property, the Government may be acting as a "trustee." E.g., Seminole Nation v. United States, 316 U.S. 286, 296 (1942) ; Menominee Tribe v. United States, 101 Ct. Cl. 10, 19 (1944). In Oneida Tribe v. United States, 165 Ct. Cl. 487, cert. denied, 379 U.S. 946 (1964), Judge Davis pointed out that it was unnecessary to determine whether the relationship between the tribe and the United States was a trusteeship or guardianship in the technical sense. In any event, the circumstances were such that the United States had a special duty of care regarding the property of the Oneidas. 165 Ct. Cl. at 494. The principle expressed in Oneida Tribe is pertinent to the present case and especially to the matter of the assignment of the 1942 lease. Cf. Seneca Nation v. United States, 173 Ct. Cl. 917, 924-25 (1965).
Since the Department of the Interior had an obligation to safeguard the property of the Navajos when they were dealing with third parties, it is clear that an even greater duty existed when the Department itself entered into transactions with the Indians. Here, the party whose interests were actually or potentially adverse to those of the tribe was the Bureau of Mines, an agency of the Department of the Interior. Plaintiff is correct in asserting that there was, within the Department of the Interior, a conflict of interest. Because of this and because of the Government's special duty toward the Indians, the various dealings must be carefully scrutinized. In considering the claims of plaintiff, we have endeavored to give adequate weight to "fiduciary standards."
The facts pertinent to plaintiff's initial claim can be summarized as follows: The oil and gas lease which Continental Oil Company obtained in 1942 applied to 3,720 acres of the Navajo Reservation. Helium was specifically included in the terms of the lease. Continental proceeded to drill a well (Navajo No. 1) and, in June 1942, helium-bearing noncombustible gas was discovered. Since Continental had no desire to produce the gas, it indicated to the Bureau of Mines an intention to surrender the 1942 lease to the tribe. The Bureau of Mines was interested in helium production, and, in July 1942, Continental agreed to put the well into condition for testing. The expenses of Continental were to be reimbursed by the Bureau of Mines. When the tests confirmed the presence of helium-bearing gas, defendant began to explore the possibilities of producing helium and constructing a helium plant on the Navajo Reservation.
In August 1942, Continental repeated its intent to surrender the lease. The Bureau of Mines advised Continental of its interest in using the Rattlesnake field as a source of helium. Ultimately, in December 1942, Continental agreed to assign its lessee's interest to the United States. Consideration for the assignment, which became effective on December 17, 1942, was nominal. The Navajos had not been informed of Continental's desire to surrender the lease, and they did not learn of the assignment until after it had become effective.
At the time of the assignment, it was uncertain whether Navajo No. 1 could be completed as a producing well. In March 1943, development of the well was resumed and, in May 1943, it was accomplished. Meanwhile, in January 1943, defendant had entered into a contract for the construction of a helium plant on the Navajo Reservation. It was not until July 1943 that the tribe authorized the granting of the property rights necessary for the plant.
Plaintiff contends that the assignment should have been for the benefit of the tribe. Defendant, on the other hand, argues that, if the lessee's interest had been surrendered to the tribe, plaintiff would have been "worse off." According to defendant, if the Government had not obtained the lessee's interest, there would have been no development of helium production and plaintiff would not have received the benefits which it got. The trial commissioner adopted defendant's viewpoint to a certain extent; i.e., he concluded that the evidence did not show whether plaintiff would have been better or worse off if Continental had surrendered the lease to the tribe. This suggests that plaintiff failed to prove injury. We can accept neither the view of defendant nor that of the trial commissioner. We agree with plaintiff that the Government acted in violation of its obligation to the tribe.
It is understandable that the Bureau of Mines wished to obtain the lessee's interest directly from Continental. Due to the wartime need for helium, the Government desired to proceed with development of the Rattlesnake field as quickly as possible. The Bureau of Mines feared that complications (such as the need for legislation) would result if (1) Continental surrendered the lease to plaintiff and (2) defendant had to acquire the lessee's interest from the tribe. Although the actions of the Bureau personnel may have been in the national interest, they were not consistent with the Government's duty to the Navajos. Cf. Menominee Tribe v. United States, supra.
The tribe should have been informed of Continental's desire to surrender the lease. The case is somewhat analogous to that of a fiduciary who learns of an opportunity, prevents the beneficiary from getting it, and seizes it for himself. Under such circumstances, the beneficiary (here the tribe) is entitled to recover. Cf. Ottawa Tribe v. United States, 166 Ct. Cl. 373, 380, cert. denied, 379 U.S. 929 (1964). Of course, plaintiff cannot prove what would have happened if the tribe had been consulted prior to the assignment, but plaintiff's inability is attributable to the failure of defendant to keep the tribe informed. Therefore, the doubts should be resolved in favor of plaintiff. Cf. United States v. Shoshone Tribe, 304 U.S. 111, 117 (1938). Accordingly, we reject defendant's assertion that it is.uncertain whether the Government would have proceeded with the project if it had not obtained the assignment from Continental. We shall assume that, if Continental bad given up tbe lease to tbe Navajos, tbe Bureau of Mines would then bave acquired tbe lessee's interest from the tribe. In fixing tbe amount of recovery, we shall attempt to determine what plaintiff would bave received if tbe previously described events bad taken place. The matter of tbe amount of plaintiff's award is discussed in a later part of this opinion.
II. The 1923 Lease.
Tbe basis for plaintiff's claim regarding tbe 1923 lease is 28 U.S.C. § 1505 (1964), tbe section dealing with this court's jurisdiction over Indian claims accruing after August 13, 1946. In support of its contention as to the taking of tbe lessee's interest in the helium-bearing gas, plaintiff advances three alternative arguments, the first of which is that tbe rights conveyed by tbe 1923 lease did not include helium.
A. The Scope of the Grant
Tbe pertinent facts can be stated briefly. In December 1923, tbe Assistant Secretary of tbe Interior approved an oil and gas lease which applied to 4,080 acres on tbe Navajo Reservation. Tbe original lessee was S. C. Munoz. Subsequently, Continental Oil Company and Santa Fe Corporation each acquired one-half of tbe lessee's interest. In 1924, oil was discovered on the land covered by tbe 1923 lease, and production of oil took place in tbe following years.
In 1943, after helium-bearing gas bad been discovered on tbe 1942 leasehold, it was decided to drill an additional deep well on the 1923 land. Pursuant to an operating agreement entered into, in May 1943, by tbe two lessee-companies and tbe United States, Continental was authorized to drill tbe new well at tbe expense of tbe Government. This well, Rattlesnake 1-G, was completed in August 1943; again helium-bearing gas was found. A trial run took place, and royalties of $115.45 were paid for the gas produced from Rattlesnake 1-G. Then, the well was "shut in."
Part of the consideration paid by the United States to the tribe in connection with the December 1,1945, agreement was advance royalties with respect to helium-bearing gas underlying the 1923 leasehold. The parties assumed that, prior to the agreement, the tribe had a lessor's (or royalty) interest and the companies, the lessee's interest regarding the helium-bearing gas. Plaintiff now challenges these assumptions and asserts that it never parted with its rights to the helium.
Our task is to construe the language of the lease, in particular the clause which stated that the grant was of "all the oil and gas deposits [under the described acreage]." Plaintiff asserts that the term "gas deposits" referred solely to gaseous hydrocarbons, a classification which does not include helium. According to plaintiff, defendant has the burden of showing that the parties to the lease specifically intended it to convey helium.
Plaintiff seeks to draw support from a number of cases in which the issue related to the meaning of grants of "minerals." Among the decisions cited by plaintiff is McKinney's Heirs v. Central Kentuchy Natural Gas Co., 134 Ky. 239, 120 S.W. 314 (1909), in which the court construed a conveyance of "all minerals such as coal, iron, silver, zinc or any other mineral of any marketable value The court held that the conveyance did not include natural gas. 120 S.W. at 317. Although it was a "mineral," there was nothing to show that the parties intended to include natural gas. Other courts have held that, in determining whether a particular substance came within a grant of "minerals," it was proper to consider both the language of the particular instrument and the circumstances existing at the time. For example, in Dierks Lumber & Coal Co. v. Meyer, 85 F. Supp. 157, 162 (W.D. Ark. 1949), the court attributed significance to the fact that the particular mineral, novaculite or whetstone, was known to exist in the area at the time of the conveyance. According to plaintiff, application of the rationale of the "minerals" cases to the present case leads to the conclusion that helium was not conveyed. Plaintiff points out that helium was not specifically mentioned in the 1923 lease and argues that knowledge of helium was extremely limited during the period in question.
Although defendant disputes plaintiff's view regarding the status of helium in 1923, more important is the fundamental distinction which defendant draws between the "minerals" decisions and the present case.
Defined literally, the term "minerals" is extremely broad. It would encompass liquids, solids, and gases of many different types. Thus, it is understandable that courts refuse to apply a literal definition and seek, instead, to determine what the parties "had in mind" regarding the particular mineral. In the present case, however', the grant was not of "minerals," but of "all the oil and gas deposits." The term "gas deposits" is less broad than "minerals." Moreover, we are not dealing with the relationship between such minerals as coal and natural gas, substances which differ in form and which are produced by different means. The gas, helium, was one component of the gas found in the Rattlesnake field.
The position asserted by plaintiff appears to overlook the fact that gases existing in nature do not fall into neat, mutually exclusive categories such as "hydrocarbon" and "non-hydrocarbon." The various elements are commingled. With respect to the Rattlesnake gas, the hydrocarbon content could not be produced separately from the other components, and, even under plaintiff's view, the lessee would have the right to produce the hydrocarbon gases. Perhaps, plaintiff would impose upon the lessee an obligation to produce the gas, extract the helium, and deliver the refined helium to the lessor. Of course, it would have been possible for the parties to create such an arrangement. (See the Mineral Leasing Act of 1920,41 Stat. 438, as amended, 30 U.S.C. § 181 (1964).) However, the lease in question contains no such provisions, and there is no basis for holding that such an understanding arose by implication.
We consider defendant's approach to be the proper one. Although the parties to the lease may have been thinking mainly of fuel-type gases, it is still more realistic to presume that the grant included not only hydrocarbons but the other gaseous elements as well. It follows that, whether its percentage was high or low, the helium component was part of the "gas deposit" which passed to the lessee. This conclusion is consistent with what we have determined to be the general intent of the' original lessor and lessee. It seems clear that, if Mr. Munoz had discovered the helium-bearing gas shortly after execution of the lease, he could have successfully claimed that his lessee's interest encompassed the reserve.
A second group of cases upon which plaintiff relies is the Oklahoma "casinghead gas" decisions. Casinghead gas is a hydrocarbon substance which is produced from oil wells. Modem leases deal expressly with casinghead gas, but older ones did not. The typical older lease provided a one-eighth royalty for oil from an oil well. Regarding gas from a gas well, the lessee's obligation was limited to payment of a flat annual fee (e.g., $100) for each producing well. Thus, a problem arose when casinghead gas became a valuable product, a source of gasoline. If it were considered to be "gas from a gas well," the lessee's obligation, payment of the fixed fee, would have no relation to the proceeds from the sale of the casinghead gas. Another possibility would be to consider the casinghead gas as "oil from an oil well," thus entitling the lessor to a one-eighth royalty.
The Oklahoma courts refused to follow either of the above alternatives. They adopted the following rule:
If no mention is made of casinghead gas in the lease, and no interpretation to the contrary has been placed thereon by the parties, such casinghead gas remains the property of the lessor and does not pass to the lessee. [Broswood Oil Co. v. Sand Springs Home, 178 Okla. 550, 62 P. 2d 1004, 1006 (1936).]
On the basis of this rule, plaintiff concludes: "A fortiori if casinghead gas, a hydrocarbon, is not oil or gas within the meaning of an oil and gas lease, helium, a non-hydrocarbon, is not a gas deposit within the meaning of an oil and gas lease."
There is no reason to follow the Oklahoma cases. First, the rule has been questioned by the Oklahoma court itself. Broswood Oil Co. v. Sand Springs Home, supra, 62 P. 2d at 1006. Secondly, an important distinction is the fact that casinghead gas is gas produced from an oil well. It appears that the Oklahoma courts were motivated by a desire to insure adequate compensation for the lessors.
Defendant points out that, in analogous cases, the Texas courts have taken a different approach. Of particular significance is Lone Star Gas Co. v. Stine, 41 S.W. 2d 48 (Tex. Comm'n App. 1931). The grantee of "all natural gas " produced gas containing condensate from which gasoline was manufactured. The grantee had paid substantial consideration for the deed and had obtained the right to take the gas without payment of any further compensation. The grantor sought a royalty based on the value of the gasoline, but the court denied relief. The court held that "all natural gas" included every substance that came from the well as gas. 41 S.W. 2d at 49. The Government urges that similar reasoning should be applied to the present case, and, as indicated previously, we agree.
To summarize, plaintiff's "specific intent" theory must be rejected. Fundamental distinctions exist between the present case and those cited by plaintiff.
Even, if we were to consider plaintiff's analysis to be valid, it is not at all certain that plaintiff would prevail. Although the evidence regarding the circumstances at the time of the signing of the 1923 lease is scant, there appears to be some merit in defendant's view that the existence of helium was generally known. Also, it is significant that the Department of the Interior acted for the tribe and certainly the Department was familiar with helium.
In addition to relying upon the cases discussed above, plaintiff asserts that the terms of the lease support its view. Plaintiff argues that, under the rule of ejusdem generis, the term "gas" in the granting clause is limited to hydrocarbons, i.e., gases associated with oil. We see no reason to apply ejusdem generis to a phrase such as "oil and gas," and plaintiff cites no authority for doing so. The royalty clause contains a reference to gas and its use for "ordinary domestic purposes." Also, the lease includes a clause which grants the tribe the right to use gas for schools or other buildings. Plaintiff points out that helium can never be used for "domestic purposes" or for heating buildings. Plaintiff's assertion is true with regard to pure helium. Moreover, the gas produced from the Rattlesnake 1-G well was noncombustible and was unsuited for use as fuel. Nonetheless, we are unable to accept plaintiff's conclusion. There was no express reservation of "non-hydrocarbon" or noncombustible gases, and, for the reasons explained above, we decline to create such a reservation.
It may appear that deciding the question of helium ownership against the tribe is inconsistent with the notion that ambiguities in oil and gas leases are to be construed in favor of the lessor. See, e.g., Stanolind Oil & Gas Co. v. Guertzgen, 100 F. 2d 299, 301 (9th Cir.1938) ; Emery v. League, 31 Tex. Civ. App. 474, 72 S.W. 603, 607 (1903). Certainly, application of the above rule must depend upon the circumstances of the particular case. Regarding the present case, acceptance of plaintiff's view would lead to an unrealistic result, one which would be in conflict with the general intent of the parties. Therefore, it is much more proper to hold that the helium component of the gas deposit passed to the lessee.
B. Forfeitwe
As an alternative, plaintiff claims that, if ownership of the helium were conveyed by the lease, then the lessees' rights to the gas were forfeited. Plaintiff's argument is based upon the following provision of the 1923 lease:
Failure on the part of the lessee to use a gas-producing well which can not profitably be utilized at the rate herein named shall not work a forfeiture of this lease so far as it relates to mining oil, but if the lessee desires to retain gas-producing privileges, he shall pay a rental of $100.00 per annum in advance, calculated from the date of the discovery of gas on each gas-producing well, the gas from which is not marketed nor utilized other than for operations under this lease.
The pertinent facts are as follows: Rattlesnake 1-G, the deep well located on the 1923 leasehold, was completed on August 26, 1943. Since there was no marketing or utilization of gas, the tribe was entitled to receive the rental of $100 per year. The obligation to make rental payments belonged to the lessee-companies, Continental and Santa Fe; however, under their operating agreement of May 1943 with the Government, the companies were to be reimbursed by the Government. Shut-in rental for the year beginning August 26,1943, was paid on December 31, 1943.
Although (with the brief exception of a trial run in 1944) the well remained in shut-in condition, no further rental payments were made until August 1947. Through inadvertence, neither the companies nor the Government had made the rental payments for the years commencing on August 26 of 1944,1945, and 1946. After the oversight had been discovered, the Bureau of Mines arranged for payment of the $300 due. The Geological Survey, which supervised operations under oil and gas leases on tribal lands, wrote Continental that payment of the $300 placed the account "in good standing
It is plaintiff's position that, under the clause quoted above, the lessees' failure to make timely payment of the rental resulted in the forfeiture, on August 26,1944, of their rights in the gas. Thus, plaintiff seeks to recover the value of the well, Rattlesnake 1-G, and of the lessees' interest in the gas underlying the 1923 leasehold. Defendant rejects plaintiff's interpretation of the provision regarding shut-in rental. We have concluded that defendant is correct in asserting that the lease does not call for forfeiture.
In support of its position, plaintiff cites a group of cases which dealt with the matter of shut-in rental. One such case is Freeman v. Magnolia Petroleum Co., 141 Tex. 274, 171 S.W. 2d 339 (1943). The oil and gas lease, which was interpreted in Freeman v. Magnolia Petroleum Co., was to remain in force for a primary term of 10 years and "as long thereafter as oil, gas or other mineral is produced from said land." 171 S.W. 2d at 340. The lease called for the payment of a royalty on the value of gas sold, etc., and contained, in addition, a "shut-in" clause which provided for:
a royalty of $50.00 per year on each gas well from which gas only is produced while gas therefrom is not sold or used off the premises, and tohile said royalty is so paid, said well shall be held to be a producing well under [the clause regarding continuation of the lease] ; . (Emphasis supplied.)
No oil or "other mineral" was produced during the primary term which ended on April 7, 1940. In December 1939, a gas well had been completed; however, there was no sale of gas or any use of it off the premises. The lessees did not tender the shut-in royalty of $50 until 4 months after the end of the primary term. The lessors, who had refused to accept the tender, sought cancellation of the lease, and the court decided in their favor. The court stressed the fact that, as of the end of the primary term, there had been neither actual production nor payment of the rental (which would have amounted to a substitute for production). Having concluded that the lease lapsed according to its terms, the court held that the untimely tender of rental was without effect. 171 S.W. 2d at 342. Reasoning similar to that of Freeman v. Magnolia Petroleum Co. has been applied in other Texas cases.
We cannot agree with plaintiff that Freeman v. Magnolia Petroleum Co. and the related authorities require a decision in plaintiff's favor on the question of forfeiture. As defendant points out, the 1923 lease differs materially from the type involved in Freeman and, consequently, the basic issue is quite different.
The decision in Freeman v. Magnolia Petroleum Co. did not rest upon an implied requirement of forfeiture. Rather, the court found that neither of the express conditions for continuation of the lease had been meet and that, therefore, the lease automatically expired at the end of the primary term. With regard to the present case, the 1923 lease did require payment of the shut-in rental, but it did not go on to provide for automatic termination of gas rights in the event of failure to pay. Defendant is correct in asserting that this distinction is a crucial one.
According to plaintiff, the rule that "courts abhor a forfeiture" is inapplicable to oil and gas leases, and the opposite rule applies. In support of this view, plaintiff cites Kies v. Williams, 190 Ky. 596, 228 S.W. 40 (1921). This argument can best be answered by discussing the very case which plaintiff cites.
In Kies v. Williams, the lessors sought cancellation of an oil and gas lease on two grounds, failure to complete two wells within 1 year of execution of the lease and failure to pay certain rental. Rejecting both alternatives, the court decided in favor of the lessees. 228 S.W. at 41. There is language in the opinion which, taken out of context, appears to be in accord with the view the Navajo Tribe is urging. However, it is essential to realize (1) that the court, in Kies v. Williams, was referring to forfeiture "when the lease contains a forfeiture clause similar to the one here involved " and (2) that the clause in question provided that, unless two wells were completed within 1 year, "this lease shall become null and void ." 228 S.W. at 41. Thus, the provision for forfeiture was expressed clearly and unmistakably. (The clause was not put into effect, since the court found that two oil wells had been completed.)
More relevant to the present case is the interpretation, in Kies v. Williams, of the rental provision which stated that, commencing 1 year after execution of the lease, the lessees "shall pay [rental] at the rate of $365 for each year, quarterly in advance, thereafter, until oil is produced from the land hereof." 228 S.W. at 41. Rejecting the argument of the lessors, the court stated the following, 228 S. W. at 42:
The failure of the grantees to pay the rentals in advance did not, nor was [it] intended to, work a forfeiture of the lease. If the contract had contained a clause saying, in effect, that a failure to pay said rentals in advance would work a forfeiture of the lease, it would have been enforceable, but in the absence of such a clause the failure to pay the rentals when due did not have such effect. If the grantees should fail to pay the rentals in advance under the lease, the owner of the surface could maintain an action against them.
Thus, the court refused to read into the lease a provision for nullification in the event of failure to pay the rental in advance. Similar reasoning was used in Kelley v. Ivyton Oil & Gas Co., 204 Ky. 804, 265 S.W. 309 (1924), a case involving, inter alia, the payment of a flat-fee royalty for a producing gas well. In the latter case, an alternative ground for the court's decision (which was adverse to the lessors) was explained as follows: " a forfeiture of the lease will not be decreed because of arrears of rent or royalty except upon clear language in the lease providing therefor." 265 S.W. at 311.
On the basis of the cases discussed above, we reject plaintiff's assertion that, in general, forfeitures of oil and gas leases are favored. The proper rule is that the sanction of forfeiture will not be imposed unless clearly required by the terms of the lease. The 1923 lease does not expressly call for forfeiture of the right to produce gas. It follows, therefore, that plaintiff's argument cannot prevail.
In view of our interpretation of the lease, we cannot agree with plaintiff's assertion that the Geological Survey acted improperly in accepting the late payments. In some cases, the courts, in construing leases, have attributed significance to the conduct of the parties with respect to the instrument. E.g., Davis v. Laster, 242 La. 735, 138 So. 2d 558 (1962). In the present case, we have not imputed to plaintiff the behavior of the Geological Survey which determined, in August 1947, that the lessees' account was in good standing. On the other hand, our interpretation of the lease has not been colored by the fact that the party actually interested in gas production was not the lessee-companies, but the United States.
To summarize, we have determined that, since the 1923 lease did not expressly provide for nullification of the lessees' right to produce gas, no such sanction should be placed upon the lessees. Accordingly, there is no basis for plaintiff's claim that, upon the nonpayment of the shut-in rental, the tribe became entitled to the gas deposits.
C. Transfer by the Lessees
Plaintiff's third argument is that, if it did not otherwise own the helium underlying the 1923 leasehold, such ownership was acquired by it under the agreements which went into effect in 1947. The facts relevant to plaintiff's assertion can be explained as follows: The December 1, 1945, agreement of the tribe and the United States provided for the division of the 1923 (and the 1942) leasehold into formations above and below the base of the Hermosa formation. (The helium-bearing gas, which the Government wished to acquire, was located within the Leadville-Ouray formation, beneath the Hermosa.) Further, each lease was to be terminated as to formations under the Hermosa, and those strata were to be surrendered to the tribe. The Navajos agreed to grant to the Department of the Interior a new lease conveying exclusive rights in the oil and natural gas, including helium, below the Hermosa.
The plan envisioned by the December 1, 1945, agreement could not be accomplished without the participation of the lessee-companies. Accordingly, the Government and the two companies entered into a contract, dated September 19, 1946. The companies agreed that, as of the effective date of the contract between the tribe and the Government, the 1923 lease would be terminated as to all formations beneath the Hermosa and tbeir rights in such formations would be surrendered to the tribe "to the end that the new lease to the Department [of the Interior from the tribe] may become fully effective." In its contract with the companies, the United States agreed to make a net payment of $166,594 for the rights it received from them.
The two agreements were submitted to Congress. Both were approved, and both became effective on July 1, 1947.
The above facts should make it clear that plaintiff's claim is without merit. Of course, the lessees surrendered to plaintiff their interest in the snb-Hermosa formations, including their interest in the helium-bearing gas. However, defendant is quite correct in stressing the fact that the surrender to the tribe was not a gift, but was part of an integrated plan. The lessees transferred to plaintiff their rights in the formations below the Hermosa (1) because the United States had compensated them for their interests and (2) in order to make possible the receipt by the Government of a new lease of those formations. As defendant states, the tribe was merely a necessary conduit in the transfer from the companies to the United States. None of the parties to the two agreements contemplated that the tribe would be paid for the rights surrendered by the lessee-companies. For this reason, plaintiff's third argument regarding the lessees' interest in the 1923 lease must be rejected.
In conclusion, with regard to the rights of the lessees in the 1923 lease, plaintiff is not entitled to any recovery.
III. The 1945 Agreement.
As consideration for the agreement dated December 1, 1945, plaintiff received a total of $147,799. Of this amount, $117,336 represented the advance payment of royalties on the helium-bearing gas. The remainder, $30,463, was the present worth of the rentals which plaintiff would be entitled to receive from the Government. The amount of prepaid royalties was based upon a formula arrived at by the Bureau of Mines. The Bureau attempted to determine (1) the volume of the deposit of helium-bearing gas and (2) the value, per unit, of the gas; the other elements in the formula were (3) the royalty rate and (4) a discount factor used to reduce to present worth the total royalty payable on the estimated reserve. Plaintiff challenges each of the four elements used by the Bureau of Mines. Our conclusion that, with the exception of the unit value, the Bureau's computation was correct is explained in the following sections.
A. The Sise of the Gas Reserve
In June 1945, H. H. Hinson of the Bureau of Mines estimated that the recoverable reserve of helium-bearing gas amounted to 12,386,902,000 cubic feet. This estimate (which will be referred to as 12.4 billion cubic feet) was the one utilized in determining the payment to plaintiff. According to plaintiff, the actual size was 47.3 billion cubic feet.
Various estimates of the recoverable amount of gas were made. The first took place in May 1943, just after completion of the Navajo No. 1 well. Others were made as late as 1958, several years after the cessation of production. The study upon which plaintiff relies was prepared, in 1955, by Forest John Sur, an experienced geologist. As explained in the findings of fact, Sur's estimate differed from that of Hinson primarily in two respects, the volume of the zones containing the gas and the percentage of gas in place which was recoverable. Sur concluded that the total volume of the "pay interval" in the Rattlesnake field was 67,200 acre-feet. As the average thickness of the gas reservoir, Sur used 48 feet; as the area, 1,400 acres.
Hinson's estimate of 12.4 billion cubic feet, which was submitted in June 1945, rested upon a determination that the volume of the productive strata was 20,222 acre-feet. It was Hinson's view that the gas was contained in three interconnected porous zones with an aggregate thickness of 26 feet. Furthermore, Hinson found that, because of the nature and the dome shape of the reservoir, the three zones differed in area. The uppermost zone had an areal extent of 1,459 acres and a thickness of 5 feet. The corresponding figures for the next two zones were 757 acres and 5 feet and 572 acres and 16 feet.
The findings which the court has adopted review in detail these and the other estimates. With regard to the volume of the productive zones, Commissioner McConnaughey concluded that the evidence, physical and otherwise, supported the determination of Hinson, but not that of Sur. The commissioner found, for example, that there was no substantial basis for the view of plaintiff's experts that large quantities of gas were contained in cracks, fractures, and solution cavities. The commissioner agreed with Hinson that only in porous rock was a sizable volume of gas located. Similarly, Commissioner McConnaughey determined that the recovery factor used by Sur, 92 percent, was excessive and that the 80 percent utilized by Hinson was proper. It is unnecessary to repeat here the reasons expressed by the commissioner for his rejection of Sur's estimate. It is sufficient to state that plaintiff has not persuaded us that the commissioner's evaluation of the evidence was erroneous. The findings of the commissioner are presumed to be correct and the arguments offered by plaintiff are inadequate to show the contrary. Cf. Davis v. United States, 164 Ct. Cl. 612, 616 (1964).
In asserting that Commissioner McConnaughey took an improper approach, plaintiff stresses the matter of leakage. According to plaintiff, the two gas wells were mismanaged with the result that a vast amount of gas was lost. Plaintiff states that, because the commissioner misconstrued the evidence on leakage, he could not properly evaluate the estimates of the reserve.
The question of leakage will be discussed infra. Even if we were to assume arguendo that substantial amounts of gas did leak, this would not mean that the validity of Sur's estimate of 4T.8 billion cubic feet is established. Plaintiff appears to suggest that the primary reason for rejecting Sur's estimate was the fact that it greatly exceeded the amount of gas actually produced (approximately 1.2 billion cubic feet). Although defendant argues that great significance should be attributed to actual production, we need not adopt this approach. Commissioner McConnaughey considered a wide variety of factors, including such matters as the character of the rock and the shape of the pertinent strata. Matters of this type provide an ample basis for refusing to accept Sur's estimate, and their cogency does not depend upon the amount of gas produced from the wells.
