US Supreme Court decision looks to affect regulatory future across much of Oklahoma

Denver — Multiple issues could affect the future of Oklahoma natural gas and oil production, including a recent US Supreme Court ruling likely giving the state's Native American tribes more control over drilling and other activities.

Although the US Supreme Court's 5-4 decision earlier this month in McGirt v. Oklahoma dealt directly with criminal enforcement, it also encompassed the larger issue of tribal land rights. The case focused on whether Jimcy McGirt should have been tried in a federal court because he is Native American and the crime in question was committed on land that was part of the historic Creek reservation.

The ruling found the Creek Nation's reservation was not officially terminated at Oklahoma statehood. The decision might diminish state jurisdiction in legal and environmental matters in much of eastern Oklahoma and other parts of the state as well.

"The federal government promised the Creek a reservation in perpetuity," the decision reads. "Over time, Congress has diminished that reservation. It has sometimes restricted and other times expanded the Tribe's authority. But Congress has never withdrawn the promised reservation."

Although the decision applies directly to historic Creek reservation land, which includes nine counties in eastern Oklahoma, which see little to no drilling activity, it could spill over to other tribes in the state with historical land ties, including the Cherokee, Chickasaw, Choctaw and Seminole, according to industry trade groups. Roughly 25% of Oklahoma's recent oil and gas wells and around 60% of its refinery capacity now lie within historical tribal territory, according to state data.

The Petroleum Alliance of Oklahoma expressed disappointment in the court's decision.

"We are moving forward to work with the state of Oklahoma, the tribes and Oklahoma's Congressional delegation to ensure that our members continue to have a stable, predictable regulatory and tax environment consistent with their interests," said Petroleum Alliance President Brook Simmons. "It is critical for continued investment in Oklahoma that the state maintain primacy with regard to the regulation of oil and gas operations, and that issues of title with regard to real property remain unaffected."

While the decision does not extend beyond the Major Crimes Act, it may open the door for future legal challenges involving taxation and environmental regulation, according to S&P Global Platts Analytics. Even though there are no direct implications for oil and gas operators or pipeline companies in Oklahoma at this time, the decision puts additional risk on industry operations located in "Indian Country" as future legal challenges are likely.

"The McGirt decision is a historical win for the Muscogee Creek Nation, and time will tell how it affects other Oklahoma tribes in their jurisdictional claims," said Creek Nation attorney Jordan Harmon.

While oil and gas plays across the country have been affected by the crude price collapse and coronavirus pandemic, Oklahoma's fields were hit particularly hard. The state currently has only nine active rigs, according to data compiled by Enverus. The count topped 100 at this time last year. All the rigs are located in the SCOOP/STACK plays.

Weaker-than-expected natural gas production in the SCOOP/STACK could present challenges to refilling storage in the Midwest region this summer. Platts Analytics production sample for the SCOOP/STACK has averaged just 500 MMcf/d month-to-date, down 200 MMcf/d compared with June, pushing modeled estimates for the Midcontinent Producing region output to 5.4 Bcf/d in July, down from 5.7 Bcf/d throughout June.

Production is1.5 Bcf/d below Platts Analytics' base forecast for the remainder of the summer. As such, NGPL MidCon and other regional hubs could face upward pressure for the balance of summer.

Oil production in the SCOOP/STACK fell to an average of 317,000 b/d in June from 422,000 b/d in April.