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Something Crude: Navajo Oil and Gas Leadership Rupturing at the Seams

The Navajo Nation Oil and Gas Company has survived months of upheaval in the makeup of its board of directors – and still sits on rocky ground.
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The Navajo Nation Oil and Gas Company has survived months of upheaval in the makeup of its board of directors – and the company isn’t on solid ground quite yet.

The U.S. District Court in Phoenix, Arizona last week declined to hear an appeal of a Navajo Nation Supreme Court decision that denounced a board shakeup of the company by its shareholder representatives, who are also Navajo Nation Council members. Navajo Nation President Ben Shelly issued a statement shortly after the District Court’s decision, blasting the shareholder-Council members for attempting the appeal, and calling it an affront to the Navajo Nation’s sovereignty.

“These delegates acting as shareholders were asking the federal court to overturn our Navajo Supreme Court ruling that was entered against them on June 20,” Shelly said. “This was bad decision making on their part.”

The Navajo Nation Oil and Gas Company (NNOGC) was formed as a federally chartered corporation under Section 17 of the Indian Reorganization Act. According to its original charter, which was approved in 1998 by the Navajo Nation Council, all of the company’s profits must go to the Navajo Nation government for essential governmental services.

The Navajo Nation is the sole shareholder, and it’s supposed to be represented by 11 Council delegates taken from standing committees. Instead, the Council has only appointed five representatives: Mel R. Begay, Russell Begaye, Ken Maryboy, Charles Damon and Leonard Tsosie. Of these, Tsosie has evidently stayed out of the wrangling. He does not appear as a party on any of the court filings in the Navajo or federal cases. Two of the five, Maryboy and Begaye, are among 17 candidates running for Navajo Nation President.

The current trouble erupted late last year, Begaye said, as several NNOGC board members’ terms were set to expire. The board had nominated new candidates in line with a goal to assemble a board with more professional experience in the oil and gas industry. But when Shelly, and then the Council, started approving the replacements, the soon-to-be displaced members rebelled and began lobbying members of the Navajo Nation government. Begay, Begaye, Maryboy and Damon ousted two and suspended three of eight sitting board members at a December 21 meeting. Tsosie objected, saying that the procedure was improper.

Court documents filed by the displaced board members tell a different story. They say they were essentially disciplined because they were questioning the qualifications and behavior of the company’s CEO, Robert Joe. The targeted board members include Mae-Gilene Begay, Diandra Benally, Lennard Eltsosie, Jennifer Hatathlie and Nelson Toledo.

“Joe had refused to subject himself to NNOGC’s customary background check which would have revealed numerous State and federal tax liens and court cases,” wrote attorneys for the five board members, in a document filed with the U.S. District Court. “One Board member actively promoting Joe was Wafaie Zaaza. Soon after Joe was selected as CEO, Zaaza resigned his Board position and was promptly rewarded with a lucrative consulting agreement by Joe, without Board approval. The Majority Board also learned of a $31,000 wire transfer to an account of shareholder representative Kenneth Maryboy that was not approved by the Board.”

The board members also complained that Joe had eroded the company’s work force through mass layoffs and intimidation and sought to hire his own acquaintances in positions for which they were not qualified. They alleged that Joe’s mismanagement took a company worth $500 million and devalued it to the point of debt.

When the board members began to speak out about their concerns, according to the court documents, Joe rallied his supporters among the shareholder-Council members, and sought to have the board members removed.

Begaye challenges those statements: “They unanimously selected Robert Joe to be CEO,” he said. “They were 100 percent behind Robert Joe. Then this whole replacement started to come about.”

Despite the December shareholder vote, however, the cast-out board members showed up to a regularly scheduled meeting in January and voted to remove Joe as CEO. They replaced him with Former Navajo Attorney General Louis Denetsosie on an interim basis.

Meanwhile, Joe filed for an injunction in a Navajo Nation District Court to stop the five board members from acting on behalf of the NNOGC. The District Court granted the injunction, and so Joe stayed in the office through the spring. Meanwhile, however, Denetsosie appealed to the Navajo Nation Supreme Court, based on the claim that the lower court didn’t have jurisdiction. In a June 20 decision, the Supreme Court held that the board members had been removed in violation of the company’s charter and bylaws. It also removed the injunction the lower court had awarded, so that the board members’ decisions since December – including the termination of Joe – were allowed to stand.