Another of plaintiff's contentions is that Hinson's estimate of 12.4 billion cubic feet was influenced by a desire on the part of the Bureau of Mines to keep the valuation low. Plaintiff asserts that the Bureau acted in disregard of the fiduciary relationship with the tribe. It is correct that earlier, in May 1944, Hinson had estimated the size of the reserve to be approximately 17 billion cubic feet. Moreover, Hinson was asked by his superiors to reconsider that estimate. He did so and arrived at the lower amount. Despite these facts, we cannot accept plaintiff's assertion that adoption of Hinson's revised estimate was improper. The commissioner's findings were based upon a thorough evaluation of the relevant evidence. He found that Hinson's revised view rested upon a more accurate analysis of the size and shape of the productive zones. We agree with this conclusion and, therefore, with the commissioner's determination that the estimate of 12.4 billion cubic feet was valid and supported by the evidence.
Finally, plaintiff objects to the commissioner's treatment of the matter of destruction of cuttings. In May 1954, cuttings which had been in the possession of the Bureau of Mines were thrown away. This occurred a few days before plaintiff's expert requested permission to see the fragments. According to plaintiff, the Government should be penalized for destroying material evidence. We do not agree. Plaintiff has not shown that the destruction of the cuttings was the result of a deliberate effort to prevent plaintiff from examining them. Furthermore, plaintiff did obtain from another source cuttings from one of the wells, Rattlesnake 1-G. Defendant asserts that plaintiff's experts failed to utilize the cuttings which were available to them. At any rate, this matter does not alter our conclusion as to the validity of the Hinson estimate.
In addition to opposing the Sur estimate, defendant argues that even Hinson's estimate of the recoverable reserve was too large. Defendant points out that the volumes set forth in the later studies, except for that of Sur, were smaller and were more nearly in accord with the amount of actual production. It is unnecessary to determine whether the reserve was in fact less than 12.4 billion cubic feet or to account for the difference between that figure and the amount of gas produced. Since we have found that the reserve was not larger than the volume used in computing the contract consideration, it follows that plaintiff is not entitled to further compensation on this account.
With respect to the matter of leakage, plaintiff objects strongly to the conclusion reached by Commissioner Mc-Connaughey and to his failure to make detailed findings. According to plaintiff, leakage explains the disparity between the original reserve (allegedly 47.3 billion cubic feet) and the amount of gas actually withdrawn from the wells (approximately 1.2 billion cubic feet). The commissioner recognized that, although the question of leakage might be quite material if the estimate of 47.3 billion cubic feet were adopted, the same would not be true if the original reserve were found to be at most 12.4 billion cubic feet. We have concluded that the latter estimate was a proper basis for determining plaintiff's compensation, and we agree that, consequently, the matter of leakage does not have the significance which plaintiff suggests. We have already pointed out that, in rejecting Sur's estimate, we did not attribute prime importance to the fact that a relatively small amount of gas was produced.
In addition, we are unable to accept plaintiff's position that tremendous quantities of helium-bearing gas leaked. Plaintiff did cite numerous "physical facts" in support of its contention. According to plaintiff, the manner in which the two wells were completed and operated was highly improper. For instance, plaintiff charges, with regard to each of the wells, that the cementing of the various strings of casing was faulty and that underground leakage resulted. We do not propose to discuss plaintiff's many specific allegations, but we do note that, regarding virtually all of them, defendant offered explanatory or refutative evidence. Furthermore, although plaintiff stresses its physical and documentary evidence, the fact remains that proof of plaintiff's assertions depended largely upon the testimony of its expert, E. O. Bennett. Commissioner McConnaughey expressed doubt as to the validity of much of Mr. Bennett's testimony, and the commissioner's evaluation of the witness is entitled to substantial weight. 'See Court of Claims Kule 66.
Commissioner McConnaughey stated that the evidence permitted an inference that, as a result of various difficulties with casing, etc., some gas did escape from the Leadville-Ouray formation. We are willing to accept this view. However, we find that plaintiff has failed to prove that the amount of leakage either to other formations or to the surface was substantial. In any case, the evidence pertaining to leakage does not require alteration of our conclusion as to the original size of the gas reserve.
B. The Value of the Gas
The second element of the formula used to determine the consideration for the agreement of December 1,1945, was the unit value of the helium-bearing gas. In determining the advance royalties for the reserve of 12.4 billion cubic feet, it was assumed that each 1,000 cubic feet (or "Mcf") of gas had a value, at the wellhead, of 12 cents.
The valuation of 12 cents per Mcf was originally set forth in a February 15,1944, report of the Geological Survey. At the pertinent times, there was no competitively established price of helium. The sole producer was the Government. The price of the relatively small amount of helium sold to non-Federal purchasers was fixed by the Government. Moreover, the composition of the gas found in the Rattlesnake field differed significantly from that of the other gases which were used by the Government as sources of helium. Thus, there was no clear-cut basis for ascertaining the worth of the Rattlesnake gas.
On January 3,1944, after a series of negotiations with the Geological Survey had proved to be inconclusive, the Bureau of Mines proposed a value of 8.8,6 cents per Mcf. In February, the Geological Survey made its counterproposal of 12 cents per Mcf. The latter figure was arrived at in the .following manner: First, utilizing data based on experience (in fiscal 1943) at the Government's Amarillo helium plant, the Geological Survey determined that the commercial price of refined helivm- should be $11.50 per 1,000 cubic feet. Under the manufacturing-allowance formula which the Geological Survey was attempting to apply, it was necessary to subtract from the price the costs of extracting or manufacturing the helium. As the amount of such costs, the Geological Survey used $9.78. The difference between the price of one Mcf of refined helium ($11.50) and the manufacturing allowance ($9.78) was $1.72. The unit value at the wellhead of the helium-bearing gas was to be found by extrapolating from the amount of $1.72. That is, the next step was to determine how many cubic feet of the Eattle-snake gas were required to provide one Mcf of refined helium.
The Geological Survey adopted the view that 15.726 Mcf of helium-bearing gas were needed to produce one Mcf of helium and, as a result, found the value of the helium content of the Eattlesnake gas to be 10.9 cents per thousand cubic feet. In addition, it was estimated that each Mcf of the Eattlesnake gas would provide, as byproducts, drip gasoline and liquid hydrocarbons with a total worth of 1.17 cents. By adding the values of the helium (10.9 cents) and of the byproducts (1.17 cents), the proposed value of 12 cents per thousand cubic feet was reached. Initially, the Bureau of Mines considered the price of 12 cents to be excessive. Ultimately, however, the Bureau did use that price as the basis for determining the prepaid royalties.
Although asserting that the actual worth of the Eattle-snake gas was considerably less than 12 cents per Mcf, defendant does not object to the use of that value for the purpose of testing the fairness of the compensation for the 1945 agreement. Plaintiff, on the other hand, contends that the gas was worth much more than 12 cents per thousand cubic feet. Plaintiff offers alternative values, the lowest of which is 35 cents per Mcf. Commissioner McConnaughey concluded that 12 cents per Mcf did represent the value of the Eattlesnake gas. He recognized that the computation of the Geological Survey was in part defective, but he was influenced by the fact that the price of 12 cents resulted from extensive bargaining between the Geological Survey and the Bureau of Mines. We are unable to agree with the conclusion of the commissioner.
It is true that the Geological Survey sought to represent the interests of the tribe and that the value of 12 cents resulted from negotiations. Nonetheless, we cannot overlook the fact that the proposal which was finally adopted was based upon an erroneous application of the manufacturing-allowance formula. The Geological Survey deducted from the price of finished helium ($11.50 per Mcf) costs totaling $9.78. The latter amount was supposed to represent the expense (at the Amarillo plant) of "manufacturing" helium, i.e., the cost of extracting helium from gas which had already been produced. However, of the $9.78, the amount of $1.27 was attributable to items which were not costs of "manufacturing" helium, but were costs of bringing helium-bearing gas to the surface. Defendant admits that inclusion of these items in the manufacturing allowance was improper. The effect of the error was to lower the wellhead value of the helium and, correspondingly, the value of the Rattlesnake gas. We are of the opinion that plaintiff is entitled to an appropriate adjustment.
Defendant asserts that if the value of the gas is altered so as to eliminate the effect of the error mentioned above, then a number of other adjustments must also be made. For example, according to defendant, allowance should be made for the fact that operation of the Navajo plant turned out to be more expensive than operation of the Amarillo plant. The consequence of accepting defendant's view would be to lower substantially the value of the Rattlesnake gas. The matters raised by defendant have valid evidentiary bases, but we cannot accept defendant's contention as to the necessity of making the additional adjustments.
Defendant relies, for the most part, upon information gained from the actual operation of the Navajo plant. Such information was not available at the time the agreement of December 1,1945, was negotiated. It did not become available until after congressional approval of the agreement in 1947. The trial run, which took place in March 1944, did not afford an adequate basis for determining the cost of manufacturing helium from the Rattlesnake gas. No substantial production occurred until 1953, long after the effective date of the agreement between the tribe and the Government. In determining whether plaintiff received adequate compensa tion for that agreement, it would seem inappropriate to give significance to events which, took place subsequent to the date the agreement went into effect. Therefore, we are unwilling to charge plaintiff with the fact, developed after 1947, that, despite the high helium content of the Rattlesnake gas, the Navajo plant was more costly to operate than was the Amarillo plant. It was proper for the Government personnel to base their evaluation on the experience at Amarillo, and, in testing the validity of their determination, we will limit our consideration to data available prior to the effective date of the agreement.
If, in 1944, the Geological Survey had properly applied the manufacturing-allowance formula, the non-manufacturing costs of $1.27 would have been excluded. We have already stated that plaintiff is entitled to have this matter corrected. Thus, as the cost of manufacture, $8.51 should be used, not $9.78. Plaintiff asserts, in addition, that the Geological Survey failed to exclude from the "manufacturing allowance" the expense of operating the gas wells. However, since there is no basis for ascertaining or isolating the costs of well operation, no adjustment can be made on that account.
Another assertion of plaintiff relates to the matter of income from the sale of fuel. The gas which was processed at Amarillo yielded two products, helium and fuel. For each thousand cubic feet of helium, the Amarillo gas produced in addition fuel worth $2.33. According to plaintiff, the value of the fuel should be credited against the manufacturing allowance. This would result in an allowance of $6.18 ($8.51, the adjusted amount explained above, less $2.33). We cannot agree with plaintiff's view.
Unlike the gas processed at Amarillo, the Rattlesnake gas was not a source of fuel. This fact in itself provides adequate justification for not considering fuel income in determining the value of the Rattlesnake gas. In valuing the Rattlesnake gas, the Geological Survey included an estimate of the worth of two byproducts, drip gasoline and liquid hydrocarbons. These products accounted for approximately 1 cent of the 12-cent price. We are of the opinion that the Geological Survey was entirely proper in its treatment of non-helium products and that, in this respect, plaintiff is entitled to no additional benefit.
There is, in addition to the matter of costs, another ground upon which plaintiff attacks the valuation of 12 cents. The Geological Survey utilized, as the amount of Rattlesnake gas required to obtain one Mcf of refined helium, 15.726 Mcf. In determining the latter amount, it was assumed that 80 percent of the helium content of the gas produced from the wells would be recovered and available for sale. Plaintiff asserts that the recovery factor of 80 percent was insufficient and that a more reasonable figure would have been 94 percent. Plaintiff notes that the Amarillo plant yielded 93 percent recovery.
The 80 percent factor was an estimate which was made prior to the initial operation of the Navajo plant. During the trial run of the plant, which took place in March 1944, approximately 76 percent of the helium was recovered. However, the loss of helium was due in part to leaks and other matters which were correctable. Plaintiff states that, during the period 1953 through 1955, the plant achieved recovery efficiency of 91 percent.
Although acknowledging that, for the years 1953-55, recovery at the Navajo plant exceeded 80 percent, defendant contends that the estimate of 80 percent was not unreasonable for the earlier period. Defendant stresses the fact that, subsequent to the trial run, the equipment was modified substantially. We agree with defendant's conclusion. ¡Regarding such matters as the cost of plant operation, we have rejected defendant's assertion as to the significance of post-1947 experience. Here, to the extent plaintiff relies upon plant operation of 1953-55, the same reasoning is applicable. Tested in light of the information available at the time, the estimate of 80 percent was a reasonable one. It was not improper, in this regard, to differentiate between the Amarillo and Navajo plants. Therefore, we will not replace the estimated recovery factor with 94 percent or any other percentage.
In conclusion, we have found that, while the unit value of 12 cents was not sufficient, the prices suggested by plaintiff are excessive. Use of the manufacturing-allowance formula was proper; if it had been applied correctly, the allowance for manufacturing costs would have been $8.51, not $9.78. Using the adjusted allowance, the wellhead value of helium is $2.99. This results in a unit value of the Rattlesnake gas of 20.17 cents. We recognize that 20.17 cents represents a value substantially larger than that which resulted from the negotiations between the Geological Survey and the Bureau of Mines and that the lessee-companies were content with the lower price of 12 cents. Nonetheless, we deem necessary correction of the erroneous calculation of the manufacturing allowance. Accordingly, the value of 20.17 cents will be utilized in determining the compensation to which plaintiff is entitled.
C. The Bate of Royalty
The formula used to determine the prepaid royalties included a royalty rate of one-eighth. According to plaintiff, the rate should have been one-fourth. Plaintiff contends that one-eighth is a minimum royalty applicable to "wildcat" or undeveloped acreage and that property in the vicinity of a producing well brings a higher royalty. Under plaintiff's view, the existence of the two gas wells meant that the leaseholds were "proven territory." Thus, plaintiff asserts that, if the tribe had been represented by independent advisors during the negotiations leading to the 1945 agreement, it would have insisted upon a royalty rate of at least one-fourth.
Defendant denies that the Rattlesnake field was "proven" with regard to production of helium-bearing gas and argues that, in any event, there is no basis for increasing the royalty. One matter stressed by defendant is the fact that both the 1923 and the 1942 leases provided for a royalty of one-eighth. Defendant suggests that the lease (of the formations containing the helium-bearing gas) which the Government received pursuant to the 1945 agreement must be viewed as a continuation of the 1923 and 1942 leases. Defendant rejects plaintiff's treatment of the new lease as one covering unleased property.
¡Since he considered the question to be one of law, Commissioner McConnaughey did not decide whether a royalty in excess of one-eighth could be used in evaluating the adequacy of plaintiff's compensation. He declined, for the same reason, to determine the validity of plaintiff's assertion that the Rattlesnake field was "proven." Before dealing with these issues, it should be helpful to review certain pertinent facts.
Prior to the agreements which became effective on July 1, 1947, the Government was the lessee under the 1943 lease and the companies, under the 1923 lease. To enable the Government to obtain greater control over the gas reserve which was located in a sub-Hermosa stratum, each leasehold was divided into formations above and below the Hermosa. As to the upper formations, the old leases continued. The lessees' interests in the lower formations were surrendered to the tribe which then granted a new lease to the Government.
At the time the agreements went into effect, the two wells were in shut-in condition. On the basis of the trial runs and the tests which had been conducted prior to 1947, the various Government representatives believed that the Rattlesnake field was an extremely valuable helium reserve. There is no indication that any of the persons responsible for negotiation of the 1945 agreement considered using a royalty greater than one-eighth.
It should be apparent from the above recitation of facts that neither party's view of the pertinent circumstances is wholly accurate. We agree with defendant that, under plaintiff's theory, insufficient weight is given to the fact that the Rattlesnake field had been covered by the 1923 and 1942 leases. Also relevant is the fact that the two wells were developed at Government expense. On the other hand, defendant appears to overemphasize the significance of the original leases. The existence of the earlier leases is an important factor, but their terms are not absolutely dispositive of the royalty issue.
In dealing with this matter, more important than general theories are the particular circumstances. The fact that the field was "proven" as of July 1, 1947, i.e., that there was a reasonable expectation of substantial production, does not in itself require acceptance of plaintiff's position as to the one-fourth royalty. Plaintiff states that it is relying not upon legal rules, but upon principles of economics. We are of the opinion that plaintiff's theory is inapplicable to the factual circumstances of this case.
An appropriate way to test plaintiff's argument should be to attempt to determine what would have occurred if the tribe had been represented by independent advisors. We can assume that, in the hypothetical situation, the tribe's representatives would have sought a higher royalty. It seems unlikely, however, that the Government would have acceded to this request. Surely, the Government would have asserted that the one-eighth royalty provided in the existing leases should continue. The respective bargaining positions would also have been affected by the nature of the Rattlesnake gas. In the case of oil or of combustible natural gas, there might have been many potential lessees, but the same was not true of the gas in question. During 1941 and the prior years, the United States was virtually the sole party engaged in the production of helium. Thus, even if the tribe had had independent counsel, there is no likelihood that it could have successfully bargained for a higher royalty. The economic principle which plaintiff urges may be valid with respect to unleased territory believed to contain oil and ordinary natural gas, but we are unable to conclude that, as of 1947 and the preceding years, the principle had any applicability to the reserve of helium-bearing gas.
In the hypothetical situation, if the tribe's representatives had asked for a one-fourth royalty, the Government would have been fully justified in refusing to pay it. Accordingly, we cannot say that the failure of the Geological Survey to seek a larger royalty constituted a breach of any obligation to the tribe. On the contrary, use of the one-eighth royalty was proper.
D. The Present-Value Factor
The only element of the formula used to compute the payment of $117,336 which remains to be discussed is the pres ent-value or discount factor. In order to compensate for the fact that the tribe would receive in advance the royalty attributable to the entire estimated reserve of 12.4 billion cubic feet, the Bureau of Mines applied to the total potential revenue a discount factor of 0.631508. The bases for the latter figure were the assumptions of H. H. Hinson that the reserve would be produced, at a regular rate, over a period of 25 years and that money would earn 4 percent interest. In this way, Hinson determined that the present worth of the right to receive $185,803.53 (the total potential royalty) over a 25-year period was $117,336.
Plaintiff disputes both of the assumptions upon which Hin-son's discount factor was based. According to plaintiff, in view of the capacity of the Navajo plant, 10 years should have been used as the exploitation period. With regard to the matter of interest, plaintiff contends that the rate should have been 8 percent rather than 4 percent.
Commissioner McConnaughey concluded that Hinson was justified in using 25 years and 4 percent. Begarding the period of exploitation, the commissioner took into account the apparent demand for helium, the effective capacity of the plant, the other sources of helium, and certain additional factors. His determination is presumed to be correct, and plaintiff's contentions do not persuade us of the contrary. The same applies to the interest rate. Plaintiff has not demonstrated that the commissioner erred in accepting the rate of 4 percent, a rate equivalent to that received by the Indians on funds deposited in the United States Treasury. Therefore, we agree with the commissioner that the discount factor used by the Bureau of Mines was appropriate.
IV. Amount of Recovery.
A. The 19I¡5 Agreement
We have determined that, except for the unit value of the gas, the Bureau of Mines computation of the advance royalties was correct. We have found that the unit value should have been 20.17 cents per thousand cubic feet, not 12 cents. If the former figure is substituted for the latter in the Bureau's formula, the resulting compensation, becomes $197,222.96. It follows that plaintiff is entitled to receive $79,886.96, the difference between $197,222.96 and $117,336. Under the special act, as amended, plaintiff is also entitled to interest at the rate of 4 percent per year, from October 20, 1947, to the date of payment.
In support of its assertion that the amount of advance royalty which it received was inadequate, plaintiff relies upon two alternative theories. The first accepts the basic formula used by the Bureau of Mines, but substitutes different amounts for the size of the reserve and the other elements. We have already rejected plaintiff's versions of the Bureau of Mines formula.
The alternative theory put forth by plaintiff is that of fair market value. Plaintiff's estimates of the fair market value of the royalty interest range from $417,928 to $1,776,900, depending upon the estimate of the reserve, etc. Commissioner McConnaughey rejected all of plaintiff's proposed market values. Considering the nature of the gas and the various factors relevant to the matter of valuation, we find that the commissioner was fully justified in refusing to accept plaintiff's "fair market values." The method by which the Bureau of Mines computed the worth of plaintiff's interest was preferable.
Pursuant to the 1945 agreement, plaintiff received from the Government advance rentals of $30,463. This represented the present worth, at 4 percent, of 25 years' rental payments for the sub-Hermosa formations. The entire area of 7,800 acres was included and the annual rent was 25 cents per acre.
Before the trial commissioner, plaintiff claimed that, instead of $30,463, it should have been paid $95,074. The latter amount was described by plaintiff as the fair rental value of the right to store or retain gas in the reserve from the 25th to the 50th year of the agreement. Plaintiff also made the assertion that the rental payable for the formations below the Hermosa should have been $1.25, rather than 25 cents; and plaintiff now stresses this position.
'Commissioner McConnaughey concluded that there was no basis in the record for a finding that plaintiff was entitled to any additional payment for rent or storage. We are in accord with the commissioner's conclusion. In view of (1) the respective rights, as lessees, of the Government and the companies and (2) the terms of the prior leases, it was proper to fix the Government's rental obligation at 25 cents per acre. Regarding the matter of storage, Commissioner McCon-naughey was correct in emphasizing the fact that the recoverable reserve did not exceed the 12.4 billion cubic feet for which plaintiff received royalty payments.
To summarize, we cannot grant plaintiff's exceptions to the portion of the commissioner's report dealing with payment for storage and rental. Similarly, we have sustained the refusal of the commissioner to adopt plaintiff's estimates of the "fair market value" of the lessor's interest. When the Bureau of Mines formula is used with the adjusted unit value of 20.17 cents, the conclusion is reached that plaintiff should receive an additional $79,886.96, plus interest. We hold that, upon payment of that amount, plaintiff will have received consideration for the 1945 agreement which is "in all respects reasonable, fair, just, and equitable."
B. The 191$ Lease
We have already held that the Bureau of Mines acted improperly in preventing the surrender to plaintiff of the 1942 lease and in taking the assignment from Continental of the lessee's interest. Plaintiff is entitled to recover, and we must now determine an appropriate amount.
Plaintiff presents alternative claims, the smallest of which is $1,287,902, plus interest. In our discussion relating to the 1945 agreement, we indicated our unwillingness to accept plaintiff's estimate of the value of the gas reserve. It appears that, to a large extent, plaintiff's valuation of the 1942 lessee's interest rests upon the same data. Thus, as was true of plaintiff's claim with respect to the 1945 agreement, its proposed values of the lessee's interest are excessive.
On the other hand, defendant contends that, as of December 1942, the Rattlesnake gas had only nominal value. Defendant takes the position that, in determining the worth of the gas reserve, the demand for helium on the part of the Government must be disregarded. Defendant relies on the proposition that "just compensation" does not include enhancement in value resulting from the purpose for which the Government is taking the property. Since, apart from the Government, there was no demand for the gas, defendant concludes that in 1942 the reserve had no market value.
The general notion upon which defendant's argument as to Government-created enhancement is based is sound. See, e.g., United States v. Cors, 337 U.S. 325, 332 (1949) ; United States v. Whitehurst, 337 F. 2d 765, 771 (4th Cir. 1964). However, we consider this principle to be inapplicable to the present case. At the time in question, there was no real prospect of finding a private party which would wish to incur the expense of producing the helium-bearing gas. Consequently, the problem of valuation is a difficult one. We cannot, however, accept defendant's conclusion that the worth of the gas reserve was negligible. The notion of fiduciary duty, highly pertinent to the relationship between the Government and the Navajos, was not involved in the cases cited by defendant.
Commissioner McConnaughey sought to value the lessee's interest through the use of a method basically similar to that used to determine the consideration for the 1945 agreement. The resulting values were supposed to represent the present worth, in December 1942, of the amounts which a lessee might have realized from the production and sale of the estimated reserve. The commissioner recognized the probability that, because of the various risks involved, a hypothetical purchaser in 1942 would have been unwilling to pay the full "present worth." We consider the commissioner's approach to the problem of valuation to be a sound one. However, since we disagree with certain of the data which he used, it will be necessary to recalculate the various amounts.
As the unit price of the Kattlesnake gas, Commissioner McConnaughey utilized 12 cents per thousand cubic feet. With respect to the 1945 agreement, we adopted the price of 20.17 cents. It should be proper to use the same price in regard to the worth as of December 1942 of the lessee's interest. The price of 20.17 cents, like that used by the commissioner, is based upon 1943 data, but we cannot accept defendant's assertion that use of 1943 data is improper. It is true that, as of December 1942, there was neither a completed gas well nor a helium plant on the Navajo Reservation. However, these matters can best be taken into consideration by making an appropriate reduction in the amount found to be the "present value."
The commissioner's determination was based upon the assumptions that the entire Rattlesnake field contained a recoverable reserve of 12.4 billion cubic feet of helium-bearing gas and that the portion attributable to the 1942 leasehold was 5.9 billion cubic feet. Defendant contends that the recoverable reserve underlying the 1942 leasehold was no greater than 791 million cubic feet, the amount of gas actually produced from the Navajo No. 1 well. We are unwilling to accept defendant's contention. The commissioner was fully justified in basing bis apportionment upon the Hinson estimate of 12.4 billion cubic feet, rather than upon the volume of gas produced. It follows that the estimated reserve allocable to the 1942 lease would yield gross proceeds of $1,190,030 (20.17 cents X 5,900,000 Mcf). Assuming regular production over a 25-year period, the present worth of the gross proceeds would be $751,513.47.
The next step in valuing the lessee's interest is to determine the cost of producing 5.9 billion cubic feet of gas. Commissioner McConnaughey estimated that the total expense would have amounted to $264,266.43. He assumed that one well would have been sufficient to produce the reserve located beneath the 1942 leasehold. Defendant takes the position that an additional well would have been required to produce 5.9 billion cubic feet. There is adequate support in the record to warrant adoption of defendant's view, and we are willing to accept as the cost of drilling the second well defendant's estimate of $256,000. Thus, we conclude that production expenses would have totaled $521,402.75.
The amount of the various costs must be adjusted in order to determine their "worth" as of December 17, 1942, i.e., the sum of money which would have been required on that date to permit the lessee to meet the expenses as they occurred. One method of assigning a "present value" to the costs would be to assume that they would have been spread evenly over the 25-year period. Defendant asserts, however, that, for purposes of ascertaining "present worth," certain of the expenses should not be amortized and discounted. For example, de fendant states that the cost of completing the Navajo No. 1 well should not be discounted, since there could have been no production until the well was finished. We consider defendant's treatment of the nonrecurring expenses to be valid. When defendant's theory of selective amortization is applied to the various costs, the resulting "present worth" is $356,-758.23. That amount will be utilized.
In order to reach the worth, as of December 1942, of the amount which a lessee might realize from the sale (over 25 years) of 5.9 billion cubic feet of gas, it is necessary to deduct from the present value of the gross proceeds the sum of (1) the one-eighth royalty and (2) the present worth of the expenses. The value which results is $300,816.06.
In determining plaintiff's recovery, it is suitable to use as the first step computation of the present value of a lessee's potential profits. However, it would be unreasonable to hold defendant liable to the full extent of the estimated "present worth." As Commissioner McConnaughey indicated, a purchaser in 1942 would have been cognizant of the risk that the entire estimated reserve could not be produced and sold. Accordingly, "just compensation" for the lessee's interest in the reserve of helium-bearing gas would not amount to $300,-816.06. Although a sizable reduction is in order, there is no precise way to determine the amount to be subtracted. We must attempt to arrive at an amount which is fair and reasonable from the standpoint of both parties.
One-half of the "present value" of the lessee's interest in the estimated reserve is $150,408.03. In view of the many uncertainties which existed in 1942, we are of the opinion that, if the Government had paid the tribe $150,408.03 as consideration for the gas reserve, the payment would have been entirely adequate. We hold, therefore, that $150,408.03 is an appropriate measure of compensation for the reserve of helium-bearing gas. Plaintiff is entitled, in addition, to compensation for the lessee's interest in the oil and gas rights in the formations above the Hermosa. Commissioner Mc-Connaughey concluded that the value of the lessee's rights in the upper formations was $35,393. The commissioner's determination was based upon the valuation incorporated into the agreement of September 19, 1946, between the Government and the companies. See finding 132. We are in accord with the commissioner's conclusion in this regard.
