Transcript 7(i) Revenue Sharing & ANWR

Alaska Native Law Section:
ANCSA 7(i); 2006 ANCSA Amendment;
GAO Report on ANC 8(a) Program
By: Aaron M. Schutt
Sonosky, Chambers,
Sachse, Miller & Munson
LLP
Outline
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ANCSA 7(i) Issue: Revenue Sharing Issue
Regarding ASRC’s Kaktovik Land Exchange
and ANWR
ANCSA Amendment Regarding Enrollment of
New Shareholders
GAO Report on ANC 8(a) Program
ANCSA §7(i)
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“… 70% of all revenues received by each Regional
Corporation from the timber resources and
subsurface estate patented to it pursuant to this Act
shall be divided annually by the Regional
Corporation among all twelve Regional Corporations
….” 43 U.S.C. § 1606(i).
Each Regional Corporation distributes 50% of 7(i)
distributions to its Village Corporations and to its atlarge shareholders, pursuant to ANCSA §7(j)
7(i) Rationale (cont.)
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Section 7(i) "was intended to achieve a
rough equality in assets among all the
Natives. . . . (The section) insures
that all of the Natives will benefit in
roughly equal proportions from these
assets. . . . Congress required that 70
percent of all revenues from the
development of timber and subsurface
resources be distributed among the
Regional Corporations.” Chugach
Natives, Inc. vs. Doyon, Ltd., 588 F.2d
723 (9th Cir. 1978)
Actual performance of 7(i),
through 2004, total $736 M
Arctic Slope Regional
Corp. $110.3
15%
Sealaska Corporation
$298.5
42%
Chugach Alaska
Corp., $7.9
1%
NANA Regional Corp.
$55.2
7%
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Calista Corporation
$0.6
0%
Cook Inlet Region Inc.
$251.0
34%
Koniag, Inc.
$8.9
1%
Doyon Limited
$3.4
0%
Timeline
12/18/1971
ANCSA
8/9/83
Chandler Lake
surface exchange
agreement re ANWR
12/3/80
ANILCA
§1431(o)
6/29/82
7(i) Settlement Agreement
effective date
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1/24/84
Chandler Lake
subsurface exchange
agreement re NPR-A
10/6/89
GAO Report
8/14/89
Arbitration
Decision
6/3/83
Court dismissal of
Regional Corporation
litigation based
on settlement agreement
12/6/95
Pres. Clinton vetoes
opening ANWR
ASRC subsurface rights in ANWR
under ANCSA
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Under ANCSA, ASRC was not permitted to
receive subsurface underlying Kaktovik
Inupiat Corporation surface within ANWR; it
obtained in-lieu subsurface elsewhere
ANILCA §1431 (1980)
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Subsection (g) authorized KIC to select an additional
township in ANWR in exchange for certain land
Subsection (o) gave ASRC a 40-year option to
exchange in-lieu subsurface for subsurface under
village selections within ANWR or NPRA if oil and
gas development is authorized within 75 miles of
selection
Exchanged ANWR subsurface would have been
subject to 7(i) sharing
Chandler Lake Exchange
Agreement (1983)
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ASRC did not acquire the Kaktovik subsurface under
§1431(o) and 7(i)
ASRC conveyed to the U.S. surface estate in Gates
of the Arctic
U.S. agreed to convey to ASRC ANWR subsurface
in vicinity of Kaktovik
Administrative exchange, not approved by Congress
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Congress later prohibited the Secretary from making these
types of exchanges
7(i) Settlement Agreement
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Among all Regional Corporations
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Does not include Village Corporations or at-large
shareholders
“If surface is traded for … subsurface …
revenues from the property received in trade
shall not be subject to sharing under this
Agreement or Section 7(i).” Article II, section 6(g)
7(i) Settlement Agreement (cont.)