“This case is one more example the Court has seen of individuals in official positions enmeshed in conflict over authority and position rather than acknowledging that public officials are all trustees,” the court admonished the parties in its published opinion. “There is no doubt that the parties are in a quagmire, and a way must be found out of it, because of the valuable tribal assets that must be protected.”

Begaye objects to the Court’s characterization of the process used to remove the board members. He says Denetsosie and long-time NNOGC attorney Paul Frye, of Albuquerque, taught the shareholder-Council members the very process they used to terminate and suspend the five board members.

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“We called them in and went individual by individual, the same process we did with Denetsosie and Frye with a previous individual we put on leave. Some of the courts are saying we didn’t use due process. Paul Frye and Denetsosie are now saying, ‘You didn’t follow due process.’ Now we’re saying, you guys established that process and guided us through that process, and all we did was follow it.”

Begaye says he has three main contentions with the recent court decisions reinstating the five board members. First, he says, the holding punctures the corporate veil that is supposed to safeguard Section 17, federally-chartered corporations from the political influence of tribal nations. That could lead to unwanted liability for tribes if something should go wrong.

For example, Begaye said, there’s a pipeline that transports crude oil from Montezuma Creek, Utah, to Bisti, New Mexico, and traverses the San Juan River.

“If the pipeline breaks, especially in the river, and billions of gallons of oil pour into the river, there are going to be huge cleanup costs,” he said, adding it could wipe out the Nation’s $1.2 billion trust fund.

Secondly, Begaye regrets that the Navajo people are the sole owners of the NNOGC, but because of the court rulings, the board of directors “has been placed above the people. The people are now subjected to whatever the board does. We think that’s wrong.”

And finally, Begaye fears that the Navajo Nation Supreme Court decision undermined the very intent of the Section 17 program, which was meant to set up corporations for the benefit of tribal nations without tribal government interference. “The whole thing is convoluted,” he says of the recent governmental intrusion into NNOGC’s affairs. “It jeopardizes Section 17 across the country.”

Begaye acknowledged that the Navajo Nation Council would have been the source of the charter provision that put Council members in the dual role of shareholder representatives in the first place, and spelled out Council approval of board appointments. In other tribes where Section 17 corporations have been formed, there is no such governmental oversight. Still, he said, he believes the Navajo Nation Supreme Court ruling was misguided.

“If the courts and the attorneys had gone through even a work session to really understand what a federally chartered corporation is, it would have saved us a lot of headaches,” he said.

The current value of the NNOGC’s assets is unclear. Despite the board members’ accusation in court that the company has been seriously devalued, a quarterly report issued on June 10 states that, “On the balance sheet, total assets for the company grew from $437 million to $458 million” in the fourth quarter of Fiscal Year 2014, “while NNOGC’s total liabilities shrunk from $207 million to $179 million, demonstrating a steady gain in total net assets.” The press release announcing the figures quotes Joe as the current CEO; it was issued while Joe remained in the office, before the Supreme Court’s ruling of June 20.

In addition to denouncing the thwarted federal appeal attempt, Shelly also announced last week that there will be an “immediate forensic audit” to determine the financial conditions of the NNOGC: “We will protect our Nation’s assets,” he said.

Meanwhile, the shareholder-delegates are pursuing another route toward the board retooling they have in mind: a redrafting of the charter that defines the NNOGC.

In April, the Navajo Nation Council passed amendments to the charter – including requiring professional experience for board membership, and nixing the requirement for 11 shareholder representatives – and those have been forwarded to the Department of Interior for approval. According to procedure, if the DOI approves the changes, they’ll go back to the Council for ratification.

Begaye said he hopes the Department moves the amendments along quickly, despite lobbying he suspects it’s facing.

“The longer you hold it, the more chaotic this whole thing becomes. Do your trust responsibility and let Council vote it up or down,” he said. “That will resolve this entire situation.”

The Council is claiming that the Navajo Nation President need not sign off on the amendments, and has no veto power. The President’s office objects, said the President’s general counsel, Heather Anderson.

“If the changes need to only go through the Council and not the President, where are the checks and balances?” she said. “We’re hoping that the DOI does not sign off on that. If it does come back, the President hopes the Council doesn’t ratify it. The best thing would be for it to go back to the NNOGC board. Also, the President and the Department of Justice agree that the Council needs to assign six more shareholders to be in compliance with the charter they’re under. The President’s position is, ‘let’s support the stabilizing of the company.’”