Nest, we must consider (1) plaintiff's argument regarding the Navajo No. 1 well and (2) the credits claimed by defendant. Plaintiff asserts that it should receive $100,000 as compensation for the taking of the well. According to plaintiff, if the lease had been surrendered to the tribe, it (as lessor) would have obtained all materials and equipment necessary for operation of the well. Plaintiff places reliance upon section 7 of the lease which provides as follows:
Lessee shall be the owner of and shall have the right to remove from the leased premises, within 90 days after termination of this lease, any and all buildings, structures, casing, material, and/or equipment placed thereon for the purpose of development and operation hereunder, save and except casing in wells and other material, equipment, and structures necessary for the continued operation of wells producing or capable of bemg produced in paying quantities as determined by the Secretary of the Interior, on said leased land at the time of surrender of this lease or termination thereof; and except as otherwise provided herein, all casing in wells, material, structures, and equipment shall be and become the property of the lessor. (Emphasis supplied.)
Defendant disputes plaintiff's interpretation of the quoted section and states that, if Continental had surrendered the lease, the tribe would have received only the casing in the well and materials necessary to protect the well.
We consider defendant's view to be the correct one. Navajo No. 1 was not a "producing well" as of December 17, 1942. Furthermore, there had been no determination that the well was "capable of being produced in paying quantities." Before such a conclusion could be reached, further devel opment and testing were necessary. At the time of the assignment, the Bureau of Mines expected that the well would be successf ul, but this was not actually determined until later. Therefore, we must rej ect the notion that plaintiff would have received all equipment needed "for the continued operation" of the well.
In fact, Continental did not return the lease to the tribe, but transferred it to the Government. At the expense of the Government, the well was-completed. With regard to the gas reserve, we have concluded that plaintiff was, in effect, deprived of a property right of ascertainable value. However, we cannot apply the same reasoning to the well. Because of the condition of the well at the pertinent time, Continental's potential right of removal, and the necessity for additional development, we are unable to hold that plaintiff is entitled to compensation on account of the transfer of the well to the Government.
One of the items regarding which defendant seeks a credit is the expenditure of $36,605.43 for testing the Navajo No. 1 well in July 1942. Since we have denied plaintiff's claim with respect to the well, it would seem inappropriate to charge plaintiff with the amount defendant spent on the testing. Therefore, this credit must be disallowed.
The second item for which defendant seeks a credit, rentals of $4,650, is not disputed by plaintiff. Accordingly, to the extent of the rentals, plaintiff's recovery will be reduced.
In conclusion, we have determined that the amount of $150,408.03 represents fair compensation for the lessee's interest in the reserve of helium-bearing gas and have adopted, as the value of the lessee's rights in the formations above the Hermosa, the sum of $35,393. From the total of these two items must be deducted the credit of $4,650. The resulting amount, $181,151.03, represents the net value, as of the date of the assignment, of the lessee's interest.
There remains to be discussed the matter of interest. When a claimant succeeds in establishing that the Govern ment has taken its property without paying just compensation, the court may include as part of the award an appropriate amount of interest. Cf. United States v. Creek Nation, 295 U.S. 103, 111 (1935) ; Shoshone Tribe v. United States, 299 U.S. 476, 497 (1937) ; Miami Tribe v. United States, 150 Ct. Cl. 725, 743, 281 F. 2d 202 (1960), cert. denied, 366 U.S. 924 (1961), overruled re different issue, Pawnee Tribe v. United States, 157 Ct. Cl. 134, 140, 301 F. 2d 667, cert. denied, 370 U.S. 918 (1962). Under our view of the present case, the Government's actions with respect to the 1942 lease were the equivalent of a taking without compensation. Considering the Government's need for helium, we have determined that, if the lease had been surrendered to the tribe, the United States would then have acquired from plaintiff, if necessary by eminent domain, the interest formerly held by Continental as lessee. As just compensation, plaintiff is entitled to recover $181,151.03, the value of the lessee's rights, plus interest at the rate of 4 percent per year, from December 17,1942, to the date of payment.
V. The Counterclaim.
The preceding sections of this opinion have disposed of all issues raised by the three claims of plaintiff. Still undecided, however, are the questions pertaining to the counterclaim which defendant asserts.
On March 12, 1952, the Government amended its answer by adding a claim for an offset. Defendant alleged that it had expended for the benefit of the tribe various sums out of (1) gratuity appropriations and (2) reimbursable appropriations. On July 29, 1954, the original special act was amended by ch. 617,68 Stat. 580. The amendment provided, inter alia, that "no offsets shall be deducted from any sum [awarded to plaintiff as additional consideration for the 1945 agreement]." A similar prohibition against "offsets" was provided with respect to the claim based upon assignment of the 1942 lease. Subsequently, plaintiff revised its petition, and, on November 12, 1954, defendant filed a pleading which included a counterclaim. The basis for the counterclaim was an allegation that the Government had spent on behalf of plaintiff "large sums out of appropriations from the Federal Treasury which the Congress has required be reimbursed the United States by the plaintiff." Plaintiff contests the counterclaim.
On November 7, 1955, defendant moved to have the counterclaim tried separately. Over plaintiff's opposition, the motion was allowed by Commissioner Foster. A trial was tentatively scheduled for May of 1956, but it did not take place. Although the pendency of the counterclaim was mentioned in certain papers filed by the respective parties in 1959, no effort has been made, since 1956, to set the matter for trial.
In view of the long delays which have already occurred, it is extremely regrettable that the parties have not seen fit to present to the court, for disposition at this time, all aspects of the case. The papers submitted with regard to defendant's motion for a separate trial show that the parties differed as to the scope of the term "offset." Defendant suggested that the term "offsets," within the meaning of the special jurisdictional act, was limited to claims'based upon gratuitous expenditures. Plaintiff ascribed a broader meaning to the term and asserted that the bar of the special act encompassed defendant's "counterclaim." See S. Eep. No. 1785, 83d Cong., 2d Sess. 3 (1954). Nonetheless, since this and related issues are not dealt with in the briefs or arguments which the parties have presented to the court, it would be inappropriate for us to attempt at this time to determine the status of the counterclaim.
Defendant indicates that it expects proceedings regarding the counterclaim to be held after the adjudication of plain tiff's suit. This matter is the subject of an order entered today.
VI. Summary.
Two of plaintiff's claims, those regarding the 1942 lease and the 1945 agreement, were brought on the basis of the special jurisdictional act, as amended. We have determined, with respect to each of those claims, that recovery is in order. As to the third claim, that pertaining to the 1923 lease, we have concluded that plaintiff is not entitled to recover.
The amounts which plaintiff is to receive are $79,886.96 as additional consideration for the 1945 agreement and $181,-151.03 as compensation for the taking of the lessee's interest in the 1942 lease. Upon receipt of those sums, plus appropriate interest, plaintiff will have been fully compensated.
The two claims, regarding which plaintiff is entitled to recover, are those covered by the provisions in the special act prohibiting "offsets." As stated previously, the validity of defendant's counterclaim has not yet been determined. Under these circumstances, we deem proper the entry of a separate final judgment in favor of plaintiff to the extent described above. See Court of Claims Hule 47(b) (1964 rev.). However, in view of the fact that the counterclaim is still pending, payment of plaintiff's judgment should be stayed. Cf. Fed. E. Civ. P. 62(h); 54(b). We hold, there fore, that plaintiff is entitled to a judgment in its favor, but that payment of the judgment shall be stayed until final disposition of the counterclaim.
On November 10,1966, the court granted plaintiff's motion to dismiss the counterclaim, and the stay of payment of judgment to plaintiff, pursuant to the foregoing opinion, was vacated. The court's opinion on plaintiff's motion to dismiss the counterclaim is reported at 177 Ct. Cl. —, 368 F. 2d 279.
FINDINGS OF FACT
The court, having considered the evidence, the report of the late Trial Commissioner Robert K. McConnaughey, and the briefs and argument of counsel, makes findings of fact as follows:
Contents
Findings
The plaintiff_ 1-2
The nature of the action_ 3
The special act_ 4
The plaintiff's claims_ 5
Relationship of the United States to the Tribe_ 6
Rattlesnake field_ 7-9
The 1923 lease_10-15
The 1942 lease_16-20
Discovery of helium-bearing gas on the 1942 lease_21-22
Conditioning and testing Navajo No. 1 well_23-25
Defendant's activities generated by the gas discovery_ 26
Events leading to assignment of the 1942 lease_27-32
Fiduciary relationships affecting assignment of the 1942 lease_33-34
The three-point program continued after the assignment_ 35
Anticipated need for additional helium- 36
The status of defendant's investigations December 17, 1942_ 37
The Navajo plant_38-44
Exploratory development and reserve estimates-45-69
Development and completion of the wells-45-52
Estimates of the reserve_-53-58
The bases of the various estimates-69-69
Negotiation of agreements-70-97
Early consideration of a unit cooperative agreement plan— 71
Tire 1943 operating agreement with Continental and Santa Fe- 72
Valuation of the Rattlesnake gas for royalty purposes- 73
Negotiation of the agreement of December 1, 1945- 74-86
The principal terms of the agreement of December 1,1945— 87
Development of the September 19, 1946, agreement with the companies_88-93
Ratification and approval of the agreements by Congress— 94-96
Subsequent legislation- 97
Belated payment of shut-in gas well rental on Rattlesnake 1-G under the 1923 lease- 98
The 1942 lease surrendered as to all formations above the base of the Hermosa_ 99
Representation of the interests of the Tribe as seller and of the defendant as buyer during the negotiations-100-107
Value and damages_108-134
Plaintiff's claim for additional consideration under the December 1, 1945, agreement- 108
The quantity of gas in the reserve-109-110
Evidence of leakage_111-112
Unit value of the Rattlesnake gas_ 113
Period of exploitation and interest rate_114-115
The status of the Rattlesnake field as of July 1947- 118
Additional royalty- 117
Additional rent- 118-122
Plaintiff's claim for compensation for an alleged taking of the lessee's interest in the 1942 lease_123-129
Defendant's expenditures regarding the 1942 lease_ 130
The value of Navajo No. 1 well as of December 17,1942_ 131
Value of gas and oil rights above the base of the Hermosa under 1942 lands_ 132
Total value of the lessee's interest in the 1942 lease_ 133
Plaintiff's claim for compensation with respect to the lessee's interest in the 1923 lease_ 134
Appendix A.
The plaintiff
1. The plaintiff, a tribe of American Indians (hereafter called the Tribe), has a tribal organization recognized by the Department of the Interior, and is authorized to maintain this action.
2. The Tribe is beneficial owner, in possession, of the Navajo Indian Reservation in New Mexico, Arizona, and Utah (hereafter called the Reservation). Legal title to the Reservation is held by the United States in trust for the Tribe. The land which is the subject of the leases and agreements involved in this case is within the Reservation.
The nature of the action
3. (a) This action relates to a deposit of helium-bearing, noncombustible gas (hereafter sometimes called the Rattlesnake gas), discovered in 1942 in an area known as the Rattlesnake field, on the Reservation, in New Mexico.
(b) The Tribe invokes both (1) the court's jurisdiction under an Act of June 27, 1947 (61 Stat. 189, as amended) (hereafter called the special act), the text of which is quoted in finding 4, and (2) the court's general jurisdiction in Indian cases (28 U.S.C. 1505).
(c) The plaintiff filed a petition on June 15, 1950, pursuant to the special act. On September 26,1951, the plaintiff filed an amended petition pursuant to the special act and 28 U.S.C. 1505. In 1954, the special act was amended by the Act of July 29, 1954 (ch. 617, 68 Stat. 580), and on October 15, 1954, the plaintiff filed a second amended petition.
The special act
4. The special act as amended provides as follows:
Ak Act
To amend the Act approved June 27,1947 ( 61 Stat. 189).
Beit enacted Toy the Senate and House of Representatives of the United States of America in Congress assembled, That section 1 of the Act approved June 27, 1947 (61 Stat. 189), entitled "An Act authorizing certain agreements with respect to rights in helium-bearing gas lands in the Navajo Indian Reservation, New Mexico, and for other purposes", be and the same is hereby amended to réad as follows:
"That the Secretary of the Interior, acting through the Bureau of Mines, and the Navajo Tribe of Indians are authorized to enter into an agreement dated December 1, 1945, entitled 'An agreement severing certain formations from oil and gas leases and substituting new leases as to those formations' and an 'Amending agreement', affecting lands in the Navajo Indian Reservation, New Mexico, copies of which are published in House of Representatives Document Numbered 212, Eightieth Congress, first session; and said agreements are ratified and approved. If said Navajo Tribe of Indians shall, after investigation, deem the total consideration payable to it by the United States pursuant to such agreement dated December 1,1945, as amended, to be in any respect less than reasonable, fair, just, and equitable, said tribe shall be entitled within three years after the date of enactment of this Act to institute suit against the United States in the Court of Claims for the recovery of such additional sum, if any, as may be necessary to compensate said tribe for the reasonable, fair, just, and equitable value of all right, interest, and property passing from said tribe to the United States under such agreement, as amended. Jurisdiction is hereby conferred upon the Court of Claims to hear and determine any suit so instituted and to enter final judgment against the United States therein for such sum, if any, in excess of the total consideration payable pursuant to such agreement, as amended,_ as such court may determine to be necessary to provide consideration in all respects reasonable, fair, just, and equitable: Provided, That interest shall be allowed on such sum at the rate of 4 per centum per annum from October 20, 1947, to the date of payment and no offsets shall be deducted by the court from any sum determined by the court to be a reasonable, fair, just, and equitable consideration for the right, interest, and property passing to the United States under and pursuant to said agreement of December 1, 1945, as amended, and the interest thereon: Provided further, That the foregoing provision relating to interest and offsets shall not extend to any other claim or claims asserted in any such suit, whether or not the same arise out of the subject matter of said agreement, but such other claim or claims, if any, shall be governed by the law relating to actions brought pursuant to title 28, United 'States Code, section 1505. Appellate review of any judgment so entered shall be in the same manner, and subject to the same limitations, as in the case of claims over which the Court of Claims has jurisdiction under section 1491 of title 28, United States Code. Notwithstanding any contract to the contrary, not more than 10 per centum of the amount received or recovered by said tribe in satisfaction of any claim asserted under this section shall be paid to or received by any agent or attorney on account of services rendered in connection with such claim."
Seo. 2. Said Act approved June 27, 1947 (61 Stat. 189), is hereby further amended by adding at the end thereof a new section to be designated section 3 and to read as follows:
"Sec. 3. Jurisdiction is hereby conferred on the Court of Claims to determine, notwithstanding any statute of limitations or laches, in any suit instituted pursuant to section 1 of this Act, (1) whether the assignment dated December 1,1942, accepted and approved December 17, 1942, of oil and gas lease 149-ind-5337, covering the lands denominated '1942 lands' in section 4 of said agreement dated December 1, 1945, as amended, should in law or in equity, taking into consideration such fiduciary relationship as may exist between the United States and the Navajo Tribe, have been accepted by the United States for the account of the Navajo Tribe instead of for its own account, and, if such assignment should have been so accepted, whether the property interest or any part thereof covered by such assignment was taken by the United States from the said tribe at any time prior to the effective date of said agreement; (2) whether, and in what amount, if any, the Navajo Tribe is entitled on the basis of such determination to compensation for the acquisition or taking, by the United States, of the property interest or any part thereof covered by such assignment; and (3) whether, and in what amount, if any, the United States is entitled to credit against such compensation for rentals on such lease or for other expenditures, borne by the United States, for the benefit of such lease prior to any such acquisition or taking by the United States; and to enter judgment in accordance with such determinations. No offsets shall be deducted by the court from any net sum, and the interest thereon, if any, that the court awards under this section. The provisions of the last two sentences of section 1 of tins Act shall be applicable to any judgment entered pursuant to this section."
Approved July 29,1954.
The plambif's claims
5. (a) Under the special act, the Tribe seeks to recover—
(1) Such amount — in excess of the total consideration payable in accordance with an agreement between the United States and the Tribe, dated December 1, 1945, and ratified and approved by Congress June 27, 1947, whereby the defendant acquired certain rights in the Rattlesnake gas — as the court may determine to be necessary to compensate the Tribe for the reasonable, fair, just, and equitable value of all rights, interest, and property, passing from the Tribe to the defendant under that agreement.
(2) Compensation to which the court may find the Tribe to be entitled by virtue of the defendant's acceptance, in 1942, for its own account, of an assignment of a lease (hereafter called the 1942 lease) which the Tribe had issued to the Continental Oil Company (hereafter called Continental) in 1942 and which the Tribe claims the defendant should have accepted instead for the account of the Tribe.
(b) Under the court's general jurisdiction in Indian cases, the Tribe seeks to recover compensation for an alleged taking, which it claims resulted from assumption by the defendant, on and after July 1, 1947, of dominion over the entire interest in helium under a lease (hereafter called the 1923 lease), issued by the Tribe in 1923, which the Tribe claims did not include the right to extract helium.
Relationship of the United States to the Tribe
6. (a) At all times material to this action, the defendant had a responsibility to supervise the affairs of the Tribe, which is prohibited by law from alienating its property without the defendant's consent.
(b) The United States Geological Survey had the obligation to supervise operations under oil and gas leases on the Tribe's lands and acted in an advisory capacity to the Bureau of Indian Affairs "in all other matters relating to oil and ga's leases, development and operation" affecting the Tribe's lands.
(c) The Bureau of Mines is responsible for production and conservation of helium. It has no official responsibilities concerning the affairs of the Tribe.
Rattlesnake field
Location. 7. (a) Battlesnake field embraces an oil and gas structure underlying a portion of the Beservation in north western New Mexico about 7 miles southwest of the town of Shiprock, New Mexico.
(b) Helium-bearing gas was discovered at the Eattlesnake field in 1942, during the Second World War. The defendant then regarded Eattlesnake field as a potentially advantageous location for a helium plant.
Geology. 8. (a) Eattlesnake field is an elongated dome or anticline trending northwest-southeast.
(b) The geologic formations in Eattlesnake field include (i) the Dakota sandstone, beginning at a depth of from 700 to 850 feet, and 200 to 250 feet thick, (ii) various intervening formations not specifically significant to this case, (iii) the Hermosa limestone, 1,000 to 1,200 feet thick, beginning at a depth of from 5,700 to 5,800 feet, (iv) the Molas shale, which begins at a depth of from 6,776 to 6,890 feet, and is 125 to 155 feet thick, (v) the Leadville-Ouray, 215 to 225 feet thick, composed of limestone and dolomite, which begins at depths of from 6,920 to 7,070 feet; and below the Leadville-Ouray, (vi) the Elbert formation, 145 feet thick, beginning at depths of from 7,260 to 7,295 feet, and (vii) underlying the Elbert formation, a white quartzite, hereafter called the Ignacio quartzite.
Productive formations. 9. The only formations in the Eattlesnake field that had produced oil or gas in commercial quantities, before the trial of this case, were the shallow Dakota sands and the Hermosa limestone, which produced oil, and the Leadville-Ouray, which produced the nonflammable helium-bearing Eattlesnake gas.
The 1923 lease
Execution. 10. On December 4,1923, the Assistant Secretary of the Interior (hereafter called the Assistant Secretary) approved an oil and gas lease (the 1923 lease) covering 4,080 acres on the Eattlesnake structure on the Eeservation.
Term. 11. (a) Originally the 1923 lease was for 5 years from the date of its approval and as long thereafter as oil or gas was found in paying quantities, provided that any extension should not exceed an additional 5-year period.
(b) By an agreement between the Tribal Council and the lessee on July 7, 1926, approved by the Assistant Secretary on August 13, 1926, the term of the 1923 lease was changed to provide for a term of 5 years from the date of approval and as long thereafter as oil or gas was found in paying quantities.
Coverage of oil and gas deposits. 12. The 1923 lease granted to the lessee "all the oil and gas deposits" in or under the lands described. It did not specifically mention helium.
Royalties on gas and rentals. 13. Insofar as is pertinent in this case, the 1923 lease provided for a royalty on gas, and for rentals, as follows:
* % % ❖ H*
The royalty on gas, whether it shall be gas from which the casing-head gasoline has been extracted or otherwise, shall be 12%% of the value thereof, at the well where produced, such value to be determined by the Secretary of the Interior when the average daily production for the calendar month from the land leased is less than three million cubic feet, and 16%% of the value thereof, when the average daily production for the calendar month is three million cubic feet or more: . Failure on the part of the lessee to use a gas-producing well which can not [sic] profitably be utilized at the rate herein named shall not work a forfeiture of this lease so far as it relates to mining oil, but if the lessee desires to retain gas-producing privileges, he shall pay a rental of $100.00 Ser annum in advance, calculated from the date of the iscovery of gas on each gas-producing well, the gas from which is not marketed nor utilized other than for operations under this lease.

Lessee. 14. After 1926, Continental and the Santa Fe Corporation each owned a one-half interest in the 1923 lease. The original lessee was S. C. Munoz.
History of production from the 1923 lease. 15. (a) In 1924, oil was discovered in the Dakota sandstone, on the 1923 lease, at a depth somewhere between 700 and 900 feet. Over 100 wells were drilled into the Dakota sandstone between 1924 and June 1942. They produced over 4 million barrels of oil up to December 31, 1942. By that time the Dakota horizon was virtually exhausted and it was not expected that production would continue more than a few years. Only 66,458 additional barrels were produced thereafter through 1944.
(b) Three deep wells, called Rattlesnake No. 17, No. 24, and No. 100, were drilled by the lessees on the 1923 lease between 1929 and 1940.
The 191$ lease
Execution. 16. On January 9,1942, the Assistant Secretary approved the 1942 lease. It covered 3,720 acres of tribal lands adjoining the 1923 lease.
Term. 17. The 1942 lease was for 10 years from the date of its approval and as much longer thereafter as oil or gas was produced in paying quantities.
Coverage of oil and gas deposits. 18. The 1942 lease granted to the lessee the exclusive right to "drill for, mine, extract, remove and dispose of all the oil and natural gas deposits" in or under the leased lands, and specifically defined gas to include helium.
Royalties and rentals. 19. The 1942 lease provided for a royalty of 12y2 percent of the value or amount of all oil, gas, and/or natural gasoline produced and saved, except that used by the lessee for development and operation on the lease, and for a rental of $1.25 per acre per year ($4,650 per year), credited against the royalties for each year.
Lessee. 20. Continental was lessee under the 1942 lease and remained owner of the lease until December 17, 1942, when, as described hereafter, the 1942 lease was assigned to the defendant.
Discovery of helium-bearing gem on the 191$ lease
21. (a) On April 2,1942, Continental began drilling a deep test well (hereafter called Navajo No. 1), on the 1942 lease.
(b) On or about June 24, 1942, as drilling approached a depth of 6,950 feet, gas began (to show in the drilling mud.
22. An analysis of the gas, on July 1,1942, indicated that it contained 7.63 percent helium and about 75 percent nitrogen, and that it was noninflammable. The indicated helium content of gas from the other sources of helium then available to the defendant ranged from 1 percent to 1.8 percent but the helium-bearing gas available from other sources was inflammable because its nitrogen content was lower than that of the Rattlesnake gas.
Conditioning and testing Navajo No. 1
23. (a) No oil having been found in Navajo No. 1, Continental informed the Bureau of Mines, early in July 1942, that it planned to plug and abandon the well.
(b) The defendant was then looking for places to build additional helium plants and the Bureau of Mines expressed interest in additional testing of Navajo No. 1 to obtain more information about the nature and extent of the helium discovery.
(c) By an exchange of telegrams between July 6 and July 8,1942, the defendant and Continental made a contract (hereafter called the telegraphic contract of July 1942) under which Continental undertook to place the well in condition for testing and to make certain tests for the purpose of determining its potential as a source of helium. The defendant agreed to reimburse Continental for the expenses it incurred, beginning June 29,1942, in work on the well, and to pay the cost of completing the well if that should be found advisable.
24. Pursuant to the telegraphic contract of July 1942, Continental promptly carried out various procedures intended to condition the well and indicate its potential as a source of helium. Samples of the gas were taken and tested. Toward the end of July 1942, the work under the contract was completed, the well was shut-in, and the drilling rig was released. The total cost of the work done under the telegraphic contract of July 1942 was $36,605.43.
25. The tests conducted on Navajo No. 1 in July 1942 confirmed the presence of a gas which contained about 7.63 percent helium and a percentage of nitrogen so high (somewhere in the neighborhood of 80 percent) that the gas would not support combustion. The open flow capacity of the well was calculated at about 1.68 million cubic feet of gas per day. The wellhead pressure was somewhat over 2800 pounds per square inch (hereafter sometimes referred to as psi).
Defendant's activities generated by the gas discovery
26. Upon discovery of helium-bearing gas in testing the Navajo No. 1 well, the defendant commenced various activities tentatively directed to the ultimate objectives of either producing helium from the Eattlesnake gas or establishing the Eattlesnake field as a helium reserve, if the gas should prove to be suitable for production. These activities proceeded concurrently through the latter part of 1942 and, for varying periods of time, into the succeeding years.
Events leading to assignment of the 191$ lease
27. (a) In August 1942, after the work under the telegraphic contract of 1942 for conditioning the Navajo No. 1 well was completed, Continental formally, and repeatedly, renewed its expressions of intention to surrender the 1942 lease to the Tribe.
(b) Among Continental's reasons for wanting to divest itself of the 1942 lease was the fact that it had bid for leases on other oil land on the Eeservation. Under a regulation that limited its leases of tribal land to 10,240 acres, Continental had to divest itself of some of its holdings in order to be eligible to accept the other leases. It was not interested in attempting to produce the noncombustible gas found on the 1942 lease, or to seek further to develop oil or gas production there, but, instead, preferred to shift its activities to another area on the Eeservation.
28. (a) The defendant, on the other hand, anticipated a need for helium plants additional to the one then operating at Amarillo, Texas, and, as soon as it appeared that there might be helium-bearing gas in the Eattlesnake field, the defendant began considering the Eattlesnake field as a possible site for another plant.
(b) On August 25, 1942, in reply to Continental's letter of August 17 stating its wish to surrender the 1942 lease, the Bureau of Mines informed Continental that it was considering the Eattlesnake field as a site for a helium plant.
(c) On August 31, 1942, a second letter from the defendant to Continental suggested that the defendant preferred an assignment of the 1942 lease and that if the defendant were to take an assignment of the 1942 lease, it would also wish to work out some arrangement for developing the helium-bearing gas under the 1923 lease, in case a plant were constructed to process the gas.
(d) On September 1,1942, the Bureau, of Mines informed the Geological Survey and the Bureau of Indian Affairs that it was considering the Rattlesnake field as a source of helium and that, in view of Continental's desire to reduce its holdings, the most practical procedure might be for the defendant to accept an assignment of the 1942 lease.
29. (a) On September 5, 1942, Continental, by telegram, requested a waiver of the acreage limitation until negotiations with the defendant concerning disposition of the 1942 lease were completed.
(b) On September 19, 1942, the General Superintendent for the Navajo Service reported that Continental had been a successful bidder on other acreage and that its interest in the new acreage would bring its total above the 10,240-acre limitation. He recommended that early action be taken on the assignment of the 1942 lease to the Bureau of Mines; otherwise, Continental would "request cancellation of this entire aci'eage so as not to hold up the approval of their new leases."
30. Meanwhile, the Bureau of Mines had under consideration a somewhat flexible arrangement between the defendant and the companies (sometimes referred to hereafter as a unit cooperative agreement) that would have provided for development and supply of the gas to a helium plant regardless of whether either or both of the leases remained with the companies or passed to the defendant. This agreement never became operative.
31. (a) In due course, the Assistant. Secretary of the Interior indicated that he preferred not to waive the acreage limitation. He authorized procurement of an assignment of the 1942 lease from Continental and asked the Commissioner of Indian Affairs to request Continental to assign the lease to the defendant. Continental was informed of this decision, by telegram, on November 6, 19421
(b) The Bureau of Indian Affairs had no objection to the assignment and recommended that it be accepted and approved.
32. (a) On December 1, 1942, Continental executed an assignment of the 1942 lease to the defendant for a recited consideration of $1.00 and other considerations. The other considerations consisted of reimbursement of Continental, by the defendant, for Continental's costs in testing Navajo No. 1, under the telegraphic contract of 1942, and for the amount of rental that would be due under the 1942 lease on January 9, 1943. Of these two items of consideration, the first was already an obligation of the defendant under the telegraphic contract of July 1942, and the second became the defendant's obligation, as assignee of the lease, as soon as the assignment was perfected.
(b)On December 17, 1942, the Assistant Secretary approved the assignment and it became effective. The Tribe was not a party to it and knew nothing about it.