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Effective 6/82
Presented to court and litigation dismissed 6/83
No disclosure to Regional Corporations of Chandler
Lake exchange negotiations or plans, or intention not
to acquire ANWR through §1431(o)
No approval by Village Corporations or at-large
shareholders
Intentional evasion of 7(i)
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GAO reported that ASRC admitted that it
specifically structured the Chandler Lake
exchange to avoid 7(i) sharing, and the
Department of Interior accommodated
ASRC’s goal
Arbitration
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Ahtna, Bristol Bay and Aleut filed arbitration
for ruling that ANWR subsurface received by
ASRC was subject to 7(i)
Arbitration panel rejected claim: ruled that
ASRC ANWR subsurface not subject to 7(i)
sharing due to §6(g) of Settlement
Agreement
Unequal Value Issue
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Native leaders negotiating the 7(i) settlement
agreement anticipated that surface-forsubsurface exchanges would be based on
substantially equal value
Unequal Value Issue (cont.)
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According to 1989 GAO report
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Current value of ASRC subsurface
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ASRC gave $6M
ASRC received $395M
Unknown, but probably exceeds $700M – $1B+
ASRC has received $30M for seismic data to date
Arguments that ASRC’s ANWR
should be subject to 7(i)
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Alaska Natives gave up a lot in ANCSA to enable
ASRC to obtain North Slope oil for the benefit of all
Alaska Natives
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Calista and Bristol Bay gave up land in “land loss” formula
so ASRC and other regions could receive more land
Ahtna allowed the TAPS pipeline across its lands without
additional compensation
Chugach allowed the Alyeska terminal on its land without
additional compensation
Calista, Aleut, and Sealaska gave up highly valuable fishing
rights (and hunting)
Arguments that ASRC’s ANWR
should be subject to 7(i)(cont.)
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Congress contemplated in ANILCA §1431(o) that
ANWR subsurface would be subject to 7(i)
Regional Corporations had similar expectation in
1982 when negotiated Settlement Agreement
Regional Corporations also expected that surfacefor-subsurface exchanges would be based on
substantially equal value
Arguments that ASRC’s ANWR
should be subject to 7(i) (cont.)
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Exchange agreement was not disclosed in negotiations, and
was specifically intended to avoid 7(i) revenue sharing
United States consistently refused other Regional Corporations
offers to exchange surface for subsurface
Inconsistent with Congressional intent expressed in ANILCA
§1431(o)
Lack of sharing will lead to huge disparities between regions,
contrary to 7(i) objective
Without ANWR, future distributions under 7(i) will substantially
diminish
Arguments Against ASRC 7(i) Sharing
in ANWR
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Settlement Agreement binds regional corporations
and explicitly makes this deal non-sharing
Arbitration in 1989 addressed issue already
ASRC made a risky investment in the land trade with
no guarantee ANWR will ever open
Other regions were attempting similar deals at the
time and afterwards to avoid revenue sharing (none
were successful)
ANCSA Amendment
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See handout for text of amendment
S. 449, became Public Law 109-112 (March
13, 2006)
Amendment championed by Doyon and
Sealaska because they want to issue stock
to descendants of shareholders
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Only a few ANCSA corporations have issued new
stock to descendants and missed enrollees
ANCSA Amendment
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ANCSA, pre-amendment and state corporate law,
required an amendment to articles of incorporation
for issuance of new stock:
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the standard was a majority of outstanding shares (50% +1
of outstanding shares) at a proper meeting of shareholders
Problem was that attendance at shareholder
meetings (in person + proxy) creates a supermajority vote of those actually voting
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E.g. Doyon historically averages in mid- to high-60% of
attendance making.
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If 65% attend meeting in person or by proxy, the vote at the
meeting must be almost 77% in favor of amendment
GAO Report
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“Contract Management: Increased Use of Alaska
Native Corporations’ Special 8(a) Provisions Calls for
Tailored Oversight.”
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Issued April 27, 2006 (available at
http://www.gao.gov/new.items/d06399.pdf)
87 pp. in total with appendixes
Requested by House Committee on Small Business;
House Committee on Government Reform; Re.
Young; House Committee on Homeland Security;
Senate Committee on Small Business and
Entrepreneurship