Fiduciary relationships affecting assignment of the 191$ lease
33. (a) The Tribe was not informed or consulted, while the assignment was under consideration, about either Continental's desire to surrender or transfer the 1942 lease, or the defendant's desire to acquire it, and the Tribe received no consideration for the assignment.
(b) By terms of the assignment, the rights and interests transferred were only Continental's perfected rights and interests as lessee.
(c) There is no evidence to show that Continental was not free to transfer such rights without reference to or approval by the Tribe as lessor, as long as they were unimpaired by default. Nor is there any evidence that Continental's rights were impaired when the negotiations were going on or when the assignment was made.
(d) During the negotiations, some of the defendant's representatives (1) considered, among themselves, the possibility that the Secretary of the Interior's responsibility, as the defendant's representative, both to develop helium resources and to supervise disposition of the Tribe's properties in a manner consistent with the Tribe's best interests, might be construed as creating a conflict of interests and obligations that might affect the defendant's acquisition, by whatever means, of a lessee's interest in the gas rights under the 1942 lease, and (2) raised a question, among themselves, whether fewer problems based on such a possible conflict would arise if the defendant should acquire a lessee's interest in the gas rights by assignment from Continental, than if Continental should surrender the lease to the Tribe and the defendant should procure, directly from the Tribe, such rights as it might need for the purpose of testing and developing the Rattlesnake helium resources.
34. (a) It is apparent from the record that Continental had no interest in attempting to produce the Rattlesnake gas. There is no evidence that anyone, other than the defendant, was actively interested in an assignment of the lease in December 1942.
(b) Continental's desire to get rid of the lease quickly in order that it might be eligible to accept a lease of other tribal lands was a substantial factor affecting the urgency of its wish to either surrender the lease or assign it to the defendant. Continental's haste to be rid of the lease, coupled with the tentative character of the negotiations that finally led to the assignment, afforded little opportunity for Continental, and none for the Tribe (which, as far as the record shows, was not informed that the question was under consideration), to explore alternative means of disposing of the lessee's interest, other than by surrender to the Tribe or assignment to the defendant.
The three-fomt program continued after the assignment
35. Upon approval of the assignment, the Bureau of Mines moved forward with the three-point program through which the defendant was attempting (1) to determine whether it was feasible to process the gas that had been found in the Rattlesnake field to separate the helium and whether the size and character of the reserve was adequate to justify further exploration and development, (2) to perfect arrangements for producing the gas if it could be produced, and (3) to acquire suitable rights to enable the defendant to use the gas for helium production or to retain it in the ground as a reserve, depending upon the overall requirements of the helium program.
Anticipated need for additional helium
36. (a) The defendant's interest in the Rattlesnake gas as a source of helium was part of a general program of investigation and development of helium resources that had been activated by the approach and advent of World War II. During a period of about 2 years before December 17,1942, estimates of the amounts of helium likely to be needed to meet anticipated war requirements had expanded prodigiously and the defendant had been actively seeking to discover and develop new sources of helium to supplement the amounts available from its one established plant, completed in 1929, at Amarillo, Texas.
(b) Helium production in fiscal 1940 (the last year not grossly affected by war conditions) was 6,822,000 cubic feet. This came largely, if not entirely, from the Amarillo plant. That plant processed fuel gas from the Cliffside field in Texas.
(c) Between 1927 and 1984, the defendant had purchased, in fee, gas rights in 50,000 acres covering the entire Cliffside field. Accordingly, it was in a position to either produce the gas in quantities adequate for the needs of the Amarillo plant or hold it for future needs, as the occasion demanded.
(d) Historically, the only helium production of commercial importance in nongovernmental plants had been at Dexter, Kansas, and Thatcher, Colorado, where small plants, operating intermittently between 1927 and 1934, had produced somewhere around 13 million cubic feet of helium. This had not proved a commercially successful operation and, by 1942, and thereafter, helium production was exclusively a Government operation.
(e) By the middle of 1942, estimates of the need for helium had increased to 230 million cubic feet per year. In 1941 the Bureau of Mines had initiated an intensive survey of gas fields in Texas, Kansas, Wyoming, Colorado, and Utah, to determine the best locations for additional helium plants.
(f) Gas supplies, believed to be available for the Amarillo plant and for possible additional plants, were indicated in a report, dated March 20,1942, before discovery of the Battle-snake gas, as follows:
(g) The defendant's surveys led to the establishment, at places where gas suitable for processing was available, of new helium plants at Exell, Texas; Otis, Kansas; and Cunningham, Kansas.
(h) Before it was decided to build a plant at the Battle-snake field to process the Battlesnake gas, plans were afoot to build a plant near Thatcher, Colorado, to treat gas, having a high helium content, from a relatively small low-pressure reserve at the Model Dome field, mostly on the public domain, near Thatcher, and some equipment was purchased for that plant. Plans for the Thatcher plant were abandoned in June 1943, after it had been decided that the gas reserve at Battlesnake justified increasing the size of the Battlesnake plant.
The status of defendants investigations December 17,19J$
37. (a) On December 17,1942, when the assignment of the 1942 lease to the defendant was approved, the information the defendant had concerning the nature and extent of the Battlesnake reserve (and the feasibility of locating a plant there) was not adequate to afford assurance that the Battle-snake gas could be produced on a practicable basis.
(b) Navajo No. 1 well had been closed in since the end of July 1942 and could not be produced or further tested without additional work at substantial expense.
(c) N. Wood Bass, a geologist for tlie Geological Survey for 30 years, with extensive experience in the study of gas fields that contained helium, had made a report, on August 17, 1942, based on a study he had made immediately after Navaj o No. 1 was closed in. His report was inconclusive as to the size of the field and did not estimate the thickness of the pay zone. He recommended that Navajo No. 1 be deepened to test the formation down to the Ignacio quartzite, unless a large flow of gas developed at a shallower depth, and recommended a site for a second test well if it should prove impossible to complete Navajo No. 1.
(d) Concurrently with its initial steps toward investigation of the probable amount of gas in the reserve and the negotiations that led to assignment of the lease, the defendant had made some preliminary inquiries concerning a plant site, the availability of a fuel and water supply for a helium plant and facilities for transportation, and had initiated investigations to determine whether the gas could be processed for helium extraction. On December 17, 1942, however, when the 1942 lease was assigned, no rights to a site or essential appurtenant facilities had been acquired and many questions concerning the quantity of gas available at Rattlesnake and the feasibility of producing and processing the gas remained unanswered.
The Namajo flcmt
Construction timetable. 38. (a) Arrangements to construct a helium plant on the Navajo Reservation began to materialize within a few weeks after the 1942 lease was assigned to the defendant.
(b) On January 20, 1943, the defendant contracted with the Hudson Engineering Corporation to build the plant. Construction began during April 1943. The plant was ready in December 1943 but was not placed in operation until March 9, 1944, when a 19-day trial run commenced. Then, for reasons stated hereafter, the plant was shut down until February 1953, when it resumed operations for a little over 2 years, until the Rattlesnake wells ceased to produce gas and other sources of gas proved inadequate.
Plant cost. 39. (a) As originally planned, tbe Navajo plant was to cost about $1,800,000 and was to have a capacity of 2 million cubic feet of raw gas per day.
(b) After a successful showing of Navajo No. 1 well, in May 1943, the contract was supplemented to double the plant's capacity.
(c) The cost of the completed plant project, exclusive of gas wells and oil and gas rights, was $3,268,072.44.
Functions performed by the plant. 40. The ultimate functions performed by the plant proper consisted essentially of (a) pretreatment of the gas to remove gasoline, carbon dioxide, and water, in order to minimize freezing in the course of the subsequent, extraordinarily low temperature separation process, and (b) separation or extraction of the helium from the pretreated gas, which consisted largely of nitrogen and helium.
Factors enhancing cost of the Navajo plant. 41. (a) Two factors, in particular, made it necessary to add to the Navajo plant items that would not have been required if the gas had provided fuel for its own processing and if the plant had not been so remote from railroad transportation. Most notably, the fact that the Kattlesnake gas was not combustible and therefore not suitable as fuel made it necessary to build a 30-mile fuel pipeline, and the remoteness of the field from transportation facilities necessitated building a high pressure line from the plant to the railroad at Gallup.
(b) Contributing to the overall cost were various difficulties encountered in the design and construction of the project, some of which were attributable, in part, to the haste with which it was planned and carried forward in an effort to provide for expected war requirements. These requirements, as events developed, proved to be less than had been anticipated.
The trial mm. 42. (a) From March 9 to March 28,1944, within a few months after the Navajo plant was substantially completed, and after a basis for computing royalties had been established, the plant was put through a 19-day trial run.
(b) The trial run demonstrated that the plant could extract helium from the high nitrogen content Kattlesnake gas. It appears to have been considered a satisfactory trial, although it disclosed the need for various changes and adjustments.
(1) The "separation efficiency" of the plant (using that term to indicate the plant's capacity to extract helium from the raw gas) was 87.8 percent initially and, after operations were resumed, following a shutdown for thawing out, 98.5 percent.
(2) The "recovery efficiency" or plant yield, reflecting the percentage of the helium in the incoming gas that was ultimately recovered and saved, and therefore available for use or for sale, was 75.9 percent, although it was expected that, after adjustments and changes to eliminate or minimize leaks and other causes of loss, the plant would accomplish a higher net recovery.
(3) The difference between the separation efficiency and the recovery efficiency achieved during the test run appears to have resulted from various leaks and losses that could not be stopped without interrupting the test run.
The plant placed in stand-by condition. 43. After the trial run, the plant was fully completed, the adjustments found necessary as a result of the trial run were made, and the plant was then placed in stand-by condition.
Acquisition of site and rights of way. 44. (a) The rights necessary for construction of the plant on the Keservation were procured initially from the Bureau of Indian Affairs in March 1943, after a meeting in February, attended by the Superintendent of the Navajo Service, the Chairman of the Tribal Council, and other tribal leaders, but without prior approval of the Tribal Council. The Bureau of Indian Affairs granted the Bureau of Mines permits for use of the plant site, rights of way for the gathering lines, the fuel-gas lines, water lines, a power line from the plant to the pumping station at the river, and for the pipelines to transport finished helium from the plant to the railroad at Gallup.
(b) Tribal approval and authority for the granting of these and other rights were later given at a Tribal Council meeting July 9 and 10,1943, at which movies were shown of helium-filled blimps in action, the lifting properties of helium were demonstrated by small balloons, and an appeal was made to the patriotism of the Indians. The Council granted the rights sought, as a contribution by the Tribe to the war effort.
(c) No payment to the Tribe for the rights granted was suggested or made. The Tribal Council's resolution of July 10,1943, confirmed the prior actions and gave broad authority to approve sites and rights of way across tribal lands required for the developing, processing, manufacture, and shipment "of this vital war material."
Exploratory development and reserve estimates
General nature. 45'. (a) Concurrently with the construction of the plant, additional steps were taken to obtain additional information about the size and nature of the Rattlesnake gas reserve, to determine whether the gas could be produced, and, if so, to produce it.
(b) These steps included completion and observation of Navajo No. 1 well, drilling and observation of a new well (Rattlesnake 1-G) on the 1923 lease, and estimates by various persons of the quantity, character, and value of the gas.
Development work on the wells. 46. As of December 17, 1942, it was uncertain whether Navajo No. 1 (which had been closed in since the end of July 1942, and could not be tested further without considerable expense) could be completed as a producing well.
Early in 1943 it was decided to complete Navajo No. 1, and to drill an additional well on the 1923 lease, only if Navajo No. 1 was completed as a gas well. A contract for those purposes was executed February 5, 1943, with Continental.
Navajo No. 1 completed. 47. On March 31, 1943, a rig was moved back on Navajo No. 1 well. The tubing, which had been stuck in the well, was removed. The well was then deepened to 7,036 feet and plugged back and completed on May 16, 1943, at a depth of 7,004 feet. The open flow potential of Navajo No. 1, before acidization, was 3 million cubic feet of helium-bearing gas per day and, after acidization, about 34 million cubic feet. The shut-in wellhead pressure was between 2880 and 2990 psi. The well appeared to be larger in capacity than the most optimistic expectations.
Cost of Navajo No. 1. 48. The cost to the United States of testing, drilling deeper, and completing Navajo No. 1 was $130,489.16.
Rattlesnake 1-G completed. 49. (a) At about the time Navajo No. 1 was completed, Continental was authorized by telegram to drill a new deep well, at the defendant's expense, on the 1923 lease. This well (Rattlesnake 1-G) was located about a half mile southeast of Navajo No. 1. As between the defendant and the companies, which held the 1923 lease, the drilling of this well was within the telegraphic operating agreement of May 1943. The well was commenced June 6,1943, and was completed, on August 26, 1943, at a depth of 7,049 feet in the Leadville-Ouray formation. 'Such information concerning the structure as was obtained in the course of drilling Rattlesnake 1-G in general confirmed that obtained from Navajo No. 1.
(b) Upon completion, Rattlesnake 1-G flowed 14,700,000 cubic feet of helium-bearing gas per day. It had an open flow potential of 17 million cubic feet per day without acidi-zation. Its shut-in wellhead pressure of 2900 psi was substantially the same as that of Navajo No. 1.
Cost of Rattlesnake 1-G. 50. The cost to the United States of completing and drilling Rattlesnake 1-G was $189,139.57.
Production for the trial run. 51. The gas processed in the trial run and used in preparing for it was produced from Navajo No. 1 and Rattlesnake 1-G. Royalties totaling $730.13 ($614.68 for gas from Navajo No. 1 and $115.45 for gas from Rattlesnake 1-G) were paid or credited to the Tribe. The royalty for gas from Navajo No. 1 was credited against advance royalties, already paid under the 1942 lease. The royalty for gas from Rattlesnake 1-G was paid, in addition to a shut-in gas rental of $100 which was also paid for the year beginning August 26, 1943, on Rattlesnake 1-G, as a shut-in well on the 1923 lease.
Navajo No. 1 and Rattlesnake 1-G shut-in and placed in stand-by condition. 52. (a) In October 1944, after the trial run, both Navajo No. 1 and Rattlesnake 1-G were shut-in
(b) After they were slrat-in, pressure and temperature surveys were run in both wells by a Bureau of Mines crew. The temperature of both wells, at a subsea depth of 1,710 feet, was 173°. At this depth, the pressure in Navajo No. 1 was 3593 psig (3605 psia), and in Rattlesnake 1-G, 3597 psig (3609 psia).
(c) In 1946 they were placed in stand-by condition at a cost of $24,824.61. They remained inactive until 1953, when they were reactivated. Thereafter they furnished additional gas to the Navajo plant, until they flooded and ceased producing gas in 1955. Up to October 5,1944, the withdrawals from the wells, including the estimated quantities of gas vented (but not including any amounts that may have been lost through leakage) amounted to 74,782,000 cubic feet.
Estimates of the reserve
53. (a) As has been mentioned previously, when the 1942 lease was assigned to the defendant on December 17, 1942, studies of the Rattlesnake field had not yet developed sufficient information to sustain any but tentative and uncertain judgments concerning the nature or amount of the gas reserve in the Rattlesnake field.
(b) As the arrangements for building the Navajo helium plant, and for completion of Navajo No. 1 and drilling of Rattlesnake 1-G, went forward, observations and studies directed toward appraisal of the nature and quantity of the gas in the Rattlesnake field also continued. Such observations, studies, and estimates (made by various persons, using a variety of methods, and based on somewhat different selections of information from among the evidence accumulated as observations and studies continued) extended intermittently over a number of years, until after the project was established, and even until some years after the wells had ceased to produce gas. Ultimately they included studies and retrospective estimates made primarily for the purposes of this litigation. The later estimates took account of information gained through observations made in the course of work on the wells in 1957, and actual production of gas from them, between 1953 and 1955.
The nature of an oil and gas reservoir. 54. Gas is found in the earth in widely scattered places. It is lighter than water and may move about within the earth through permeable spaces. It may accumulate in porous formations or other spaces within the earth, such as fissures, fractures, or cavities, which are overlaid by a cap or seal that traps the gas within the space below it. Water may, as apparently it did in the [Rattlesnake field, serve as the base of the container, preventing the escape of the gas downward or laterally from under the sealing cap. In order for the gas to be produced, the permeable space where it is trapped must be accessible to the bore of the wells, either directly or indirectly, through connecting permeable spaces. The encroachment of water is among the various factors that may prevent or curtail the production of gas present in the reserve, by impeding its access to the bore of the wells drilled in an effort to bring the gas to the surface.
The Leadville-Ouray structure. 55. (a) The Leadville-Ouray formation, where the gas was found in the Rattlesnake field, is an anticlinal structure, in which more or less permeable rock, in the form of a wide, shallow, inverted bowl, is overlaid by impervious Molas shale, which serves as a cap or seal. The permeable space originally was filled with water, some, but not all of which was displaced by gas trapped under the anticline. The water, which is now salty, remained immediately below the gas and exerted considerable force or drive upon it.
(b) The parties are apparently agreed on the foregoing general description of the Leadville-Ouray formation, and the evidence sustains them. They are bitterly at odds, however, in their contentions with respect to the volume of the porous and permeable space, capable of containing gas, that existed in the Leadville-Ouray formation in the Rattlesnake field.
Standard units of measurement of natural gas. 56. (a) Gas is measured by the cubic foot. The applicable operating regulations of the Geological Survey provide that, for royalty purposes, gas volumes shall be measured at a pressure of 15.025 pounds per square inch at a temperature of 60° F. These temperature and pressure bases were used in estimating the Kattlesnake helium gas reserve.
(b) The same pressure and temperature bases were used in the contract for the purchase of fuel gas for the Navajo plant. The gas for the Exell, Otis, and Cunningham plants was purchased on a pressure base of 16.4 pounds per square inch and at a temperature of 60° F.
(c) Helium is measured at a pressure base of 14.7 pounds to the square inch and at a temperature of 70° F.
Two methods of estimating reserves. 57. (a) There are two accepted methods of estimating the quantity of recoverable gas in place in a gas reserve. One is called the "volumetric", "reserve volume", or "sand volume" method. The other is called the "pressure decline" method. Of the estimates, tentative or positive, of the gas in the Kattlesnake reserve that are disclosed by the record, ten (including all estimates made before the commencement of this litigation) are based on the volumetric method to such extent as was permitted by the physical evidence available when they were made, and three were based on the pressure decline method.
(b) The factors considered in making estimates by the volumetric method are:
1. The thickness of the permeable space that contains gas, sometimes called the effective pay zone.
2. The areal extent of the permeable space that contains gas.
3. The porosity of the permeable space.
4. The percentage of the permeable space capable of holding gas that is occupied instead by water — known as connate or interstitial water.
5. The temperature of tbe gas in the reservoir.
6. The pressure of the gas in the reservoir.
7. Supercompressibility (the deviation of the gas from the laws of ideal gas behavior).
8. The percentage of the gas in the reservoir that is recoverable, and (where available),
9. Abandonment pressure, or pressure within the reservoir at the termination of efforts to produce gas.
(c) The volumetric method is the only method that can be used before there has been substantial production from the reserve.
(d) The pressure decline method, as employed by the defendant's witnesses in three of the late estimates, is based on an effort to determine the relation between gas volume produced and an associated pressure decline. It cannot be used until after there has been adequate production associated with a decline in reservoir pressure to afford a basis for establishing a relationship between them and, even then, its application is affected by the consequences of a water-drive, such as was present in this case, which tends to diminish the amount of the pressure decline that otherwise occurs as gas is withdrawn from the reservoir.
According to the plaintiff, the application of the pressure decline method requires knowledge, which the plaintiff says was not available in this case, concerning the original static formation pressure (or bottom-hole pressure), the static formation pressure after the gas has left the reservoir, and the quantity of gas that left the reservoir.
The kinds of evidence relied upon in estimating reserves. 58. The kinds of evidence upon which the Avidely diverse estimates were based include:
(1) Guttings. These consist of small chips or fragments of the material through which the drill passes while a well is being drilled. They are flushed to the surface at intervals by drilling mud pumped down the drill pipe and through the rock bit, and are recovered at the surface by passing the mud over a vibrating screen. They may be examined visually by geologists, "sitting" the well to observe the drilling operation, who customarily take samples of the cuttings recovered. In addition, samples of the cuttings are customarily placed in small cloth bags and usually are available to anyone desiring to examine them. Visual examination of the cutting samples, or laboratory analysis of them, furnishes some information concerning the nature of the material through which the drill has passed.
The significance of the evidence furnished by cuttings is enhanced to the extent their analysis is combined with consideration of reliable reports of current observations or specific personal knowledge of the drilling operation which produced them.
Especially when considered in conjunction with reliable information concerning the intervals at which the samples were taken, the speed with which the drill progressed through the zone from which they were retrieved, and other information about the course of the drilling operation, cuttings may afford some indication of the thickness and porosity of the zones from which they came.
(2) Cores. Sometimes, in the course of drilling, samples of the earth through which the drill is passing are taken in the form of cylindrical cores, cut by a special coring bit which has teeth only around the outer edges and is open in the middle. As the coring bit progresses through -the formation, if it performs its intended function, it cuts out a column of the material being drilled, which enters the tube or core barrel, and is removed by pulling the drill pipe. Usually, depending upon the size of the hole being drilled, the cores are from 2 to 4 inches in diameter. Those recovered in the Eattlesnake field varied in length from a few inches to 6 or 8 feet. The equipment available in 1942-48 for taking cores was far less efficient than diamond coring bits that became available later. It usually gave a core recovery substantially less than 100 percent and sometimes nothing was recovered. Cores were taken in drilling Eattlesnake 100 and Eattlesnake 1-Gr. The recovery was between 25 to 100 percent of the segments cored in Eattlesnake 100, and 27 to 100 percent in Eattlesnake 1-Gr.
Coring the entire well, or even the entire pay zone, is too expensive to be practical. The entire prospective pay zone was not cored in any of the deep Eattlesnake wells. The cores recovered were not sufficient to provide a reliable, independent basis for determination of the thickness of the pay zones, or for identifying the porosity or permeability of the structure generally.
(3) Drilling time. Generally, the drill progresses more rapidly through porous material than it does through nard, dense rock. Accordingly, drilling time, or 'the rate at which the drill bit penetrates the formation, may give some indication of the character of the material being drilled. Its significance may, however, be affected by other factors than the nature of the substance drilled that may also vary the speed of drilling, such as the sharpness of the bit, the weight carried on the bit, and the speed at which the bit is operated. Records of drilling time customarily are kept. The drilling times recorded and charted on Navajo No. 1, Rattlesnake 1-G, and Rattlesnake 100 were considered by some of the estimators, along with other information, in reaching their conclusions.
(4) Drill stem tests. Drill stem tests are sometimes made during drilling to determine whether oil, gas, or some other substance will be produced from the interval in the formation subjected to such testing. Other segments are sealed off by a packer and a port is opened in the drill pipe to communicate with the zone to be tested. Conditions of relative pressure are adapted to permit whatever material may be found there to flow out of the well. Tests of whatever is produced can then be made that may indicate the nature and content of the zone tested and the rate of production of whatever is found there. Such tests, made in Rattlesnake 1-G, indicated the presence of gas but gave no conclusive identification of the depth or thickness of the productive zones.
(5) Electrical surveys. Various types of electrical surveys were made within some of the wells by instruments, designed to record indications of the nature of the material composing the rock adjacent the point in the well where the instrument is making its record.
According to the evidence, none of these instruments affords a precise, wholly reliable, independent measure of the permeability or porosity of the rock, or of the thickness of the porous zones, or of the presence or absence of commercial quantities of oil or gas. They may, however, give indications of the structure, adequate to assist in arriving at reasonable estimates, when interpreted by experienced persons and correlated with other evidence concerning the nature of the formation within which the observations are made.
The bases of the various estimates
Bass and Hinson estimates in May 1943. 59. (a) On May 27, 1943, Bass, who had continued his studies following his report of August 17, 1942, submitted another report, in which he estimated the effective thickness and area of the gas-producing zones in the Rattlesnake reserve. At that time, Navajo No. 1 had just been completed. Rattlesnake 1-G had not yet been drilled.
(b) Bass concluded that there were three gas-bearing zones in the Ouray limestone at Rattlesnake. He designated these as zones 1,2, and 3, in descending order. He estimated the thickness of the porous, gas-bearing beds, at Navajo No. 1, as 18 feet in zone 1, 15 feet in zone 2, and excluded zone 3 from his estimate, as bearing water.
(c) By correlating the available information about Navajo No. 1 and that concerning the other deep wells nearby that had penetrated the Leadville-Ouray (Rattlesnake 24 and Rattlesnake 100), he concluded that the average total thickness of the porous beds in zones 1 and 2 in the Rattlesnake reserve might be expected to be 25 feet.
(d) He made three estimates of the possible area of the gas reservoir, above water, using his estimated average thickness of 25 feet and a hypothetical porosity of 15 percent. These consisted of an "optimistic" estimate (which he also described as a seller's estimate) of 2,900 acres, a second, more conservative estimate of 2,600 acres that excluded an area beyond a known fault, and a still more conservative estimate (which he described as a buyer's estimate) of 1,700 acres. Even the last, and smallest, of these three he designated as an optimistic figure "at the present time."
(e) Bass, who was a geologist, and whose primary function was to report on the geological structure of the formation, made no personal estimate of the amount of gas in this hypothetical gas pool but his 1943 report includes estimates, made by Mr. H. H. Hinson, of the gas reserve in the three areas Bass had defined.
(f) Using a pressure base of 14.7 pounds, a bottom-hole pressure of 3,600 pounds, a temperature base of 60° F., Bass' estimated reservoir thickness of 25 feet, and a porosity of 15 percent, Hinson "supplied" Bass with the following estimates of the gas reserves:
2,900 acres: gas — 116 billion cu. ft. (helium — 8.7 billion cu. ft.)
2,600 acres: gas — 104 billion cu. ft. (helium — 7.8 billion cu. ft.)
1,700 acres: gas — 68 billion cu. ft. (helium — 5.1 billion cu. ft.)
(g) Bass' 1943 report contains a summary and correlation of his own observations of the structure of the Leadville-Ouray formation in the area, of reported observations made by others during the drilling of the three deep wells that had then been drilled into the Leadville-Ouray, in the Rattlesnake field (Rattlesnake 100, Rattlesnake 24, and Navajo No. 1), and of observations made at a well, then recently drilled on the Tocito Dome 16% miles south' of Navajo No. I. He describes the data he relied upon concerning the several wells as "not too precise."
Cattell estimate in April 1944. 60. (a) On April 18,1944, Mr. R. A. Cattell, Chief of the Petroleum and Natural Gas Branch of the Bureau of Mines, prepared an estimate of the recoverable gas in place in the Rattlesnake field, at 30 billion cubic feet.
At the outset of the memorandum containing this estimate, Cattell said:
The main purpose of this memorandum is to develop and experiment with some methods of valuation, rather than to establish final values. The work has all been done hurriedly with many interruptions and the calculations have not been checked carefully for error.
(b) The following is the text of his estimate of the amount of gas in the reservoir:

To evaluate the gas I have assumed:
1000 acres of productive land.
Average thickness of producing formation — 25 feet.
Average porosity — 15 percent
Bottom-hole pressure 8600 psi. This was taken without checking (without computing pressure due to weight of gas in hole) from Bass' report of May 17, 1943. Hinson should check it.
Bottom-hole temperature 125° F. Hinson may have a better figure.
From this I get:
Volume of reservoir rock=100 X 43,560 X 25= 1,089,-000,000 cu. ft.
Volume of pore space=T,089,000,000'X .15=163,350,-000 cu ft.
I have assumed that % of this, or 30,000,000 M cu. ft. will be recovered.
Possibly the estimate of recoverable gas should be reduced further to account for losses.

(c) It is not apparent from the record that Cattell's estimate of 30 billion cubic feet of gas takes account of any facts then known that were not available to Bass and Hin-son in making their estimates in May of 1943.
Hinson estimate of May 1944. 61. (a) On May 6,1944, Hinson, still employed by the Bureau of Mines and acting under directions of his superiors to prepare a valuation as a basis for a proposal for acquiring the helium-bearing reserve in the Battlesnake field, completed an estimate of the quantity of gas in the field as an element of his valuation.
(b) Hinson concluded, in this report, that the field contained three gas-bearing zones in the Ouray limestone, with an average pay thickness of 25 feet. He estimated the thickness of these zones as 5, 5, and 15 feet in Navajo No. 1, and 5, 4, and 17 feet in Battlesnake 1-G, and estimated an average pay thickness of 25 feet, over an area of 1,385 acres, above water, or 34,625 acre-feet of pay zone. Using a porosity of 10 percent, 20 percent connate water, a reservoir pressure of 3665, a temperature of 160° F., and a recovery factor of 80 percent, he estimated the recoverable reserve in the reservoir at 17.053 billion cubic feet.
(o) Hinson had had considerable prior experience in the examination and study of limestone reservoirs, beginning in 1936, although he had never previously undertaken a complete valuation.
(d) He had been present and observed the deepening and conditioning of the Navajo No. 1 well, after the initial discovery of gas in 1942, and was present also and observed the drilling of the Eattlesnake 1-G well.
In making his estimate, he considered, as basic data, cuttings from the formation, mostly recovered during drilling at which he was present. He considered, also, outcrops of the Ouray, some miles from the point where the wells were drilled, and cores taken from Rattlesnake 1-G. He personally examined the cuttings and the cores. The recovery of the cores he did not regard as adequate to afford an independent basis for estimating the thickness of the porous zones. He also took into consideration the drilling time, drill stem tests made on the wells, and an electrical log of the formation, made during the drilling of Rattlesnake 100. In estimating the areal extent of the reserve, he relied basically upon seismographic maps of the Continental Oil Company which were used for that purpose also by others who estimated the size of the reserve.
(e) He concluded that in the Rattlesnake 1-G and Navajo No. 1 wells the top three of four porous zones in the Lead-ville-Ouray contained gas. He further concluded that these zones were interconnected by fractures and constituted a common reservoir. In his judgment, the aggregate average thickness of the zones was accurate within, at most, a few feet, although he recognized the possibility of variation in the porous zones over a wide area.
(f) Although he regarded the information he had as adequate for a reasonably accurate estimate, he recognized also that the observations on which his conclusions were based were limited to observations from only four control points where the Leadville-Ouray had been penetrated in the Rattlesnake field, and that the information concerning the structure would have been more revealing if there had been a substantially larger number of wells.
Hinson does not represent either the figure of 17.053 billion cubic feet he initially estimated in his May 6, 1944, report, or the smaller figure of 12,386,902,000 cubic feet (hereafter sometimes referred to as 12.4 billion cubic feet), included in his later report of June 8, 1945, as exact figures but rather as figures that were reasonable and "close within limits."
Although Hinson regarded himself as a representative of the Bureau of Mines as the buyer, and assumed no responsibility to represent the Tribe's interest, he appears to have given reasonable and objective consideration to such information as was available at the time regarding the structure.
Hinson's estimate of June 1945. 62. (a) On June 8,1945, Hinson submitted a revised estimate of the reserve, in response to a request by his superiors that he reconsider his previous estimate 'and the valuation based thereon. In this later report, which formed the basis, as far 'as the quantity of gas in the reserve was concerned, of the valuation used in establishing the terms of the December 1,1945 agreement, by which' the defendant claims rights in the gas, Hinson reasserted his previous estimate that the field contained three gas-bearing zones. He revised his estimate of the average thickness of the pay zones from 25 to a total of 26 feet, but computed the acre-feet on the basis of an estimate of separate areas for each of the three zones — -1,459 acres for the first zone, estimated as 5 feet thick, 757 acres for the second zone, estimated as 5 feet thick, and 572 acres for the third zone, estimated as 16 feet thick, a total of 20,222 acre-feet, as compared with 34,625 acre-feet in his earlier estimate.
He increased his estimated porosity from 10 percent to 12 percent, retained his earlier connate water estimate of 20 percent, used a slightly lower reservoir pressure of 3605 as compared with 3665 in the earlier estimate, a slightly higher temperature (173° instead of 160°), utilized a compressibility factor of 1.077, retained his recovery factor of 80 percent, and concluded that the recoverable reserve was 12,386,902,000 cubic feet.
(b) It is not apparent that Hinson had substantially significant additional information available when he made his revised estimate, as compared with that on which his original estimate was based. The revision appears to have resulted essentially from a modified application of Hinson's judgment to the available data, activated in part by an overriding policy direction to revise his valuation downward, in accommodation to a prevailing view of his superiors that his valuation, based on the original estimate, was too high.
The evidence does not sustain a conclusion that Hinson's estimate of the recoverable quantity of gas in the reserve, made in June 1945 (although it is substantially lower than his 1944 estimate) was not still within the limits of a reasonable appraisal based on the information then available.
Schellhardt and Soyster review of Hinson's June 1945 estimate. 63. (a) In June 1945, Hinson's 1945 estimate and the valuation based thereon were reviewed, on behalf of the Geological Survey, by Messrs. Schellhardt, a gas engineer, and Soyster, who had the title of petroleum technologist, both employees of the Geological Survey.
(b) Their inquiry into the factual basis of Hinson's estimates consisted principally of examination of the data available at the time concerning the gas reserve in the Battlesnake field, supplemented by a personal examination of the site and the nearby outcrops of the formation.
(c) Most of their work was done during the relatively brief interval between early June 1945, when Hinson's report was submitted, and June 29. They were subjected to some pressures to hurry their report in order that it might be ready before a Tribal Council meeting in early July 1945 at which the negotiation of an agreement on behalf of the Tribe, with the defendant, was authorized, and they met tins deadline. Hinson was present during most of their deliberations and was hovering nearby most of the rest of the time while they were reviewing his report.
(d) There is no persuasive affirmative evidence, however, that they did not apply their own judgment and professional experience to such facts as were then available.
(e) They concluded that, in the light of the information available to Hinson, his 1945 estimate was reasonable, and perhaps generous. In their view, it represented the maximum justified by the information then available.
Ssir's 1955' estimate. 64. (a) On April 20, 1955, Forest John Sur, a geologist, with long and varied experience which included making estimates of oil and gas reserves, prepared an estimate of the quantity of gas in the reserve, on behalf of the plaintiff, for use in this litigation.
(b) Sur's estimate of 47,314,148,000 cubic feet is based on an analysis of substantially the same information considered by Hinson, supplemented by personal conversations with individuals who were present at the drilling, or were otherwise informed concerning the wells in or near the Rattlesnake field that penetrated the Leadville-Ouray, by personal observations at the well site, and personal inspection of the nearby outcrops of the Leadville formation, and by laboratory analysis of samples of cuttings taken from Rattlesnake 1-G.
(c) Sur's estimate differs from Hinson's, primarily, in two particulars. Sur concluded that the pay interval was 52 feet thick at Navajo No. 1, 48 feet thick at Rattlesnake 1-G, and that, in the Rattlesnake field, as a whole, it averaged 48 feet thick, over an area of 1,400 acres, or a total of 67,200 acre-feet, as compared with Hinson's final total of 26 feet, split up into three zones 5, 5, and 16 feet thick, each different in area, and amounting, in the aggregate, to 20,222 acre-feet. In addition, Sur used a recovery factor of 92 percent, as compared with Hinson's recovery factor of 80 percent. Otherwise, the factors he considered — porosity 12 percent, connate water 20 percent, reservoir pressure 3605, reservoir temperature 173, compressibility factor 1.077 — are identical to those used by Hinson.
(d) Sur's conclusion that the pay zone in the Rattlesnake field consisted of a common reservoir, averaging 48 feet thick and covering an area substantially as great as the largest area of any of Hinson's three productive zones, depends in large measure on his view that the structure contained numerous fractures and fissures which themselves afforded gas storage space, equal to or greater than the space provided by the porous material in the formation.
(e) He also concluded that, in addition to the fractures, the upper part of the Leadville formation, especially, contained a substantial volume of solution cavities caused by ascending or descending acidulous waters which dissolved the limestone, that the effects of erosion on the thickness of this porous top layer of the Leadville formation was irregular, and that the intrusion, into these solution cavities and into the fractures and fissures, of mud, which ultimately hardened into the Molas shale, did not eliminate the gas storage capacity of the areas where it occurred, or diminish it, to the extent that Hinson and others believed it did. He reasoned that the mud was not so compacted as to eliminate reservoir space in the fissures, that it did not penetrate all fissures or fractures, that when it dried, shrinkage reopened part of the space previously filled with mud, and that the mud itself was not entirely impervious clay material but contained sand and limestone particles which gave it considerable porosity.
(f) Sur also regarded the low percentage of core recovery, where cores were taken, as indicating that, to the extent the recovery was less than 100 percent, the cores affirmatively indicated the presence of void spaces or areas of high porosity, and thereby augmented the estimate.
(g) Sur applied his assumed average porosity of 12 percent to an aggregate thickness of 48 feet, some of which he believed to be porous material and some relatively nonporous, but cracked and fissured and containing solution cavities capable of holding large quantities of gas. Hinson, and others of the expert witnesses, minimized the storage capacity of the fractures and fissures which all agreed existed in the nonporous zones.
Qborne and Ball estimates — March and April 1955. 65. (a) On April 1, 1955, an estimate of the recoverable reserve was submitted by Douglas Ball, of Washington, D.C., who had been retained as an expert by the defendant. Ball, in turn, had retained Harry W. Oborne, of Colorado Springs, a geologist with substantial experience with the oil productive basins in the Rocky Mountain area, to supplement the work of Ball's permanent staff in the study of the Rattlesnake field. A report by Oborne dated March 2, 1955, was attached, as an appendix, to the Ball report. Both of these reports were made for use in this litigation.
(b) The Oborne report estimated the recoverable gas in the field at 11,317,112,000 cubic feet. It concluded that there were three gas-bearing zones, not more than 5, 5, and 16 feet thick, and expressed doubt that the entire 16 feet of the third zone was an effective pay zone. Porosity was estimated at 12 percent, the maximum capable of development through dolomitization of limestone. Reservoir pressure was taken to be 3605, reservoir temperature 173° F., and a compressibility factor of 1.0892. Oborne used 75 percent as the recovery factor. Connate water, he estimated at 15 percent. The areal extent of the three zones, which he determined by planimeter, was stated as 1,448.8 acres for zone 1, 743.5 acres for zone 2, and 488.0 acres for zone 3 — a total of 18,769.5 acre-feet.
(c) Ball's report estimated the recoverable reserve at 7.1 billion cubic feet.
He, too, concluded that the pay thickness consisted of three zones of 5, 5, and 16 feet, each covering an area identical with that used in Oborne's estimate, and totaling 18,769.5 acre-feet. Instead of the average porosity of 12 percent, used by Hinson, Sur, and Oborne, Ball estimated separate poros-ities for each of the three zones at 8,10, and 10 percent. Ball assumed 20 percent connate water (as did Hinson and Sur, and, later, Kaveler), as compared with Obome's 15 percent, a reservoir pressure of 3605, a reservoir temperature of 173° F., and a compressibility factor of 1.0892. Ball's recovery factor of 65 percent is substantially lower than that of any of the other experts before Kaveler's retrospective appraisal in 1959, made after the wells had been abandoned following recovery of only 1,257,000,000 cubic feet of gas. Ball regarded his 65 percent estimated recovery factor as comparatively high and based it on the plans of the Bureau of Mines to produce the gas at a relatively low and reasonably consistent rate of about 2 million cubic feet per day.
(d) Ball's report said that recent production history indicated the bottom water would not be very active in advancing as gas was withdrawn, that the gas production would be accompanied by a proportionate pressure loss, and that these factors indicated a comparatively small amount of gas would be occluded by encroaching water.
(e) Ball shared the belief of the other experts that the limestone between the porous zones was not without fractures, but, in contrast to Sur's opinion, he regarded these as creating very small overall permeabilities between the porous zones that permitted fluid movements between the zones but added little to the aggregate volume of the reserve.
(f) The Obome and Ball reports appear to result primarily from the application of their individual judgments to basic information generally similar to that available to Hinson and Sur, supplemented by the production history of the wells up to the time of their reports and the results of an independent determination by Oborne of the area of each of his three zones.
Kaveler estimates — February 1955 and September 1959. 66. (a) As of February 4,1955, two estimates of the recoverable reserve were submitted by Herman H. Kaveler, a petroleum engineering and management consultant at Tulsa, Oklahoma, who had been retained as an expert by the defendant and who later was employed by the defendant as a consultant, to advise with respect to the attempt made in 1957 to recondition and restore to production the Navajo No. 1 and Rattlesnake 1-Gr wells which had been shut down during 1955 after they had begun to produce excessive water.
(b) In Ms 1955 report, Kaveler concluded that Hinson's estimate of 12.4 billion cubic feet was excessive and that, as of July 1,1947, the helium-bearing gas reserve in the Rattlesnake field, determined by the reservoir volume method, was 5.8 billion cubic feet.
(c) Kaveler simultaneously submitted two estimates based on the pressure decline method — the first, of 6.3 billion cubic feet, based on the assumption of no water encroachment, the second, of 3.28 billion cubic feet, computed with a correction for water encroachment.
(d) By averaging his reservoir volume estimate of 4.63 billion cubic feet and his pressure decline estimate of 3.28 billion cubic feet (corrected for water encroachment), Ka-veler proposed 4 billion cubic feet as "the best estimate of the reserve of helium-bearing gas in the Ouray-Leadville formation as of July 1,1947."
(e) Kaveler's report summarized the history of the development of the Rattlesnake field and of the negotiations whereby the defendant had acquired rights to the gas, reviewed the data on which Hinson's estimate was based, and reached an independent estimate based on his own judgment with respect to the significance of the information then available.
(f) Kaveler concluded that Hinson's interpretation of the structure was sound, but that the productive zone was shallower and smaller in area than that used by Hinson and the other experts whose opinions are in evidence.
In Kaveler's opinion, the commercially productive thickness, above the water table, totaled only 17 feet at Navajo No. 1 (consisting of two zones, 5 and 12 feet thick, comparable in depth to the lower two of the three zones found by Hinson, Obome, and Ball), and 12 feet 'at Rattlesnake 1-Gr (consisting of one 12-foot productive zone located approximately at the depth of tire third zone of Hinson, Obome, and Ball, but 4 feet thinner). In making his computation, he used an average pay thickness for the field, as a whole, of 15 feet.
In essence, Kaveler eliminated from his estimate the upper 5-foot zone, found by the defendant's other experts, which they treated as having the greatest areal extent. Apparently he regarded the porosity of that zone, to the extent it had been created by weathering, as having been "shaled out."
On the basis of these conclusions, Kaveler used a 15-foot-thick area, above water, of only 765 acres (approximately equivalent to the area of the middle 5-foot-thick zone, found by the other experts), and found a reservoir of 11,475 acre-feet.
(g) Kaveler also regarded the porosity, used by the other experts, as excessive and instead used an average porosity of 8 percent, which he considered more nearly consistent with the core and sample log data and with the measured porosity of Mississippian limestone found in other areas.
(h) Kaveler estimated connate water at 20 percent, in common with the other experts (except Obome, who used 15 percent), and used a reservoir pressure of 3605, and a reservoir temperature of 173° F. (as they did), and a compressibility factor of 1.0892. He estimated 80 percent as the recovery factor.
(i) On the basis of these estimates, Kaveler concluded that, by the reservoir volume method, there was a recoverable reserve of 4.63 billion cubic feet.
(j) Kaveler relied strongly on electric logs, run in [Rattlesnake 100 and other wells within a few miles of Rattlesnake, and referred also to sample cuttings, core data, drilling time, and the other information generally available to all the experts.
(k) Kaveler regarded the subsurface pressures encountered in the Leadville-Ouray in the Rattlesnake field as "above normal," however, and said this characteristic was a common occurrence in areas of salt domes where the intrusion of a salt plug from below the crust of the earth exerts a compressing effect which produces above-normal pressure. He said that "above-normal pressures are always associated with reservoirs of small volume," that the pressure decline in the Leadville-Ouray formation established the absence of an "effective" water-drive, and that, as a matter of common experience, the reserve of gas in the Leadville-Ouray would be found to be relatively "small."
(l) Kaveler also undertook to estimate the reserve by the pressure decline method in 1955 — -first, assuming no water encroachment, and second, making correction for water-drive, whereby the entry of water, as gas is withdrawn, diminishes the pressure decline.
Through these methods, and assuming 80 percent recovery, he arrived at estimates of 6.8 billion cubic feet, without water-drive correction, and 3.28 billion cubic feet, corrected for water-drive.
(m) In December 1959, Kaveler supplemented his report of February 4,1955, to bring into consideration information that became available subsequently, including, particularly, facts relative to the closing of the wells in July 1955, when they began to produce excessive water, and information derived through tests and measurements (including a micro-log, a microcaliper log, a gamma ray-neutron log, and ah electric log) made in the course of the attempt to recondition the wells in 1957.
In this subsequent report, Kaveler concluded that the additional information, procured after 1955, substantially confirmed his previous estimate of 5.8 billion cubic feet, by the reservoir volume method. In addition, utilizing additional reservoir pressure data which he said permitted application of the pressure decline method without limiting assumptions applicable to his earlier estimate by that method, he arrived at an estimate, in 1959, of 4.1 billion cubic feet. Kaveler said that the fact that his independent estimates, resulting from independent use of the two methods, were as close as 5.8 and 4.1 billion cubic feet, amounted to a reciprocal verification of the two estimates, and concluded that an average figure of 4.9 billion cubic feet constituted the best estimate of the recoverable gas in the reserve.
Estimate by pressure decline method by Shelton and Munnerlyn — March 1,1955. 67. On March 1,1955, George B. Shelton and Kay D. Munnerlyn, then petroleum engineers with the Bureau of Mines, submitted a report wherein, using the pressure decline method and reservoir pressures taken October 5, 1944, and January 11, 1955, which showed a pressure decline of 420 pounds, they computed the original gas in place at 8,718,556,000 cubic feet, and the original recoverable gas (using a 50-percent recovery) at 4,358,278,000 cubic feet. Their estimate made no allowance for active water-drive.
They justified the 50-percent recovery factor on the ground that "it is generally agreed that a lower recovery factor is desirable " in newer fields, or in producing formations, where little is known of the extent, porosity, permeability, water, and continuity of pay sections.
Miller estimate — January 27,1958. 68. (a) On January 27, 1958, Raymond Miller, in a memorandum to George B. Shelton, referred to Hinson's 1945 reservoir volume estimate of 12.4 billion cubic feet, and Munnerlyn's and Shelton's pressure decline estimate of 4.358 billion cubic feet, made in 1955, and submitted an estimate which took account of an increase in pressure in Navajo No. 1, observed after it had been closed in for some months. Miller concluded that, "On the basis of the present information it is certain that the reservoir pressure in the gas zones in the Rattlesnake Field have been maintained to some degree by water encroachment and, that if allowance for water encroachment could have been used by Shelton and Munnerlyn , the indicated gas reserves would have been lower."
(b) Using an indicated water encroachment based on data then available to him, and a 50-percent recovery factor, Miller computed the original recoverable gas in the Rattlesnake field at 1,847,500,000 cubic feet and, subtracting the gas production from this estimate of the original estimate of recoverable gas, he concluded that only some 650 million cubic feet remained in the reservoir in 1958.
The gas produced and saved. 69. According to Shelton, the total amount of gas produced and saved from the two wells in the Rattlesnake field was 1,183,026,000 cubic feet. Shelton also estimated that 57.455 million cubic feet of gas was vented or used in testing. With correction for gas law deviation and excluding any undetected leakage, Shelton estimated that the total production of gas from the Leadville-Ouray in the Rattlesnake field was 1,257,038,000 cubic feet.
Negotiation of agreements
70. (a) The third element of the three-point program, which the defendant carried forward, after it took the assignment of the 1942 lease, in December of that year, was concerned with negotiation of agreements designed to give the Bureau of Mines rights with respect to the Rattlesnake gas which it believed it needed to carry out its helium program, and to define the amounts the defendant would pay for such rights.
(b) The negotiations were conducted preponderantly among representatives of various agencies within the Department of the Interior — the Bureau of Mines, the Office of the Solicitor, the Geological Survey, and the Bureau of Indian Affairs — and with Continental and Santa Fe. The Tribe took no independent part in them. It had no independent counsel, and the Tribal Council was consulted only twice. The first time was at a meeting in July 1943 which approved and authorized the transfer of a plant site and other rights essential to the construction of the plant (which, by that time, was already being built), and the negotiation and approval of a unit cooperative agreement, then under consideration (which was never executed). The second was at a meeting in July 1945, when the Chairman of the Tribal Council and the Superintendent of the Navajo Agency were authorized to negotiate with the Government.
(c) In the case of both tribal resolutions, the major substance of the arrangements that were authorized and approved by the Tribal Council had already been negotiated when the resolutions were enacted. All subsequent negotiations leading to the perfection of such arrangements were similarly conducted without direct participation by members of the Tribe or independent counsel employed by them, or by the Council Chairman or the Superintendent, who were the recipients of the negotiating authority conferred by the resolutions.
Early consideration of a unit cooperative agreement plan. 71. (a) Beginning shortly after the Rattlesnake gas was discovered and continuing until about April 1944 (through, and well beyond, the period while the helium plant was being planned and built, and Navajo No. 1 was being completed, and Eattlesnake 1-G drilled), the efforts of the Bureau of Mines, insofar as they related to acquisition of comprehensive rights in the Eattlesnake gas, were devoted primarily to attempts to develop some kind of unit cooperative agreement with Continental and Santa Fe, as lessees under the 1923 lease, pursuant to which, by reciprocal assignments, the defendant would have all gas rights, and Continental and Santa Fe all oil rights, under both the 1942 and 1923 leases.
(b) No unit cooperative agreement ever became effective.
(c) By April 1944, the objective of making the Eattle-snake field a helium-gas reserve, rather than producing the gas at once, had come to dominate the thinking of the Bureau of Mines, and its interest shifted from the unit cooperative agreement to arrangements, whereby the defendant would acquire rights in both oil and gas below the Dakota formation under both the 1942 and the 1923 lands.
The 1943 operating agreement with Continental and Santa Fé. 72. Meanwhile, in May of 1943, before any substantial progress was achieved toward comprehensive arrangements concerning rights in the gas, the defendant, as an interim expedient, entered into an operating agreement with Continental and Santa Fe. That agreement authorized the defendant to drill a well (Eattlesnake 1-G) on the 1923 lease and to produce gas from it, to be processed for extraction of helium. Continental and Santa Fe, then lessees under the 1923 lease, retained all liquid hydrocarbons that might be produced, and the right to market all gas remaining after the helium was extracted. The Tribe was not a party to the operating agreement. The companies remained obligated to pay to the Tribe the rentals and royalties provided by the 1923 lease but the defendant undertook to reimburse them for royalties they paid on products the defendant took under the agreement.
Valuation of the Rattlesnake gas for royalty purposes. 73. (a) On February 15,1944, still before any comprehensive agreement was readied about the gas rights, the value of the gas for royalty purposes was fixed.
(b) There was no precedent or established standard for valuing the Eattlesnake gas for royalty purposes and its valuation required consideration of a complex of countervailing factors.
Although private helium production was not prohibited, no private enterprises were then engaged in helium production. The defendant was the sole producer. Most of the helium it produced was used for governmental purposes. Such helium as was sold to non-Federal purchasers for medical, scientific, or commercial purposes was sold at prices fixed by the defendant, somewhat higher than the price of helium furnished to Government 'agencies. Accordingly, there was no competitively established price of helium, fixed by transactions in a free market, to serve as a readymade measure of the market value of helium.
Nor was there any directly comparable price for helium-bearing gas, because the Eattlesnake gas differed significantly in composition, in the processing it required, and in the manner in which it became available to the defendant for processing, from the gas from which the defendant extracted helium at its other plants.
The fact that its helium content was extraordinarily high, considered alone, ostensibly suggested' that it should merit a higher valuation than gases with a lower helium content. But it also contained a high percentage of nitrogen. Accordingly, unlike the gases processed at the other helium plants, it was incombustible, and therefore useless as a source of fuel for its own processing, and had no residual value as fuel gas. Nor did its processing produce any substantial quantity of salable hydrocarbons.
In addition, it required somewhat different (and, as it later developed, more expensive) treatment from the com bustible gases, with lower helium content, processed at the defendant's other plants.
Each of these factors tended to offset, to some extent, the significance of the high-helium content as an index of the value of the Rattlesnake gas.
In addition, the defendant had the expense of producing the Rattlesnake gas (as it did in the case of the gas used at Amarillo, although the sources of the gas used at Amarillo had been acquired by the defendant some years before and no royalties were being paid on it). The gas from which helium was extracted at the other plants was fuel gas en route to market. For it the defendant paid (for gas delivered at the plant, not at the wellhead) 7 or 8 cents per Mcf for whatever amount of gas it used, whether as a source of helium or as fuel for the extraction process, and passed the residue back to the suppliers for sale by them as natural fuel gas. The suppliers or those from whom they acquired the gas, not the defendant, bore the costs of producing the gas, and any royalties were paid, not by the defendant, but by its suppliers to those from whom they acquired the gas.
For these reasons, the cost of the gas from which the defendant extracted helium at its other plants afforded no basis for direct comparison in valuing the Navajo gas.
Nor were fuel gas prices an adequate measure. The defendant was to pay 8 cents per Mcf for the fuel gas from the Ute Dome to be used at the Navajo plant. Wellhead prices for fuel gas in the area generally were between 1% and 2 cents per Mcf and the Geological Survey had fixed 5 cents per Mcf as the minimum price for computing royalties on gas produced in the area under other Federal and Indian leases. But fuel gases were quite different, and afforded no adequate basis for valuing a noncombustible gas, the principal, if not the sole, worth of which was its helium content.
In these circumstances, valuation of the Rattlesnake gas presented unique problems that could not be resolved by ready reference to other, comparable prices for similar gas, or to any price for helium established in a competitive market.
(c) The negotiations apparently were initiated by a statement of the Bureau of Mines, which assumed that the royalties would be based on the 5-cent per Mcf minimum price, already fixed by the Geological Survey as the basis for royalties on gas produced under other Federal 'and Indian leases in the area.
The Geological Survey declined to accept the 5-cent price as the basis for determining the royalty on the Rattlesnake gas, and a course of negotiations ensued within the Department of the Interior that extended over a period of some months, and included a number of conferences at some of which the 'argument became "rather bitter."
(d) By January 3,1944, the Bureau of Mines had receded from its position that the price should be based on the price of fuel gas, and submitted a memorandum which set forth a proposal for fixing the price on the basis of the difference between the average cost of producing helium at the Amarillo plant over a 6-year period ($11.80) and the average price at which the defendant had sold helium for commercial use during that period (112 percent of 105 percent of actual cost, or $13.00). To the difference of $1.20 per Mcf, which the proposal treated as the value of helium, was to be added the estimated recovery of hydrocarbons. This proposal, which used a plant recovery factor of 80 percent, 7.63 for the helium content of the Rattlesnake gas, and 3 percent as interest on the investment in production facilities, would have resulted in a royalty based on a price of 8.86 cents per Mcf at the wellhead for the helium content of the gas.
(e) The Geological Survey was not content with the Bureau of Mines' proposal of January 3,1944. Instead, utilizing a similar formula, but basing it on a 1943 cost of production at Amarillo of $9.78 per Mcf of helium and the 1943 selling price of helium for commercial usage of $11.50, it came up with $1.72 as the value of 1,000 cubic feet of refined helium, rather than the $1.20 suggested by the Bureau of Mines. Adding to this the estimated value of liquid hydrocarbons, and using the 80-percent recovery factor proposed by the Bureau of Mines, the Geological Survey arrived at a wellhead value of the Rattlesnake gas of 12 cents per Mcf, as a basis for computing the royalty, and, on Pebruary 15,1944, fixed the price at that figure. The Bureau of Mines considered the price too high and did not then agree to it, but did use it later as the basis for computing the advance royalties paid under the agreement of December 1, 1945.
(f) As in the case of the other negotiations, the Tribe was not represented by independent counsel, or by individual members of the Tribe, in the negotiations that determined the valuation of the gas for royalty purposes. Instead, the Bureau of Indian Affairs and the Geological Survey conducted the negotiations pursuant to the official responsibility delegated to them by the Secretary to protect the interests of the Tribe. The Bureau of Mines spoke for the Secretary as a buyer of gas.
Although it was attempting to get the gas at the best price it could, the Bureau of Mines was nevertheless sensitive to the practical desirability of arriving at a price that would be able to withstand claims on behalf of the Tribe that it was unfairly low.
Negotiation of the agreement of December 1,19J+5
Proposal to purchase rights below the Dakota. 74. (a) By early 1944, the Bureau of Mines' interest in a unit cooperative agreement had diminished and it had commenced efforts to develop other arrangements that would enable it to hold the gas as a reserve.
(b) There had been indications that oil might be found in the Hermosa, between the Dakota sands, where much oil had been produced already, and the Leadville-Ouray, in which the helium-bearing gas was found. The Bureau of Mines deemed it desirable to acquire dominant rights in the Hermosa, in order to enable it to prevent or control oil-development operations there that might impair the effectiveness of its program for keeping the gas in place in the Leadville-Ouray as a reserve. Accordingly, the Bureau of Mines' initial objective was to purchase all oil and gas rights below the base of the Dakota formation under both the 1923 and 1942 leases.
Hinson develops a proposal to acquire rights below the Dakota and commences negotiations. 75. (a) In April 1944, in furtherance of this objective, Hinson (then with the Amarillo offices of the Bureau of Mines) was assigned the task of developing and negotiating an agreement with the Tribe, and the companies, that would give the defendant all gas and oil rights below the Dakota under both leases. Hinson's responsibility included valuation of the interests to be acquired, and R. A. Cattell, Hinson's superior in Washington, proposed a tentative basis for such valuation.
(b) By May 6, 1944, Hinson submitted a report which largely followed the ideas on valuation suggested by Cat-tell's memorandum, and, on May 15,1944, he was authorized to negotiate with Continental and 'Santa Fe for the purchase of their rights below the Dakota under the 1923 lease, at a figure not higher than $250,000, and with the Tribe for the purchase of its rights below the Dakota under both leases. His instructions were to negotiate first with the companies.
(c) Preliminary negotiations with the companies were not encouraging, mainly because of their desire to retain an override or royalty interest in the liquid hydrocarbons. Accordingly, in June 1944, it was decided to proceed with negotiations for the purchase of the Tribe's interests, and late in June, the Office of Indian Affairs was informed, by letter, of the Bureau of Mines' desire to purchase the Tribe's rights, and of its intention to keep the Navajo plant on a stand-by basis until conditions affecting the helium program were deemed to justify its operation.
The negotiations alter the proposal. 76. (a) The negotiations continued through 1944 and into 1945, through personal conferences and correspondence among representatives of the Bureau of Indian Affairs, the Geological Survey, the Bureau of Mines, and the companies. Throughout the negotiations, Hinson was an aggressive advocate of the Bureau of Mines' proposals.
(b) During tbe early stages of tbe negotiations, the Bureau of Mines continued to press for purchase of all oil and gas rights below the Dakota. The Geological Survey and the Bureau of Indian Affairs were adamant in opposing the plan because of difficulties in valuing the oil rights in the Hermosa, and because of concern that the proposed arrangement might delay or forestall possible development of oil or gas in the Hermosa, and thereby unnecessarily delay or prevent realization by the Tribe of potential financial benefits from that source.
(c) Continental and Santa Fe, meanwhile, continued to show interest in oil development in the Hermosa but little, if any, interest in the helium-bearing gas in the Leadville-Ouray.
(d) As the negotiations continued, the Bureau of Mines gradually came to acquiesce in modifications of its proposal that would limit the defendant's rights to oil and gas deposits below the base of the Hermosa (instead of below the Dakota), and would provide for assignment to Continental and Santa Fe of the defendant's rights under the 1942 lease, above the base of the Hermosa, thereby leaving the Hermosa, as well as the other, shallower formations, available for independent development.
77. (a) There were differences, too, among the agencies within the Department of the Interior as to the form the agreement should take.
(b) The Bureau of Mines wanted one contract to which the Tribe, Continental, Santa Fe, and the United States would be parties. The Geological Survey opposed this on the ground that the Indians were not proper parties to an agreement between the United States and the companies. It advocated separate contracts under which the United States would assign to the companies its rights in the 1942 lease, the companies would then relinquish to the Tribe the rights desired by the United States under both leases, and the United States would acquire such rights directly from the Tribe.
(c) The Bureau of Mines always favored an outright purchase. The Geological Survey favored a long-term lease. The position of the Bureau of Indian Affairs was not wholly clear and, before committing itself, it sought to have a valuation made showing the amount the Indians would receive.
(d) The effect of the arrangement advocated by the Geological Survey would be that the Tribe would have the fee, the companies would have, as lessees, all oil and gas rights above the base of the Hermosa, and the defendant would have a long-term lease from the Tribe of all oil and gas rights below the base of the Hermosa.
(e) Because of the insistence of representatives of the Bureau of Indian Affairs and the Geological Survey, the negotiations ultimately resulted in the adoption of their proposals, rather than those advocated by the Bureau of Mines.
Hinson develops a proposal to acquire rights below the Hermosa. 78. (a) Hinson was directed to make an estimate of the gas reserve in the Leadville-Ouray at Battle-snake and to determine the value of the royalty that would be due the Tribe if the estimated amount of recoverable gas should be produced.
(b) Hinson's report dated June 8,1945, not only included his estimate that the Rattlesnake reservoir contained 12.4 billion cubic feet of recoverable helium-bearing gas, but fixed the amount of a proposed prepayment of royalty on the production of that quantity of gas over a period of 25 years.
Computing the Tribe's one-eighth royalty, as lessor, on 12,386,902,000 cubic feet at 12 cents per thousand cubic feet, Hinson's report anticipated a total potential revenue of $185,804, spread evenly over 25 years, in monthly payments of $619, payable at the end of each month. Assuming a 4-percent interest rate (equivalent to that which the Indians received on their funds deposited in the U.S. Treasury), Hinson determined the present cash value of the Tribe's oil and gas royalty rights in the formations below the base of the Hermosa in the Rattlesnake field to be $117,336.
(c) Although the text of the agreement developed to make this proposal effective progressed through numerous drafts, these were the figures which formed the measure of the prepaid royalty ultimately received by the Tribe pursuant to the December 1,1945, agreement.
Review of Hinson's proposal by the Geological Survey. 79. (a) Hinson's report of June 8, 1945, was promptly re ferred to Schellhardt and Soyster, engineers on the staff of the Geological Survey.
(b) Between June 8 and June 29, 1945, Schellhardt and Soyster examined the available data concerning the helium-bearing gas reserve in the Rattlesnake field. They discussed the matter at length with Hinson.
(c) Although Hinson maintained close contact with Schellhardt and Soyster while they were reviewing his report, and although they did little independent research into original source materials as a basis for their review, the record does not sustain the plaintiff's intimations that they were unaware of their responsibility to see to it that the quantitative estimate and the valuation of the helium-bearing gas at Rattlesnake represented a fair measure of the Tribe's interest, or that they were impeded by Hinson's persistent surveillance, or by intradepartmental loyalties, or otherwise, from performing their designated function.
The evidence does not show that they had any motivation except to carry out their responsibility to appraise the fairness of Hinson's proposal.
(d) Schellhardt's and Soyster's report, dated June 29, 1945, concluded as follows:
it is believed that the material presented in the valuation report prepared by Hinson represents the most reliable information on reserve factors obtainable at the present time. It is believed also that the values assigned •to the various factors and the interpretations based thereon are reasonable and if anything tend toward generosity. Consequently, it is believed by the writers that the estimated reserve described in the report represents the maximum value justified by the information available at present.
*
(e) Mr. Snow, the Geological Survey's oil and gas supervisor at Roswell, New Mexico, to whom Schellhardt and Soyster submitted their report, sent it on to the Geological Survey in Washington, immediately, with the following comment:
$ ‡ $ $
Schellhardt and Soyster have made a detailed study of all available data, checking all records in this office with the data furnished by Mr. Hinson and we have reached the conclusion that the figures used and valuation estimated by Mr. Hinson is fair and reasonable.

Development of the text of the December 1,1945 agreement. 80. Before July 6,1945, proposed drafts of two types of contracts were prepared — -one covering an outright sale or grant of the gas rights to the defendant, the other covering a lease. After July 6, 1945, the negotiations focused on a long-term lease from the Tribe. A draft of a lease agreement, then under consideration by the Geological Survey and the Bureau of Indian Affairs, was the forerunner of the December 1, 1945 agreement, finally approved by Congress in the special act of June 27,1947.
81. As of July 6, 1945, the Chief of the Conservation Branch of the Geological Survey, in a memorandum to the Assistant Commissioner of Indian Affairs, commented on the proposal, which was to be discussed by Hinson and Kennedy, of the Bureau of Mines, with the Assistant Commissioner the next day.
The Chief of the Conservation Branch summarized his views as follows:

It should be understood that this helium lease is for an indefinite term, that the Department is in sole charge of drilling and development, and guarantees no additional income other than these advance payments. However, considering the fact that helium-bearing gas has no initial value at this time and that it may be years before income can be had by the Tribe the advance payments for the gas and for the rental will provide, in my judgment, a source of income that now appears reasonable for the Indians.
The Tribal Council's approval of negotiation and execution of an agreement. 82. (a) The proposal that the United States take a long-term lease covering the oil and gas deposits below the base of the Hermosa formation and pay the Tribe, in advance, the estimated present worth of the rights to be acquired was presented to the Tribal Council meeting in July 1945, not in specific terms but through a general description by Hinson.
(b) As early as January 1945, the Navajo Superintendent had suggested that discussion of the proposals in detail with the Indians would merely tend to confuse them.
(c) The resolution presented to the Tribal Council and adopted unanimously merely authorized the Chairman of the Council and the General Superintendent of the Navajo Eeservation to negotiate and approve contracts whereby the Bureau of Mines
may obtain such rights as are necessary for the proper protection and utilization of the helium-bearing gas heretofore or hereafter discovered on tribal lands, subject to fair and reasonable compensation to the Navajo Indians for the rights acquired.
The emphasis of the presentation to the Tribal Council was primarily upon wartime uses of helium, and patriotic motives for its development and conservation. As far as the record shows, there was no mention that it might be sold for commercial purposes.
Negotiations continued after approval by the Tribal Council. 83. (a) After the Tribal Council, in July 1945, authorized the negotiation and execution of an agreement, negotiations continued with respect to details of the agreement's form and content. Insofar as appears from the evidence, neither the Chairman of the Tribal Council nor the Superintendent took an active part in the subsequent negotiations.
(b) The basic proposal that was the subject of these negotiations was that the defendant would pay the Tribe, as lessor, $117,336, as the present worth of a one-eighth royalty on the estimated production of 12.4 billion cubic feet of gas over a period of 25 years, at a wellhead price of 12 cents per thousand cubic feet, plus a royalty at the same rate on all gas produced over and above the estimated reserve.
(c) Pursuant to a suggestion of the Geological Survey, it was also proposed that the defendant should pay $30,463 as prepaid rent, in addition to the prepaid royalties. This amount was tbe computed present worth, at 4 percent, of rental payments at 25 cents per acre for 25 years for the 7,800 acres covered by the 1923 and 1942 leases. Such payments, if made periodically over the 25-year period, would have totaled $48,750.
(d) The plaintiff contends that the 25 cents per acre basis of the rental to be prepaid by the defendant under the agreement was inadequate — that, according to common practice in the industry, the Tribe was entitled to at least $2.50 per acre — $1.25 per acre from the defendant in respect of the rights in the formations below the base of the Hermosa, and $1.25 from the companies in respect of the rights which they were to acquire, or retain, in the formations above the base of the Hermosa, and that, if the Tribe had been free to bargain independently, it would have received these amounts.
(e) The plaintiff also contends that the rentals should have been payable at the beginning, rather than at the end of each month, and that, as the Geological Survey pointed out in one of its memoranda, the present value of the rentals — even at 25 cents per acre — if they were payable in advance, would have been $31,682, $1,219 more than the plan provided.
The plaintiff further contends, as the Geological Survey also pointed out during the negotiations, that a 4-percent discount rate "may be higher than is warranted" and that " it would seem more logical to assume a rate of decline in production which would establish the mid-point of total monthly royalty payments at say 10 years rather than 12y2 years. " Computed on that basis, the amount to be paid would be increased by $7,000.
Each of these points was raised, by either the Geological Survey or the Bureau of Indian Affairs during the negotiations, but they did not insist upon them and the agreement was not modified to take them into account.
Proposed contract reviewed by the Bureau of Indian Affairs and the Geological Survey. 84. (a) On December 5, 1945, the Bureau of Mines sent to the Bureau of Indian Affairs for review and, if found satisfactory, for execution on behalf of the Tribe, a draft of a formal agreement dated December 1, 1945, which embodied the provisions that had been developed through the interdepartmental negotiations, just described.
(b) The Bureau of Indian Affairs questioned the adequacy of the 25 cents per acre rental, primarily on the ground that the proposed lease, in addition to covering oil and gas rights below the base of the Hermosa, granted the defendant the right to store in the Rattlesnake reserve, products other than those produced from the leased lands.
(c) Hinson reported that, at a conference in Chicago on March 15, 1946, he had apparently persuaded the Bureau of Indian Affairs' representatives there that the 25 cents per acre rental, and the agreement as a whole, were reasonable.
(d) Despite Hinson's effort to allay the objections of the Bureau of Indian Affairs, the Bureau, on the same day as the Chicago conference, requested the views of the Geological Survey, particularly with regard to the 25 cents per acre rental. The Geological Survey replied about 6 weeks later and, in substance, approved the agreement, although pointing out the considerations described in the preceding finding.
Agreement executed on behalf of the Tribe. 85. (a) Shortly after it received the comments of the Geological Survey, the Bureau of Indian Affairs sent the draft of the agreement to the General Superintendent of the Navajo Service, with one minor change in language, for execution on behalf of the Tribe.
(b) Still bearing the date December 1, 1945, the agreement was executed on May 25, 1946, by the General Super intendent of the Navajo Service and the Chairman and Vice Chairman of the Navajo Tribal Council.
Execution and approval by Acting Secretary of the Interior. 86. (a) On July 16,1946, the document was sent by the Director of the Bureau of Mines to the Secretary of the Interior for execution and approval. Thereafter it was reviewed in the Office of the Solicitor and transmitted to the Secretary with the recommendation of the Acting Solicitor that it be executed and approved.
(b)The Acting Secretary of the Interior executed and approved the agreement on August 19,1946.
The fTmoifdi terms of the agreement of December 1, 191¡5
87. (a) The agreement of December 1, 1945, was predicated on the assumptions that before it became effective (1) the Tribe was lessor with respect to both the 1923 and the 1942 leases, (2) the defendant was lessee with respect to the 1942 lease, and (3) the companies were the lessees with respect to the 1923 lease.
(b) The agreement was to become effective on the first day of the month following its authorization and approval by an Act of Congress.
(c) The formations underlying both leases were divided into formations above and below the base of the Hermosa and the lessees' pre-existing interests below the base of the Hermosa were surrendered to the Tribe, which accepted the surrender.
(d) Both leases remained in full force and effect as to formations above the base of the Hermosa.
(e) The Tribe granted the defendant a new oil and gas lease (including helium) on the formations below the base of the Hermosa, for a primary term of 25 years and as long thereafter as those formations are capable of producing oil and gas, and the Department of the Interior elects to use them for conservation or production of oil and gas.
(f) The defendant was to pay the Tribe a royalty of 12.5 percent of the value of oil, gas, and other products produced from the formations below the Hermosa. It was agreed that the "formations below the Hermosa contain not less than 12,386,902,000 cubic feet of recoverable helium-bearing gas" and for this the defendant agreed to pay the Tribe, in advance, $117,336, as "the agreed present value of the total deferred royalty" on the 12,386,902,000 cubic feet of gas, and after that amount had been produced, to pay additional royalties on any further production at the rate of 12.5 percent, on the basis of a value of 12 cents per thousand cubic feet at the wellhead.
(g) The defendant was to pay the Tribe $30,463 as the agreed present value of the deferred rental on 7,800 acres at 25 cents per acre per year for 25 years, and, as indicated above, another rent-free year was to be added to the term for each year in which the royalties would equal or exceed $1,950.
(h) The agreement specified that the defendant had no obligation to drill, explore for, or produce gas from the formations below the Hermosa, and provided that royalties on helium or helium-bearing gas should not be taken in kind by the Tribe.
(i) The agreement could be surrendered, in whole or in part, only upon certification by the Secretary that the land did not contain helium-bearing gas in quantities sufficient to permit practicable extraction or that Congress had declared by joint resolution that the United States no longer desired to hold the land for conservation and production of helium.
Development of the September 19,1946 agreement with the companies
88. (a) Once the general nature of the agreement to be made with the Tribe had become settled, negotiations with the companies were resumed.
(b) Basically, the arrangement under consideration with the companies was:
1. For the defendant to transfer to the companies all rights above the base of the Hermosa, which the defendant had as lessee under the 1942 lease, and
2. For the companies to surrender to the Tribe all the rights below the base of the Hermosa, which they had as lessees under the 1923 lease, as a means of facilitating the granting of new rights with respect to the 1923 lands by the Tribe to the defendant.
(c) It was also proposed that the companies and the defendant should each have a one-half interest in the net proceeds of oil and gas produced from the formations between the base of the Dakota and the base of the Hermosa on the lands covered by both the 1923 lease and the 1942 lease, the lessee's interest in which would lie with the companies under the proposed new arrangement.
(d) It was further proposed that the defendant should have the right to process, for helium extraction, without cost, any gas the companies might pi'oduce from formations above the base of the Hermosa on the lands covered by both the 1923 lease and the 1942 lease.
89. (a) To facilitate the negotiations with the companies, Hinson prepared an estimate of the value of the rights that would be exchanged under the proposed agreement with the companies.
(b)' Hinson used, as the basis for Iris estimate, the same estimate of the helium-bearing gas reserve of 12.4 billion cubic feet, the same 12-cent price for the gas, the same 25-year period of even production, and the same 4-percent rate as the measure of the present value of money, that he had used in computing the amount proposed to be paid to the Tribe as advance royalties.
However, because the defendant already claimed the lessee's interest under the 1942 lease, the only gas rights to be acquired which the companies purported to have were such rights as they had as lessees under the 1923 lease. Hinson estimated that, of the total 12.4 billion cubic feet of recoverable gas in the Rattlesnake reservoir, 6,484,879,000 cubic feet (hereafter referred to as 6.5 billion cubic feet) were located under the 1923 lease. The companies, as lessees, were entitled to a working interest of seven-eighths of the proceeds of gas produced from the 1923 leased lands. They were, however, responsible for all costs of exploration and production.
(c) Using these figures, and a method of computation generally similar to that he had used in estimating the value of the lessor's rights to be acquired from the Tribe, but deducting estimated production costs from the result, Hinson found the present value of the companies' leasehold rights under the 1923 lease below the base of the Hermosa to be $146,750.
(d) In addition to the oil and gas rights below the base of the Hermosa under the 1923 lease, which the companies were to transfer to the defendant, it was proposed that the defendant should have a one-half interest in any net proceeds from oil and gas leasehold rights between the base of the Dakota and the base of the Hermosa under the 1923 lands. Hinson valued the half interest the defendant was to receive at $50,155 and added that amount to the gross amount to be paid the companies.
(e) Conversely, it was proposed that, out of the oil and gas leasehold rights between the base of the Dakota and the base of the Hermosa nnder the 1942 lease, which the defendant was to transfer to the companies, the defendant should retain a one-half interest in the net proceeds of any oil or gas produced. Hinson valued at $5,082 the interest in these formations to be transferred to the companies, after deduction of the defendant's retained interest, and deducted that 'amount from the gross amount to be paid to the companies.
(f) Hinson also deducted $25,229, as the estimated value of the leasehold rights above the base of the Dakota under the 1942 lease, which the defendant was to transfer to the companies.
(g) In summary, Hinson's report proposed a net payment by the defendant to the companies of $166,594, computed as follows:
Interests to be Obtained by the United States from the Companies
1. Oil and gas leasehold rights below the base of the Hermosa formation under the 1923 lease_ $146,750
2. One-half interest in the net proceeds from oil and gas leasehold rights between the base of the Dakota and the base of the Hermosa formations nnder the 1923 lease- 50,155 $196,905
Interests to be Obtained by the Companies from the United States
1. Oil and gas leasehold rights above the base of the Dakota formation under the 1942 lease_ $25,229
2. Oil and gas leasehold rights between the base of the Dakota formation and the base of the Hermosa formation under the 1942 lease, subject to the right of the United States to one-half the net proceeds_ 5, 082 30, 311
Difference due the companies- $166, 594
(h)The contract with the companies differed from that with the Tribe in that it contained no provision for payment to the companies of any additional amount on production of gas in excess of the estimated amount of the reserve.
It differed also in that it contained no provision regarding payment for liquid hydrocarbons produced in excess of one gallon for each Mcf of gas.
90. Hinson's estimate was reviewed by two employees of Continental who had had long experience in estimating and valuing Continental's reserves. They recommended acceptance by the companies of Hinson's estimate and valuation, without change.
91. (a) ,A draft of an agreement between the defendant and the companies, providing for a net payment to the companies of $166,594, was prepared and submitted to the companies about September 11, 1945, at the same time as Hinson's valuation. With some revisions, which did not change the amount to be paid, the contract was executed by the companies September 19,1946, together with a supplemental agreement providing that the main agreement with the companies should become effective when the agreement with the Tribe became effective.
(b) A second supplemental agreement was executed between the defendant and the companies by which the companies consented to the amending agreement with the Tribe providing for use of the leased premises for storage.
92. (a) After the contract was executed by the companies, it was sent to the Commissioner of Indian Affairs for his consideration and for execution by the Navajo Superintendent and the Chairman of the Tribal Council pursuant to authority granted by the Council July 11, 1945. The Bureau of Indian Affairs, before transmitting the agreement to the Superintendent for execution, inquired whether it was more liberal than the agreement with the Tribe and was assured by the Bureau of Mines that it was not.
(b) Insofar as appears from the record, the Geological Survey took no part in consideration or approval of the contract with the companies.
(c) The report to the Secretary of the Interior recommending that he approve the contract with the companies states that "the Office of Indian Affairs and the Bureau of Mines consider the agreements to be fair and equitable."
93. Tbe contract with the companies was approved by the Assistant Secretary of the Interior on January 29, 1947.
Ratification and approval of the agreements by Congress
94. (a) By letter of April 17, 1947, the Secretary transmitted the proposed legislation to Congress.
(b) In May 1947, various members of Congress received complaints that the helium was undervalued and that the Indians were not represented by counsel.
95. On June 27, 1947, the legislation was enacted. In addition to ratifying and approving the agreements, it conferred jurisdiction on the Court of Claims to hear and determine the claim of the Tribe if, after investigation, the Tribe deemed the total consideration payable to it under the December 1, 1945 agreement to be, in any respect, less than reasonable, fair, just, and equitable.
96. By their terms, both agreements became effective July 1, 1947, the first day of the first month following the enactment of the legislation.
Subsequent legislation. 97. By Act of July 29,1954 (68 Stat. 580), Congress amended the jurisdictional Act of June 27,1947.
Belated payment of shut-in gas well rental on Rattlesnake 1-Gr under the 1923 lease
98. (a) The 1923 lease provided:
Failure on the part of the lessee to use a gas-producing well which cannot profitably be utilized at the rate herein named shall not work a forfeiture of this lease so far as it relates to mining oil, but if the lessee desires to retain gas-producing privileges, he shall pay a rental of $100.00 per annum in advance, calculated from the date of the discovery of gas on each gas-producing well, the gas from which is not marketed nor utilized other than for operations under this lease.
* ❖ ❖ # ❖
(b) Rattlesnake 1-G was completed on the 1923 lease August 26,1943. On December 31,1943, the shut-in gas well rental of $100 was paid for the annual period beginning August 26,1943.
(c) In addition, royalties amounting to $115.45 were paid on gas from Rattlesnake 1-G, produced and used during the trial run in 1944. Through inadvertence, the royalties were not credited against the shut-in gas well rental.
(d) Thereafter, also due to inadvertence, neither the defendant, nor the companies (which, as lessees under the 1928 lease, retained the obligation to pay royalties and rentals, subject, under the operating agreement of May 1948, to reimbursement by the defendant) made any additional shut-in gas well rental payments until August 1947, when the Bureau of Mines discovered that no such payments had been made for the years beginning on August 26 of 1944, 1945, and 1946.
(e) Promptly upon discovery of the oversight, the Bureau of Mines made arrangements with the companies and the Geological Survey for payment of $300 to cover the amount of the delinquent rental. Payment was received by the Geological Survey on August 26, 1947, and by the Navajo Service of the Bureau of Indian Affairs on August 28, 1947.
(f) By prearrangement among the Bureau of Mines, the Geological Survey, and Continental, the Supervisor of Oil and Gas Operations for the Geological Survey, at Roswell, New Mexico, wrote Continental, on August 26, 1947, as follows:
H
You are hereby advised that our records indicate that all royalties and rentals due under the subject lease to date of July 1,1947 have been paid. Your payment of $300.00, received with your letter today, for payment of shut in gas well rental for the period from August 26, 1944 to August 26,1947, places the account in good standing as of July 1, 1947, so far as this office is concerned.
$ ‡ $
The 19J¡,2 lease surrendered as to all formations above the base of the Hermosa
99. (a) By release executed December 13,1949, forwarded to the General Superintendent of the Navajo Service by letter dated January 9,1950, Continental and Santa Fe surrendered the 1942 lease as to all formations above the base of the Hermosa.
(b)After obtaining a report from the Oil and Gas Supervisor of the Geological Survey to the effect that he had no objection to the acceptance of the surrender by Continental and Santa Fe of the 1942 lease, the Bureau of Indian Affairs, under date of May 23, 1950, canceled the 1942 lease as to all formations above the base of the Hermosa.
Representation of the interests of the Tribe as seller and of the defendant as buyer during the negotiations
100. (a) The Secretary of the Interior was officially responsible to represent the United States in two separate capacities which, although normally compatible, were brought into conflict in the situation created by the wish of the Bureau of Mines to acquire gas and oil rights from the Tribe for the purpose of conserving or producing helium.
(b) The defendant's interests, as purchaser of rights in the Kattlesnake gas, were unavoidably antagonistic to its interests, as the fiduciary representative of the Tribe, responsible to protect the Tribe against disposition of its assets for less than they were worth. Accordingly, in dealing with the situation presented in this case, the Secretary of the Interior, as the official legally responsible for execution of the laws of the United States applicable to both of these conflicting interests, was inevitably confronted with the necessity of either attempting to abdicate one or both of the duties which the proposed acquisition brought into conflict, or wearing the two hats which Congress had directed him to wear. The latter was the course followed.
(c) The Secretary of the Interior was officially responsible for the conservation, production, exploitation, and processing of helium. The detailed execution of these duties he had delegated primarily to the Bureau of Mines.
(d) The Secretary of the Interior was also officially responsible for administration of laws designed for the protection and conservation of the property and interests of the Tribe. The detailed execution of these duties, including functions with respect to oil and gas leases on Indian lands, he had delegated to the Bureau of Indian Affairs and the Geological Survey — the former having the primary executive responsibility, the latter to act in an advisory capacity and to—
furnish to authorized employees of the Office of Indian Affairs such information and technical advice as may be necessary or appropriate to the most efficient cooperation in the conduct of the work assigned to the two Bureaus.
$ $ ‡ ‡
(e) The Director of the Geological Survey, in defining the responsibilities of that agency in the negotiations, stated that the Geological Survey 'had—
assumed the obligation, among other things, of supervising operations on restricted Indian lands for the pui'-pose of protecting Indian property and to secure the greatest ultimate return in the nature of lease bonuses and royalties. Its representatives also act in an advisory capacity to the representatives of the Indian Office. Consequently it must maintain an entirely different point of view in its supervisory activities than the Bureau of Mines as the representatives of the Secretary.
(f) The activities of the officials of the Geological Survey who participated in the negotiations were consistent with the understanding of their responsibilities expressed by the Director. They were not direct agents of the Tribe. They acted as the representatives of the Secretary, in his capacity as the official responsible for execution of the defendant's obligation to protect and conserve the Tribe's property and interests. Their activities throughout the negotiations plainly appear to have been carried on with the objective of protecting the Tribe's rights and procuring for the Tribe the greatest return for its property that they could procure in the circumstances.
(g) By delegating responsibility for detailed administration of the helium program to the Bureau of Mines, and responsibility for details involved in the protection of the Tribe's interests to the Burean of Indian Affairs and the Geological Survey, the Secretary had established, within the Department of the Interior, two forces of Government employees, each separately charged with an official obligation to carry out one of these two categories of responsibilities which the laws had imposed upon the Secretary and which, in the circumstances of this case, were in conflict. Each of the groups of officials, within the Interior Department, to whom these conflicting responsibilities had been delegated, undertook to perform the functions the Secretary had assigned to it. The following findings relate to the manner in which those undertakings were performed.
101. (a) It is evident from the record as a whole that the officials of the Bureau of Mines who took part in the negotiations looked upon themselves as representatives of the Secretary, acting for the defendant in its capacity as a lessee or purchaser, not in its capacity as a guardian of the Indians.
(b) It is equally clear from the record that the officials of the Bureau of Indian Affairs and of the Geological Survey regarded themselves as representatives of the Secretary, acting for the defendant in its capacity as spokesman for the interests of the Tribe. The Tribe was not represented in any of the negotiations by independent counsel and it did not have the benefit of any engineering or other technical advice except that afforded by the representatives of the Geological Survey.
(c) The evidence does not sustain the plaintiff's general contention that, whereas the representatives of the Bureau of Mines were consistently aggressive and effective in representing the defendant's interests as purchaser, the representatives of the Bureau of Indian Affairs and of the Geological Survey were delinquent or ineffective in the fulfillment of their official duty to speak and to act for the Secretary in his capacity as the official legally responsible for protecting the Tribe's interests.
102. (a) In the course of the negotiations that culminated in the agreement dated December 1, 1945, the employees of the Geological Survey made various suggestions with regard to the valuation of the Tribe's rights which were not adopted and which, if they had been adopted, would have increased, somewhat, the amount paid to the Tribe under that agreement.
(b) The suggestions were all debatable. The fact that they were not insisted upon until their adoption was achieved falls short of establishing that the Tribe's interests were not conscientiously or ably represented.
103. (a) Representatives of the Bureau of Mines were able to persuade the officials of the Bureau of Indian Affairs and the Geological Survey that, considering the agreement as a whole, even if the 25 cents per acre the defendant was to pay the Tribe as rental was a low figure, the aggregate amounts the Tribe would receive were adequate to compensate for it.
(b) The determination whether this was true involved a balancing of judgments as to the overall fairness of the aggregate amount to be paid. The evidence does not sustain a conclusion that the Tribe's rights or interests were disregarded.
104. (a) In reviewing Hinson's estimate of the quantity of recoverable gas in the reserve, the Geological Survey's engineers made no substantial, independent investigation of basic factual data but relied largely upon figures and information furnished by the Bureau of Mines.
(b) The evidence does not suggest a reasonable inference that any independent inquiry that was then feasible into the factors which formed the basis of the Bureau of Mines' estimate would have produced basic information substantially different, or more reliable, than that upon which the Geological Survey's engineers based their conclusion that the estimate was fair and reasonable, and perhaps generous.
105. (a) The record leaves no basis for doubt that Hinson was a persistent, aggressive promoter of the views of the Bureau of Mines, representing the defendant as the prospective purchaser.
(b) The evidence is clear, however, that, throughout the negotiations, officials of the Bureau of Indian Affairs and the Geological Survey consistently took firm and positive positions in opposition to proposals advocated by Hinson, and were successful in substantially modifying them in ways favorable to the Tribe's interests. The fact that those agencies did not center primary responsibility for coordinating their activities in one man does not establish that the Tribe was inadequately or ineptly represented.
106. (a) In summary, the record affords no adequate basis for a general conclusion that the interests of the Tribe were not actively, aggressively, and competently advocated by officials of the Bureau of Indian Affairs and the Geological Survey.
(b) Nor does the record support a conclusion that the officials of the Bureau of Indian Affairs and the Geological Survey who acted on behalf of the Secretary in his capacity as the official responsible for protecting the Tribe's interests were encumbered or impeded in the performance of that function by intradepartmental loyalties or restraints.
107. The foregoing findings do not purport to decide that the price fixed for the Rattlesnake gas for royalty purposes, or the several valuations that combined to fix the amount of the payments made to the Tribe pursuant to the agreement of December 1, 1945, are correct or that they reflect the legally appropriate measure of the values determined.
Value and, damages
Plaintiff's claim for additional consideration under the December 1, 1945, agreement. 108. (a) The plaintiff claims that the $147,799 it has received is less than the reasonable, fair, just, and equitable value of the rights that passed to the defendant under the December 1,1945, agreement, and that the defendant should pay it additional amounts, partly as additional royalty and partly as additional rental.
(b) The plaintiff computes the alternative amounts it claims as additional consideration as follows:
(1) As additional royalty, $440,190, $880,380, $899,-850, or $1,799,162, depending upon the quantity of gas found to be in the reserve and the rate of royalty,
(2) Plus $95,074, the present value, as of July 1, 1947, of storage rental of $2 per acre per year from the 25th through the 50th year of the extensible term of tib.6 o-rp.p/m fvn f*,
(3) Less $147,799 (composed of $117,336 heretofore paid as advance royalty and $30,463 heretofore paid as advance rental).
(c) Each of tbe alternative amounts sought by plaintiff is excessive. The following findings deal with the issues raised by plaintiff's claims.
The quantity of gas in the reserve. 109. (a) The plaintiff contends that the reserve initially contained 47.3 billion cubic feet of recoverable gas. It attributes measurable value to only 31.6 billion cubic feet of this total.
(b) The plaintiff's contention that the reserve contained 47.3 billion cubic feet of gas rests primarily on Sur's testimony, summarized above in finding 64.
Sur's estimate is based on his judgment that the productive zone in the Rattlesnake field is one massive, continuous pay zone, 48 feet thick, on the average, covering an area of 1,400 acres, and amounting in total to 67,200 acre-feet.
(c) Sur estimates that, although parts of this aggregate volume may be composed of hard, relatively nonporous rock, such parts are replete with cracks, fractures, and solution cavities, and that these apertures probably held more gas, in the aggregate, than the parts of the formation composed of relatively more porous material which most of the other witnesses regarded as composing the principal gas reservoir within the Leadville-Ouray.
It seems clear enough that gas permeated cracks and fractures in the harder portions of the formation sufficiently to permit communication between the more porous parts, and, as a consequence, it is a reasonable inference that the harder portions of the formation contained some quantity of gas.
The evidence, as a whole, is not persuasive, however, that solution cavities were widely prevalent within the formation, or that they, together with cracks and fractures, constituted a reservoir for gas that equaled or approached, in storage capacity, the strata of relatively more porous material of the kind in which gas is commonly found in substantial concentration.
Nor is any basis, other than sheer conjecture, apparent from the evidence for measuring the volume of the cracks or fractures or solution cavities in otherwise hard parts of the formation, or attributing to them any specific measurable volume as a storage place for gas.
(d) Sur's estimate of the total volume of the pay zone depends also on his estimate of the area of the field and his conclusion that the pay zone averaged 48 feet in thickness over the whole of that area. His estimate of the area is based in seismographic measurements over the top of the productive zone and it conforms roughly with the acreage estimated for the top of the productive zone by most of the other witnesses who had access to the seismographic surveys. The other witnesses, however, taking account of the shallow, domed shape of the formation, estimate that its aggregate thickness diminishes as its outer portions slope downward toward the plane of bottom water, and that, consequently, the domed strata which they believe compose the lower portion of the zone are smaller in area than those higher up. Therefore, as between the several porous strata, they attribute a much smaller area to the deeper ones than they do to the shallower ones.
Sur, in contrast, assumes an average productive thickness of 48 feet for the whole area. This is substantially equivalent to the thickness of 52 feet and 48 feet of productive formation he estimated at the wells, the only points where there was any direct observation of evidence on which estimates of thickness might be based. Although there is no positive evidence that the wells hit the very top of the formation, neither is there affirmative evidence that the productive zone is thicker elsewhere within the field than it is at the wells.
The aggregate volume of a broad, shallow, inverted dome is substantially less than that of a roughly cylindrical structure covering the same area and having an average thickness equivalent to the maximum thickness of the dome. If the productive zone in the Eattlesnake field is shaped like a wide, shallow dome, as the evidence indicates it is, and, consequently, grows progressively thinner toward its outer edges, it could not average 48 feet thick unless it is substantially thicker over a large part of its area than the 48-52 feet which Sur estimates as its thickness at the wells.
The evidence will not support a finding that the maximum thickness of the pay zone exceeds 52 feet anywhere in the field.
Accordingly, it cannot be found, on the basis of the evidence in this record, that even Sur's composite productive zone, including both porous rock and a substantially equivalent volume of cracks, fractures, and solution cavities, averages 48 feet hi thickness over the entire 1,400 acres of his estimated area.
(e) For both of the foregoing reasons, it cannot be found that the evidence sustains Sur's estimate that the total volume of the reservoir was 67,200 acre-feet.
(f) It appears also that, on the basis of the evidence available in 1955, Sur's recovery factor of 92 percent was substantially optimistic.
(g) Considering such information with regard to the form and character of the productive zone in the Rattlesnake field as became available, progressively, over the years, and the rough concurrence of most of the witnesses in the conclusion based on such information that the pay zone was about 20,000 acre-feet or less, and that a reasonable recovery factor did not exceed 80 percent, it cannot be found that the evidence, as a whole, sustains Sur's conclusion that the reserve contained 47.3 billion cubic feet of recoverable gas.
110. (a) The expert witnesses, other than Sur, generally agree that the porous zones in the Leadville-Ouray, capable of storing gas, were not more than about 25 or 26 feet in total average thickness and consisted of three (or less) interconnected zones approximately 5, 5, and 16 (or less) feet thick, the upper layer having an area in the neighborhood of 1,400 acres and the lower 5-foot and 16-foot zones being progressively smaller in area because of the domed shape of the formation over the base plane of the bottom water.
(b) The numerous and varied scraps of detailed information upon which the witnesses relied — the cores, the cuttings, the drilling reports, the logs of the various observations made within the wells — afford no positive or persuasive support for a conclusion that the aggregate thickness of the porous rock in the Rattlesnake field, capable of containing gas in substantial quantity, exceeded 26 feet or that the volume of the pay zone exceeded Hinson's estimate of approximately 20,000 acre-feet. Nor is there substantial affirmative support for a recovery factor exceeding the 80 percent used by Hinson in his 1945 estimate.
(c) Hinson's 1944 estimate of 17 billion cubic feet rested, in substantial part, upon an estimated productive zone of 84,000 acre-feet, averaging 25 feet thick, over an area of 1,385 acres. As in the case of Sur's estimate, this figure apparently takes no particular account of the effect of the domed shape of the structure on aggregate volume if the 25-foot thickness' is based primarily on observations made at the wells, as it appears to be. Hinson's later estimate that the productive zone consists of three separate zones of relatively porous rock, having an aggregate average thickness slightly greater than 25 feet — the top layer being about 1,400 acres in area and the other, lower two, including the lowest and thickest one, being progressively smaller in area (757 and 572 acres) — is more nearly consistent with the overall significance of the bits and pieces of evidence which, taken together, tend to indicate the size and form of the structure.
(d) Subsequent estimates, made for the purposes of this litigation (other than Sur's and the testimony of several witnesses who generally supported elements of his estimate) tend to suggest various reasons for concluding that the size of the productive zone and the quantity of gas initially in the reserve may have been smaller, by varying amounts, than 12.4 billion cubic feet.
In the main, these smaller estimates represent different judgments regarding the significance of the information on which Hinson's estimate was based, although some of the information obtained through the electric log, the microlog, and the gamma ray-neutron log, run during the 1957 work-over, tends to support the later judgments of some of the experts that the productive zone may have been thinner, and perhaps less porous, than Hinson estimated it was. The information provided by these various, later observations within the wells, adds to the general overall picture. They fall short, however, of providing conclusive, independent proof of the size of the reserve. Even taking account of the fact that actual production from the wells was only a small fraction of any but the smallest of the estimates, the later evidence is not so persuasive as to sustain a positive finding that the quantity of gas initially in the reserve was less, by any specific amount that can be fixed with assurance on the basis of the evidence in the record, than the 12.4 billion cubic feet which formed the basis of the contractual arrangements between the parties.
These subsequent estimates, and the evidence on which they were based, do, however, tend to confirm the unlikelihood that the quantity of gas initially in the reserve was greater than 12.4 billion cubic feet.
Evidence of leakage. 111. (a) The plaintiff offered much evidence to show that large quantities of gas were lost from the reserve as a result of underground leakage caused by faulty construction of the wells, use of defective and substandard equipment, improper and inadequate repairs, mismanagement of the wells, and lack of care and attention by the defendant's representatives.
(b) Although there is no specific evidence of the aggregate quantity of such leakage, the plaintiff claims it was sufficient to account for the difference between the 1,257,038,000 cubic feet of gas withdrawn and accounted for and the 47.3 billion cubic feet of recoverable gas which the plaintiff says was initially in the reserve.
112. (a) The evidence proffered to establish leakage consists primarily of expert opinion testimony of Mr. E. O. Bennett.
Bennett interpreted a variety of observed phenomena as indicative of leakage or damage to the productivity of the wells. These consequences he attributed without exception to incompetence or ineptitude of the defendant's representatives in planning or executing almost every item of work that was performed on both Navajo No. 1 and Rattlesnake 1-G, from the time the discovery of gas attracted the defendant's interest to the possibilities of the Rattlesnake field as a source of helium, until the 1957 workover was completed.
(b) The unrelieved consistency with which Bennett attributes carelessness, incompetence, bad judgment, or other fault to substantially all of the persons or organizations responsible for work done on the wells, and invariably damaging consequences to the work they did, ultimately raises a shadow of doubt as to whether it is reasonable to infer, in the absence of more positive and persuasive physical evidence than the record contains to support Bennett's opinions, that so many reputable and experienced contractors, generally regarded as experts in the sort of work they did, could have concentrated so many mistakes on these two adjacent wells.
(c) The precise significance of much of the observed physical evidence on which Bennett rests his opinions is at least debatable. For example, it is not clear from the evidence:
(1) Whether the occasional vagrant appearance, in spaces within the wells that purportedly were sealed off from the Leadville-Ouray, of various gases which had a helium content that was high but different from that of the Leadville-Ouray gas, and which differed also from each other and from the Leadville-Ouray gas in the proportions of their other components, indicates the intrusion of helium-bearing gas from other formations that were open to the wells, or leakage from the Lead-ville-Ouray, resulting from ineffective seals;
(2) Whether diminution in the open flow potential of Navajo No. 1, after periods when it was closed in, indicates massive leakage, or, taking account of the additional fact that such variations were unaccompanied by substantial reductions in wellhead pressure, indicates that conditions had developed within the closed-in well that impeded access to the well-bore of gas that was nevertheless still present in the reserve;
(3) Whether particles of Molas shale, or filler material, found high in the wells after a period of inactivity, had blown there, past purported seals, by gas escaping under high pressure from the Leadville-Ouray ? or was residual material, left in the drilling mud during previous operations, or material previously lost to porous zones, that returned to the wellhead when conditions of flow or pressure were subsequently altered;
(4) Whether "thief" zones, into which various materials placed in the wells disappeared, were above the purported seals or below them, and, therefore, whether the disappearance of such materials indicated imperfect sealing of the casings conducive to leakage, or merely the presence of previously undetected "thief" zones below the suspected seals.
Some of these and other facts observed during work on the wells, each taken alone, might suggest the possibility of leakage of gas from the Leadville-Ouray into other formations. Almost without exception, however, such physical manifestations are also susceptible to credible explanations not indicative of leakage and some are contradicted, as evidence of leakage, by other evidence observed in the wells, or by the lack of other evidence that would confirm their hints of possible leakage.
(d) It is clear from the evidence as a whole that difficulties were encountered with some of the efforts to establish effective seals within the wells; that, on several occasions, sections of tubing or casings collapsed or were perforated as a result of deterioration or damage in the course of the work, and that there were other problems with the wells that might have resulted in leakage. There is, accordingly, a basis in the evidence for an inference that some quantity of gas escaped from the Leadville-Ouray into other, higher porous zones and that some quantity of gas escaped unmeasured at the surface. There is no showing, however, of the total quantity of gas that left the Leadville-Ouray unnoticed.
Nor is there any positive evidence that any substantial part of whatever gas escaped from the Leadville-Ouray was lost to the outer air.
Aside from one instance in 1943, when Navajo No. 1 was allowed to blow wide open for 23 hours, as a dubious expedient for cleaning out the well, such specific evidence as there is of unmeasured loss of gas at the surface relates to occasional, relatively minor, valve leakage. Moreover, the evidence makes it reasonably clear that, taking account of the volume and pressures involved, surface leakage in such massive amounts as would have been necessary to dissipate over 45 billion cubic feet of gas, or even a far lesser amount, from the wells, into the atmosphere, would have been attended by physical manifestations sufficiently violent that they scarcely could have gone unnoticed. There is no evidence that any such manifestations were observed.
Unit value of the Rattlesnake gas. 113. The price of 12 cents per Mcf was fixed by the Geological Survey in February 1944. The manner in which this price was arrived at is discussed, supra, in finding 73.
If the manufacturing-allowance formula had been applied properly, the value of the helium content in one Mcf of the gas would have been found to be 19 cents, not 10.9 cents. It was proper to assume that 15.726 Mcf of the Rattlesnake gas were required to obtain one Mcf of refined helium.
It was reasonable to estimate the value of the byproducts to be 1.17 cents per Mcf of Rattlesnake gas. Using the above values for the helium content and the byproducts, the value of the Rattlesnake gas was 20.17 cents per Mcf.
Period of exploitation and interest rate. 114. Taking account of the apparent demand for helium, the effective capacity of the Navajo plant, the other sources of helium that were available, the risks involved in over-rapid production of the gas through the two available wells, and the costs of drilling additional wells, 25 years is a reasonable period for anticipated production and processing of the gas in the reserve.
115. In determining the present worth of future payments, it was proper to use 4 percent as the applicable rate of interest.
The status of the Rattlesnake field as of July 1947. 116. After assignment of the 1942 lease from Continental to the defendant in December 1942, the defendant deepened, completed, acidized, and tested Navajo No. 1.
As a result of this work, it was discovered that the well had an open flow capacity of 33 million cubic feet per day and a shut-in well pressure of 2990 psi. Tests confirmed that the helium content of the gas was above 7.5 percent. The Bureau of Mines stated that "Navajo No. 1 well now has a higher capacity to produce helium than any other well known to the Bureau."
Continued study of the geological and geophysical information available to the Bureau led to tentative conclusions "that the Rattlesnake structure may be the best field for helium production that has ever been found. the Rattlesnake structure is more favorable than the Cliffside structure from the standpoint of helium content of the gas. The Rattlesnake gas also has a much higher pressure than the gas in the Cliffside structure. "
Because the well appeared to have so much larger capacity than the most optimistic expectations, a decision was reached to enlarge the capacity of the Navajo plant which by then was under construction, and to abandon plans for a plant at Thatcher, Colorado.
In addition, Rattlesnake 1-G had been completed "as an excellent helium-bearing gas well" on August 26,1943.
By the fall of 1943, the Bureau of Mines characterized the Navajo plant "as a long-continuing project" on the basis of its estimates of the available gas supply. It was decided then that there was no need to drill another well, and the Department of the Interior, in requesting statutory authority for the contract which became effective July 1,1941, made the following statement to Congress:
The purpose of these agreements is to assure that a large reserve of helium-bearing natural gas in the Rattlesnake field of San Juan County, N. Mex., will be available to the Federal Government for production and conservation of helium. A large volume of non-combustible gas with a helium content of about 7.63 percent, lying at a depth of about 7000 feet in that field, is one of the two best reserves of helium-bearing gas that have ever been found. In fact, it is one of the only two gas fields ideally suited to production and conservation of helium that have been found in 30 years of search for helium resources.
Subsequent events demonstrated that the opinions held by the defendant's representatives as of July 1,1947, were overoptimistic. Nevertheless, they reflect sophisticated opinion based on such information as was available at that time that the reserve contained a substantial amount of helium-bearing gas capable of production in commercial quantities and suitable for processing.
This opinion was confirmed by Hinson's estimates, made in 1941 and 1945, and the willingness of the defendant to commit itself, through the December 1, 1945 agreement, to pay royalties in advance on 12.4 billion cubic feet of Tattle-snake gas, and to undertake a commitment to pay additional royalties on production that might be realized in excess of that quantity.
Additional royalty. 117. (a) Plaintiff received, as advance royalties, the amount of $117,336. This represented the present value, as of July 1, 1947, of a one-eighth royalty on 12.4 billion cubic feet of Rattlesnake gas, worth 12 cents per Mcf and produced over a 25-year period.
(b)If the gas had been valued at 20.17 cents per Mcf, the amount of advance royalty would have been $197,222.96. Accordingly, plaintiff is entitled to receive an additional $79,886.96, plus interest at the rate of 4 percent per year, from October 20,1947.
Additional rent. 118. (a) The December 1, 1945, agreement provided for payment, to the plaintiff, of $30,463, as the present value, as of July 1, 1947, of rental on the 7,800 acres of 1923 and 1942 lands, at 25 cents per acre per year, for 25 years.
(b) According to the language of the agreement, the advance payment of $30,463 paid rent in full for the 25-year term and for such extension beyond 25 years as may result from operation of the provision whereby 1 year would be added to the agreement's term for each year during the first 25 in which current production is such that a one-eighth royalty would equal or exceed $1,950. That amount would not be paid but would be credited against rent out of the advance royalty already paid.
(c) The agreement further provided that, after the expiration of 25 years, plus such additional years as may be added to the term by virtue of royalties on annual production as described in finding 118(b), additional annual rentals, payable at the beginning of the year, would be credited upon any royalties that accrue during the year for which the rental is paid.
(d) The provision for the advance payment of $30,463 as rent was unconditional. The plaintiff's right to keep it was not contingent upon subsequent events. It was paid and the plaintiff has retained it.
11-9. (a) The plaintiff says that the $30,463 advance rental payment was inadequate to afford reasonable, fair, just, and equitable consideration for those of the rights granted by the agreement which enable the defendant to withhold production of oil or gas and to store the unproduced oil or gas in the reserve. These are the kinds of rights commonly compensable by rental payments, as distinguished from royalty payments measured by production.
(b) The plaintiff says that it should be paid $95,074 which it describes as the fair market rental value of the right granted to store or retain gas in the reserve from the 25th to the 50th year of the extensible term of the agreement.
120. There is no evidence that there is, or ever was believed to be, oil or gas, other than the helium-bearing Rattlesnake gas, below the Hermosa on the 1923 or 1942 lands. Accordingly, there is no basis for finding that additional consideration is necessary to compensate the plaintiff adequately for the right to withhold production of oil and gas other than the Rattlesnake gas, or to store any other gas or oil in the reserve unproduced.
121. In the absence of a showing that the quantity of helium-bearing Rattlesnake gas in the reserve ever exceeded the 12.4 billion cubic feet for which the plaintiff has already been paid a royalty as if it had been produced, no basis is apparent for finding that additional rental or storage payments are necessary to provide reasonable, fair, just, and equitable consideration for the right to withhold from production and store in the reserve either the gas already paid for, or gas not shown to have ever been present in the reserve.
122. For the reasons stated in the foregoing finding, the record affords no basis for a finding that the payment of additional amounts as rental is necessary in order to provide consideration that will reasonably, fairly, justly, and equitably compensate the plaintiff for rights to withhold or limit production of oil or gas, or to store oil or gas in the Rattle snake reserve, that were granted the defendant by the December 1,1945 agreement.
The rental of 25 cents per acre for the horizons below the Hermosa was adequate.
Plaintiff's claim for compensation for an alleged taking of the lessee's interest in the 1942 lease. 123. (a) The plaintiff says the December 1942 value of the lessee's interest under the 1942 lease was:
(1) $1,507,170, if the quantity of recoverable gas in the part of the reserve covered by the 1942 lease was 5,902,023,000 cubic feet and if the plaintiff was entitled to a one-eighth royalty;
(2) $1,287,902, if the quantity of gas was 5.9 billion cubic feet and the plaintiff was entitled to a one-fourth royalty;
(3) $3,116,557, if the quantity of gas was 15.8 billion cubic feet and the plaintiff was entitled to a one-eighth royalty; and
(4) $2,666,227, if the quantity of gas was 15.8 billion cubic feet and the plaintiff was entitled to a one-fourth royalty.
(b) None of the four amounts proposed by plaintiff is an appropriate measure of compensation. It is reasonable to approximate the value of the lessee's interest by determining first the worth of the lessee's interest in 5.9 billion cubic feet of the Rattlesnake gas.
124. In December 1942, the gross value of 5.9 billion cubic feet of ¡Rattlesnake gas worth 20.17 cents per Mcf, if and when produced, was $1,190,080.
125. As of December 17, 1942, the present value of 5.9 billion cubic feet of Rattlesnake gas, if produced in equal amounts monthly over a period of 25 years, was $751,513.47.
($1,190,030 X 0.631508=$751,513.47)
126. The reasonably expectable gross cost of producing 5.9 billion cubic feet of Rattlesnake gas through the Navajo No. 1 well and one additional well, over a period of 25 years, was $521,402.75, composed of the following:
(a) Reconditioning and completing tlie Navajo No. 1 well _$93,883.73
(b) Well improvements_ 3,382.70
(c) Miscellaneous costs, 1943_ 1,136.32
(d) Workover_ 96,000.00
(e) Meld operations_ 33,000.00
(f) Drilling one additional well_ 256, 000.00
(g) Maintenance and repairs on additional well_ 38, 000.00
Total_ 521,402. 75
127.The amount required to meet the present worth of the production costs was $356,758.23. This is based upon the various items set forth in finding 126, which are treated in the following manner:
Items (a), (b), and (c) are not discounted since they are expenses which must be incurred before production. They total $98,402.75.
Items (d) and (e) are spread evenly over 25 years, with annual payments of $5,160 reduced to present worth at 4 percent (5,160 X factor of 15.62208), indicating an original investment of $80,609.93.
To cover item (f), the estimated cost of $256,000 at the beginning of the 13th year is reduced, at 4 percent per annum compounded annually, to present worth at the beginning of the first year, indicating an original investment of $159,896.83.
Item (g) is spread evenly over the last 12 years of the assumed productive period. Using interest at 4 percent per annum compounded annually, the 12 annual payments are reduced to present worth at the end of the 13th year, and that present worth is then reduced to present worth at the-beginning of the first year, indicating an original investment of $17,848.72.
128. The royalty payable was one-eighth of the gross proceeds. Discounted to present value at 4 percent, the cost of paying monthly royalties over the 25-year period, was $93,939.18.
(y8 X$751,513.47 (the present value of the gross proceeds) = $93,939.18)
129. (a) As of December 17,1942, the present value of the lessee's interest in 5.9 billion cubic feet of gas was $300,816.06.
($751,513.47 — $450,697.41 (the sum of the royalty and the present value of the expenses) =$300,816.06)
(b) The amount stated above does not represent market value, but the present worth of the amount a lessee might realize from the production, over a 25-year period, of 5.9 billion cubic feet of the gas.
(c) The value of $300,816.06 rests upon the conclusion that there would have been a market available throughout the production life of the total estimated reserve of 12.4 billion cubic feet. This value does not reflect any deduction on account of the possibility that the full amount of the estimated reserve would not be produced. In all probability, a hypothetical purchaser of the lessee's interest, in December 1942, would have considered such risks and would have been unwilling to pay the full "present worth."
(d) It is reasonable to assume that $150,408.03, one-half of the "present worth," represented the market value of the lessee's interest as of December 17,1942.
Defendant's expenditures regarding the 1942 lease. 130. Before the defendant accepted the assignment of the 1942 lease on December 17, 1942, it had expended, or committed itself to pay, $41,255.43 regarding that lease, composed of:
(a) Costs of testing Navajo No. 1 in July 1942-$36, 605.43
(b) Rentals under the 1942 lease_ 4, 650. 00
The value of Navajo No. 1 well as of December 17,1942. 131. As of December 17, 1942, the Navajo No. 1 well had been closed in since July 28,1942. A 7-inch casing had been set at 5,762 feet. Lost circulation zones found below that depth had been cemented with only partial success. Tubing had been run to the bottom of the hole, and the well had bridged behind the tubing. Annular space behind the tubing had been filled with heavy mud for the purpose of confining the gas to the formation; the tubing was stuck and could not be pulled. The well could not be produced in its condition at that time and could not be tested further without substantial expense comparable to the $93,883.73 spent to deepen and complete it in 1943.
The only evidence in the record concerning the value of the well, in its condition on December 17,1942, is an estimate by an official of Continental that the well could be plugged and abandoned with a net profit of between two and three thousand dollars.
Value of gas and oil rights above the base of the Hermosa under 1942 lands. 132. (a) Under the terms of the September 19, 1946 agreement, the defendant purported to transfer to the companies (1) leasehold rights in oil and gas above the base of the Dakota, on the 1942 lands, for $25,229, and (2) a one-half interest in leasehold rights in oil and gas between the base of the Dakota and the base of the Hermosa, on the 1942 lands, for $5,082. It retained for itself a one-half interest in the latter rights, presumably deemed also to be worth $5,082, and acquired a one-half interest in the net proceeds of oil and gas leasehold rights between the base of the Dakota and the base of the Hermosa, on the 1923 lands.
(b) Thus it appears that the defendant and the companies valued the leasehold rights in oil and gas underlying the 1942 lands above the base of the Hermosa, at $35,393, for the purpose of the September 19,1946 agreement
($25,229+$5,082+$5,082).
These figures are the only specific evidence in the record concerning the value of oil or gas rights, above the base of the Hermosa, on the 1942 lands.
Total value of the lessee's interest in the 1942 lease. 133. On the basis of the foregoing findings, the value as of December 17, 1942, of the lessee's interest in the 1942 lease was $181,151.03. This represents the sum of the value of the lessee's interest in 5.9 billion cubic feet of Rattlesnake gas and the value of the lessee's rights in the formations above the Hermosa, less $4,650, the credit for rentals paid by defendant.
Plaintiff's claim for compensation with respect to the lessee's interest in the 1923 lease. 134. Each of the alternative grounds for plaintiff's claim regarding the taking of the lessee's interest in the 1923 lease must be rejected.
CONCLUSION OF LAW
Upon the foregoing findings of fact, which are made a part of the judgment herein, the court concludes as a matter of law that, regarding two of its claims, plaintiff is entitled to recover. The third claim, that relating to the 1923 lease, is dismissed.
"With respect to the 1945 agreement, the amount of recovery is $79,886.96, plus interest at the rate of 4 percent per year, from October 20, 1947, to the date of payment. With respect to the 1942 lease, the amount is $181,151.03, plus interest at the rate of 4 percent per year, from December 17, 1942, to the date of payment. Accordingly, judgment is
entered for plaintiff. Payment of the judgment shrill be stayed until such time as defendant's counterclaim is finally adjudicated. The manner of proceeding with the counterclaim is set forth in an order entered today.
Act of June 27, 1947, cb. 15S, 61 Stat. 189, as amended by Act of July 29, 1954, ch. 617, 68 Stat. 580.
The agreement was approved by Congress on June 27, 1947. See footnote 1.
It is important to note the chemical nature of the gas in question. The composition of a typical sample of the gas was as follows:
Percentage
Methane and other hydrocarbons_ 17. 0
Nitrogen _ 72. 6
Helium _ 7.6
Carbon dioxide- 2. 8
100. 0
The helium content, 7.6 percent, was unusually high. Due to the large percentage of nitrogen, the Rattlesnake gas was not combustible. Pure helium is an inert and noncombustible gas.
A completed well may be "shut in" when current production is not feasible or economically desirable. For example, a gas well might be shut in due to a lack of pipeline facilities. The well is not permanently sealed, but is put into a condition such that production can be resumed in the future.
No reported case has dealt with the question of the inclusion of helium in an oil and gas lease. Now pending in the united States District Court for the District of Kansas is a group of consolidated cases involving this issue, Northern Natural Gas Co. v. Grounds, Civil No. KC-1969.
Also, the matter of ownership of helium has been the subject of several law review articles. See, e.g., Holland, Is Helium Covered by Oil and Gas Leases?, 41 Texas L. Rev. 408 (1963) ; Comment, 12 Kan. L. Rev. 417 (1964) ; Comment, 62 Mich. L. Rev. 1158 (1964).
One of the eases cited by plaintiff represents a different approach, one hardly helpful to plaintiff's position. In Cain v. Neumann, 316 S.W. 2d 915, 922 (Tex. Civ. App. 1958), the court interpreted a lease, executed in 1918, which conveyed "all of the oil, gas, coal and other minerals The court held that the grant included uranium. 316 S.W. 2d at 922. The broad language of the granting and the royalty clause was unaltered by the fact that, in 1918, the parties may have been, unaware of uranium.
See footnote 3, supra.
Another case upon which defendant relies is Hoff v. Girdler Corp., 104 Colo. 56, 88 P. 2d 100 (1939). This case did involve a well which produced "helium gas." However, the question whether a grant of "gas" included helium was not actually raised; both parties assumed the affirmative. The issue was whether the lessee had abandoned the lease (by stopping production, etc.).
Defendant stresses the fact that, just prior to the execution of the 1923 lease, the Department had revised the lease form to make it apply to "all gas whether it shall he gas from which the casing head gasoline has been extracted or otherwise." In regard to the helium question, we cannot attribute great significance to the quoted phrase.
unlike the 1942 lease, the 1923 lease did not specifically include helium. It does not follow, however, that the failure to make a specific reference to helium in the 1923 lease means that helium was excluded from the grant. By the same token, there is no reason to attribute significance to the statutory definitions of "natural gas" applicable to state-owned lands in New Mexico and Arizona.
Plaintiff acknowledges that, insofar as oil was concerned, the lease continued in force, since the lessees were operating numerous oil wells.
For purposes of the present case, there is no material difference between the terms "shut-in royalty" and "shut-in rental."
For example, in Gulf Oil Corp. v. Reid, 161 Tex. 51, 337 S.W. 2d 267, 271 (1960), the majority relied, in part, upon Freeman v. Magnolia Petroleum Co., supra. Steeple Oil & Gas Corp. v. Amend, 337 S.W. 2d 809 (Tex. Civ. App. 1960), involved tlie same type of shut-in clause; the court held that a lease (which had extended beyond the primary term) was terminated since, on the rental anniversary date established by the conduct of the parties, there had been neither production nor payment of the rental. 337 S.W. 2d at 811. In Shell Oil Co. v. Goodroe, 197 S.W. 2d 395 (Tex. Civ. App. 1946), the court found the facts to be distinguishable from those in Freeman v. Magnolia Petroleum Co. and refused to cancel a lease (with provisions like those construed in Freeman).
See generally, 96 A.L.R. 2d 345 (1964).
Another Texas case cited by plaintiff, Cox v. Miller, 184 S.W. 2d 323 (Tex. Civ. App. 1944), did discuss the matter of termination, but the lease in question was dependent upon actual production. As the Government contends, Cox v. Miller is of limited relevance.
Effective August 13, 1926, the 1923 lease was amended to provide for a term of 5 years (Irom August 13, 1926) and as long thereafter as oil or gas was found in paying quantities. Thus, by 1944, continuation was dependent upon production from the various oil wells located on the 1923 leasehold. In contrast to the Freeman-type lease, there was no provision making the payment of shut-in rental the equivalent of production.
The Kentucky court states, 228 S.W. at 42, the following:
" Oil lease contracts are an exception to the general rule that deeds and other grants of land or an interest therein are to be construed in favor of the grantee and strongest against the grantor, for in this hind of grants the rule is reversed, and the entire lease and all its terms, and especially forfeiture clauses, are construed strongest against the grantee. "
In Davis v. Laster, a gas well was shut in during the primary term. The lessors, for approximately 9 years, paid delay rental. The present plaintiff cites a decision rendered in Davis v. Laster by the Louisiana Court of Appeal which held that the lease was forfeited for failure to pay shut-in royalties. 130 So. 2d 479 (La. Ct. App. 2d Cir. 1961). The intermediate court was reversed by the Supreme Court of Louisiana which ruled that the parties, by paying and accepting delay rentals, had modified the terms of the lease. 138 So. 2d at 563. With regard to the matter of forfeiture, the Louisiana Supreme Court quoted, with approval, language from Jones v. Southern Natural Gas Co., 213 La. 1051, 36 So. 2d 34 (1948). In the latter case, the court stated that, where a lessee's failure to pay rental was due to a pardonable or mutual mistake, there should be no forfeiture until the lessee had been given an opportunity to correct the error. 36 So. 2d at 38.
The Government has argued in the present case that the lessees' rights could not be terminated without giving them 30 days' notice (as provided in the clause regarding "cancellation"). Because of our decision stated above, we need not discuss defendant's argument.
Plaintiff cites a number of decisions of the Department of the Interior regarding oil and gas leases on land owned by the United States. Plaintiff's discussion of the decisions indicates that each involved a situation different from the present case.
The Interests obtained by the united States from the companies were valued at $196,905. Credited against this amount was $30,311, the value of the rights passing to the companies from the united States. See finding 89(g).
Hinson's earlier estimate did not take into account tiie fact that the reserve was shaped like a dome, i.e., that the two lower zones were smaller in area than the uppermost zone.
Cuttings consist of small fragments of the material through which the drill passes.
Defendant contends that the pressure-decline method, utilized for certain of the later estimates, is more accurate than the volumetric method which was used by Hinson and Sur.
Another point raised by defendant is that, under the agreement of December 1, 1945', the tribe was entitled to additional royalties in the event actual production exceeded the estimate of 12.4 billion cubic feet. Thus, defendant argues that the size of the reserve is not material to the question of whether the amount paid to plaintiff, pursuant to the agreement, was adequate. In view of our conclusion regarding the volume of the reserve, we need not discuss this argument of defendant.
Mr. E. O. Bennett testified at both the 1955 and the 1960 hearings. Although the 1955 trial was conducted by former Commissioner George H. Foster, Commissioner McConnaughey presided at the supplemental hearing in 1960. Defendant points out that most of Bennett's testimony regarding leakage was given in 1960.
Defendant advanced a number of reasons for concluding that no significant amount of gas could have been lost through leakage. For example, defendant stresses the fact that there was a direct relationship between wellhead pressure and gas production. According to defendant, there was no noticeable reduction in wellhead pressure, except for the decline resulting from production. Defendant states that this phenomenon demonstrates that the vast leakage asserted by plaintiff could not have occurred.
The same value, 12‡ per Mcf, was used in computing the amount to be paid to the two companies under their agreement of September 19, 1946, with the Government.
The applicable regulation, which is described in the Bureau of Mines report of January 3, 1944, defined the commercial price of helium as 112 percent of 105 percent of the "actual cost" of the helium. As set forth in the regulation, "actual cost" was determined (1) by adding all operating expenses and depreciation and other production costs and (2) at the discretion of the Department of the Interior, deducting income from the sale of residue gas and byproducts.
It is important to note the distinction between "actual cost" and the manufacturing allowance. As indicated in footnote 26, "actual cost" included loth manufacturing and production expenses. The commercial price was determined on the basis of actual cost.
Plaintiff's assertion that the Geological Survey erred in its application of the formula is discussed infra.
The value of 10.9 cents per Mcf was obtained by dividing $1.72 (the wellhead value of one Mcf of helium) by 15.726 (the amount of Rattlesnake gas required for one Mcf of refined helium).
The items which accounted for the "non-manufacturing" costs of $1.27 were depletion of gas rights, depreciation of gas wells, and interest charges on well construction.
Plaintiff argues that it was charged with the expense of separating fuel (since Amarillo cost data was used). Defendant denies that any extra costs were attributable to fuel extraction. We need not resolve this dispute. As was true regarding the matter of the expense of well operation, we have no basis for determining the cost of processing the fuel.
Defendant asserts that the Geological Survey's estimate of byproduct value (1.17 cents per Mcf of Rattlesnake gas) was excessive and that a more proper figure would be 0.23 cents. This assertion on the part of defendant Is one of several which depend upon the actual experience of the Navajo plant, i.e., upon information which did not become available until 1953 and after. For reasons explained previously, we are unwilling to test the Geological Survey's valuation, arrived at in 1944, on the basis of such subsequently acquired data. Therefore, we will not disturb the estimated byproduct value of 1.17 cents.
The factor of 15.726 Mcf of Rattlesnake gas was first set forth in the Bureau of Mines memorandum of January 3, 1944. It was based upon the percentage of helium contained in the Rattlesnake gas (7.63 percent), the percentage of helium that could be "recovered" (80 percent), and a conversion factor of 0.959910. The necessity for conversion resulted from the fact that the temperature and pressure applicable to the refined helium differed from those applicable to the helium-bearing gas.
The following formula was used :
The wellhead value Is computed as follows :
Price of refined helium (per Mcf)_$11. 50
Less costs of manufacture_ — 8. 51
Value at the wellhead_ 2. 99
The unit value is determined in the following manner:
(a) Value of helium content:
(b) Value of byproducts : 0. 0117
(c) Total value: $0. 2017 (per Mcf)
The meaning, with regard to oil fields, of the term "proven territory" is discussed in Minchew v. Morris, 241 S.W. 215, 217 (Tex. Civ. App. 1922). Cf. 74 Stat. 782 (1960), 30 U.S.C. § 226(b) (1964).
The 1923 lease provided for a royalty of one-eighth on gas when the average daily production for a month was less than 3 million cubic feet and a royalty of one-sixth when production equaled or exceeded 3 million cubic feet. The latter rate was never achieved.
Under the 1942 lease, the royalty on gas (and oil) was one-eighth, whatever the amount of production.
Defendant states that the royalty rate for each of the leases had been fixed by the Government and that each lease had been sold at public auction to the person offering the highest bonus.
The new lease was to continue for a primary term of 25 years and as long thereafter as the sub-Hermosa formations were capable of producing oil or gas and the Department of the Interior elected to use them for conservation or production. In addition, provision was made for the possibility of extension of the primary term.
There is no indication that the sub-Hermosa formations ever held or were believed to hold oil in commercial quantities.
Plaintiff refers to competitive bidding in 1959 for oil and gas leases of "proven territory" on the Navajo Reservation. Plaintiff states that the high bids for the respective tracts averaged 46.99 percent royalty. Although plaintiff does not furnish detailed information as to the nature of the tracts leased in 1959, the circumstances must have been quite different from those which existed in 1947 (and previously) with regard to the Rattlesnake field.
The Bureau of Mines calculations were as follows:
(a) Total potential revenue (royalty rate X reserve in Mcf X unit price) :
% X 12,386,902 X 12<f = $185,803.53
(b) Present worth of total potential revenue:
$185,803.53 X 0.631508 — $117,336.42Rounded to $117,336.
Defendant points out that plaintiff misconstrues the function of the interest rate. If 8 percent had been used instead of 41 percent, the present worth of the future payments would have been lower. Defendant takes the position, however, that use of 4 percent was proper.
The sum, $197,222.96, was determined in the following manner:
% X 12,386,902 (Met) X20.17^X0.631S08=$197,222.96.
Act of June 27, 1947, ch. 158, 61 Stat. 189, as amended by Act of July 29, 1954, ch. 617, § 1, 68 Stat. 580.
Plaintiff states that, in computing the market value of the gas reserve, its expert used the earning-power formula. The value determined by this formula is supposed to represent the present worth of future profits, less the cost of all capital facilities.
Under the 1942 lease, an annual rental of $1.25 per aere was payable. The rate of 25cí per acre was determined by apportioning the $1.25 between the formations above and those below the Hermosa. Thus, the companies, which obtained rights to the upper formations, were obligated to the extent of $1 per acre.
The rental of 25^ per acre applied also to the 1923 leasehold, although the rental obligation provided in the 1923 lease had terminated in 1928.
It should be recalled that the term of the new lease was (1) 25 years and (2) as long thereafter as the sub-Hermosa formations were capable of producing and the Department of the Interior elected to use them for conservation or production. The duration of the lease could be extended to as many as 50 years, under a provision to the effect that, for each year during the first 25 in which production was such that a one-eighth royalty would equal or exceed $1,950, 1 year would be added to the term.
Defendant points out that Continental transferred the 1942 lease to the Government for nominal consideration. This fact cannot be decisive. It has already been recognized that Continental had no interest in the helium-bearing gas. Moreover, the existence of the maximum acreage limit gave Continental a particular reason for wishing to dispose of the 1942 lease.
The present worth was arrived at by multiplying the amount of gross proceeds, $1,190,030, by the discount factor, 0.631508.
The costs may be itemized as follows :
(a) Reconditioning and completing Navajo No. 1 well-$93, 883. 73
(b) well improvements_ 3, 382. 70
(c) Miscellaneous costs, 1943_ 1,136. 32
(d) Worhover _ 96, 000. 00
(e) Pi eld operations_ 33, 000. 00
(f) Drilling additional well- 256, 000. 00
(g) Maintenance of additional well_ 38, 000. 00
Total _ 521,402.75
The above list of expenses, proposed by defendant, differs in three respects from the list used by the commissioner. Items (c) and (f) have been added; item (g) pertains to the second well, not to Navajo No. 1.
The above sum, $356,758.23, represents the "present worth" of the expenses totaling $521,402.75. The manner in which the "present worth" was arrived at is set forth, infra, in the findings of fact.
The resulting value was arrived at in the following manner:
Present worth of gross proceeds_ $751, 513. 47
Less:
One-eighth royalty_<_$93, 939.18
Present worth of expenses- 356,758.23 —450,697.41
Resulting value. 300, 816. 06
With respect to the claim based on the 1945 agreement, the special act provided for the payment of interest (at 4 percent) on any award to plaintiff. The provision relating to interest did not extend to the claim based on the assignment of the 1942 lease. The latter claim was to be governed by the law applicable to actions brought pursuant to 28 U.S.C. § 1505 (1964), (See also 28 U.S.C. 8 2516.)
In Confederated Salish & Kootenai Tribe v. United States, 175 Ct. Cl. 451, 455-56 (1966), cert. denied, 385 U.S. 921, this court pointed out that the breach of a fiduciary duty need not amount to a taking of property. Much more is involved in the present ease, as indicated above.
Act of June 27, 1947, ch. 158, 61 Stat. 189.
Cf. Sioux Tribe v. United States, 161 Ct. Cl. 413, 315 F. 2d 378, cert. denied, 375 U.S. 825 (1963).
Regarding reimbursable debts, see tbe Act oí July 1, 1932, 47 Stat. 564, 25 U.S.C. § 386a (1964).
The order reads in pertinent part as follows:
In view of the provisions of the special jurisdictional act, Act of June 27, 1947, ch. 158, 61 Stat. 189, as amended by Act of July 29, 1954, eh. 617, 68 Stat. 580, with regard to offsets and in view of the positions taken by( the parties previously in this litigation, the court hereby directs plaintiff to file, within 45 days of the date of this order, a motion to dismiss the counterclaim. Defendant shall have 30 days in which to respond to the motion to dismiss, and plaintiff, 15 days in which to reply to defendant's response. No extensions of the prescribed time limits shall be allowed.
The parties are directed to include in their respective briefs detailed comment upon the following questions:
a. What is the relationship between (1) the provisions in the special jurisdictional act, as amended, barring "offsets" and (2) defendant's counterclaim?
b. Specifically, what is the meaning of the term "offsets" as used in the special jurisdictional act, as amended ?
e. If the term "offsets" includes debts as well as gratuitous expenditures, what disposition should be made of the counterclaim ?
d. Has any action under the Act of July 1, 1932, 47 Stat. 564, 25 Ü.S.C. § 386a (1964), been contemplated by the Secretary of the Interior?
Hereafter sometimes called tie December 1, 1945 agreement.
The united States Geological Survey, the Bureau of Indian Affairs, and the Bureau of Mines are all agencies of the defendant, under the supervision of the Secretary of the Interior.
The rights theretofore obtained by the united States were limited to the 1942 lease and plans for drilling on the 1923 lease were contingent upon obtaining rights covering the 1923 lands. This was initially arranged in May 1943, through an operating agreement made by the defendant with Continental and Santa Fe, by telegram, which authorized the united States to drill a well on the 1923 lease for the production of gas to be processed for the extraction of helium.
The difference between psig (pounds per square inch gauge) and psia (pounds per square inch absolute) is the atmospheric pressure at the point of measurement.
30 C.F.R. 221.44. The regulations prescribe a pressure of 10 ounces above atmospheric pressure of 14.4 pounds to the square inch, regardless of atmospheric pressure at the place of measurement; 10 ounces is 0.625 pound so that the pressure prescribed, 14.4 plus 0.625 equals 15.025 pounds per square inch.
As to all but three of these estimates, the factors considered, the amount of the estimate, the date of the estimate, the identity of the estimator, and the exhibit number of the report in which the estimate is made, are indicated in tabular form in table 1, entitled "Summary of Volumetric Estimates of Reserves," attached as appendix A.
The record does not show the figures adopted for connate water, compressibility, or recovery factor in Hinson's 1943 estimate which accompanied the Bass report.
Bass had available cuttings from Navajo No. 1, cores and cuttings from Rattlesnake 24 and Rattlesnake 100, cores from Tocito No. 1, Ms own observations around tbe site of Navajo No. 1, bis observations and measurements of outcrops of tbe Leadville-Ouray, some miles away, and tbe reports and observations of those wbo bad been present at tbe drilling of Navajo No. 1 and Tocito No. 1, including those of Cullen and Hinson, wbo had also examined cuttings from Navajo No. 1.
Samples which Rad been in possession of the Bureau of Mines were thrown out on a dump a few days before Sur requested them and were not available for his analysis, but he was able to get samples of cuttings from Rattlesnake 1-G from another source.
It appears that Sur's estimate of the areal extent of his pay zone is based on the contours of the top of his 48-foot zone rather than on the contour of a plane through the middle of the zone. Assuming, as all witnesses did, that the structure was dome-shaped, and that the bottom water was where all the witnesses considered it to be, use of the top rather than the midpoint of the zone as the measure of the area would give an area and an aggregate volume substantially greater than the average area and the aggregate volume of a 48-foot-thick, dome-shaped reservoir.
Kaveler's analysis of the significance of the allegedly abnormal high pressure as indicative of a small reservoir was contested by the plaintiff's witness Bennett, who said there were numerous largo fields having similar characteristics and, when pressed, was able to name one.
The plaintiff's experts also asserted that, at one time, the Rattlesnake reservoir was substantially farther below the earth's surface than it was in the 1940's and, accordingly, taking account of its original depth, that the pressure was not abnormally high.
In contrast, Sur, who, in 1955, used a recovery factor of 92 percent, said that estimates in the case of new fields, where the information was scarce, were usually conservative and the recovery frequently approached, and sometimes exceeded, 100 percent of the estimates.
The 1923 lease provides for a royalty on gas, when, the average daily production is less than 3 million cubic feet, of 12% percent of the value of the gas, at the well where produced, such value to be determined by the Secretary of the Interior.
Under the 1942 lease, the royalty is 12% percent of the value or amount of all oil, gas, or natural gasoline produced and saved, except that used by the lessee for the development and operation of the lease.
Although the cost of processing the gas at the Navajo plant was not known when the valuation was made, it later proved to be somewhat higher than the cost of producing equivalent quantities of helium from the lower-helium-content gases used at the other, plants. This was partly because the Rattlesnake gas furnished negligible hydrocarbon byproducts, required special processing, was useless as fuel, and required expensive arrangements for other fuel, partly because the Navajo helium plant was hastily planned and built at relatively high cost during the war period, and partly because of other factors.
The 25 cents per acre rental on the 4,080 acres subject to the 1923 lease was a payment the companies would not be obligated to make if they retained the lease, inasmuch as the $1.25 per acre rental, originally payable under the 1923 lease, had ceased to be payable after the initial 5-year period of the lease had expired in 1928.
The 25 cents per acre rental on the 3,720 acres subject to the 1942 lease represented an apportionment of the $1.25 per acre rental theretofore payable under that lease. The companies were to remain obligated to the extent of $1.00 per acre in respect of the rights they were to retain above the base of the Hermosa.
In 1950 the companies surrendered their rights as lessees under the 1942 lease and thereafter no rental payments were made for rights above the base of the Hermosa under the 1942 lease.
a. The agreement did not become effective upon approval by the Secretary but was contingent upon execution of a companion agreement with the companies, and subsequent approval by Congress.
b. At the time the Acting Secretary approved the agreement, it was understood that it would be amended by a supplementary agreement to provide that, if the Government should store, in the Rattlesnake reservoir, gas or oil or other liquid hydrocarbons, other than helium or helium-bearing gas produced on the 1923 and 1942 leases, the defendant would pay the Tribe, for such storage, a fair compensation, to be determined by the Secretary of the Interior. Before approval of the agreement by Congress in June 194.7, an amending contract, to that effect, dated March 28, 1947, was executed by the Chairman of the Tribal Council and the General Superintendent of the Navajo Service, and ultimately by the Secretary of the Interior.
The agreement provided for an extension of this primary term to as much as 50 years by virtue of a rental provision whereby a year would be added to the term of the lease for each year in which the royalty exceeded $1,950, the amount of 1 year's rental.
The agreement included a provision that, if the gas produced more than 1 gallon of natural gasoline per 1,000 cubic feet of gas, a royalty would be paid on the excess. This provision never became operative because natural gasoline recovered from the Rattlesnake gas never exceeded 1 gallon per 1,000 cubic feet.
Hinson figured that the gross amount the companies might anticipate from production of the entire estimated 6.5 billion cubic feet of gas under the 1923 lease would be $778,185.48, or $31,127.42 per year for 25 years. From this he deducted a total of $631,435 as expenses, which he computed on an annual basis, as follows:
Royalty to lessor_$3, 891
Cost of field operations_ 2, 640
Sinking fund for original investment in Rattlesnake 1-G well at .4 percent_,_ ,4, 562
One additional well plus repairs on both wells_10, 640
Sinking fund for original investment in oil and gas leasehold rights_ 3, 524
Total annual expense_ 25, 257
Net annual return_ 5, 870
The $5,870 estimated net annual return is equivalent to 4 percent on $146,750, Hinson's estimate of the present worth of the companies' leasehold rights to be transferred.
under the agreements approved by Congress June 27, 1947, no sbut-in gas well rental was due for tbe year beginning August 26, 1947, or for subsequent years.
Secretarial Order No. 1112, September 4, 19,36, "Supervision of Operations Under Oil and Gas Leases on All Indian Lands Under the Jurisdiction of the Secretary of the Interior (except Osage Reservation)."
Indeed, the preponderance of the evidence is that its maximum thickness is in the neighborhood of 25 feet, although that aggregate consists, in the case of the witnesses who rely upon it, only of porous rock of the kind commonly regarded as capable of storing gas, and does not include the hard zones which Sur says contained at least an equal quantity of gas in cracks and fractures and hypothetical solution cavities.
The amount of $95,074 represents the present value of $2 per acre per year, for the period between the 25th and the 50th year of the extensible term.
The portion (hereafter referred to as 5.9 billion cubic feet) which the plaintiff attributes to the 1942 lease out of the estimated total contract reserve of 12.4 billion cubic feet that formed the basis of the payment made to the Tribe under the December 1, 1945 agreement.
That portion the plaintiff attributes to the 1942 lease out of a total of 47,314,148,000 cubic feet (hereafter referred to as 47.3 billion cubic feet), which the plaintiff says was the total amount of recoverable gas in the Rattlesnake reserve.
The plaintiff says that, although the reserve originally contained at least 47.3 billion cubic feet of helium-bearing gas, an economical helium plant would be capable of processing only 1.264 billion cubic feet of such gas per year, and would require about 37 years to process all of the gas in the reserve; that, in meeting the requirements of such a plant, only 31.6 billion cubic feet would have been withdrawn by the end of 25 years, and the reserve would then be only about 67 percent depleted ; but that investors would attach little value to the reserve beyond the 25-year supply. Accordingly, the plaintiff attributes value to only 31.6 out of the 47.3 billion cubic feet of helium-bearing gas it says the reserve contained. Of- this 31.6 billion cubic feet, the plaintiff would apportion one-half, or 15.8 billion cubic feet, to the 1942 lease.
The factor of 0.631508 represents the present value of $1 to be received in equal monthly installments at the end of the month for a period of 25 years, considering money to be worth 4 percent compounded monthly.
The amount above, $80,609.93, is the sum which would have to be invested, at 4 percent, to enable the lessee to make 25 annual payments of $5,160. Assuming 4 percent interest, the present value of an annuity of $1 paid at the end of 25 annual periods is $15.62207994.
The amount which must be invested, at 4 percent interest compounded annually, to yield $1 after 12 years is $0.62439705. The sum of $159,896.83 was arrived at by multiplying $256,000 by the present value factor, 0.62459705.
The expense of $38,000 would be met by 12 annual payments of $3,166.67. Assuming 4 percent interest, the amount which must be invested in order to yield 12 annual payments of $1 is $9.38507376. Therefore, the amount needed (at the end of the 13th year) to make the 12 annual payments of $3,166.67 is $29,719.41.
It is necessary to determine next the amount which must be invested at 4 percent compounded annually to yield $29,719.41 at the end of 13 years. The appropriate discount or present-value factor is 0.60057409. Therefore, the present value of $29,719.411, assuming 13 years of compound interest, is $17,848.72.