A group of McElmo Dome landowners are challenging the royalty amounts they were paid for carbon dioxide extracted from beneath their land.

The dispute, which has been moving through U.S. District Court for the past three years, involves more than $300 million in revenue the landowners claim to have lost since carbon dioxide extraction began on the dome in 1981.

The members of the CO2 Claims Coalition are claiming that the partnership of companies who developed the carbon dioxide extraction facilities west of Cortez wrongfully evaluated the price of carbon dioxide and violated anti-trust laws in the process.

Shell Oil Company, Shell Western E&P, Inc., Mobil Producing Texas and New Mexico, Inc., and the Cortez Pipeline Company are named as defendants in the lawsuit.

"They [Shell and Mobil] came in here and told us all kinds of lies," said Joan Mahaffey, who is listed with her husband Gary Mahaffey in the lawsuit as contacts for the plaintiffs. The Mahaffeys own land on McElmo Dome.

In addition to the CO2 Claims Coalition, the only other plaintiff listed in the lawsuit is the United States government, which is listed because of allegations that the carbon dioxide companies violated anti-trust laws. Charles Miller, a representative of the U.S. Department of Justice, said that although the federal government is listed as a plaintiff, the government is not an active participant in the lawsuit.

John Cogswell, one of the attorneys representing the coalition, said that there are 68 members of the coalition, but declined to name them. Leo Crowley, another attorney representing the group, said that Dolores and Montezuma counties are involved in the coalition.

The court has denied the coalition class-action status twice over the past several years, most recently on March 22. Class-action status would have allowed the coalition to represent all interested parties and could have resulted in a much larger settlement if the court found in its favor.

The case will proceed to trial next April with only the coalition and the federal government named as plaintiffs.

Now that class-action status has been denied, other royalty owners who are not part of the coalition will not be able to sue the companies after September because of the statute of limitations.

"Anybody who is interested in having their rights protected should contact CO2 Claims Coalition," said Cogswell.

The McElmo Dome field covers approximately 203,000 acres and is one of the largest reservoirs of developed carbon dioxide in the United States. Most of the reservoir is underneath the newly proclaimed Canyons of the Ancients National Monument, but has been fully leased for production.

The price of carbon dioxide varies with the market, but generally rises as the price of oil rises. Shell and Mobil calculated the price of carbon dioxide and the formula for royalty payments from the 1941 pipeline consent decree. This method, known as the tariff method, allows the company to deduct the costs of constructing the pipeline, maintenance, and state and federal income taxes from royalty payments.

In 1984, the Minerals Management Service, a branch of the Interior Department, approved the tariff method of royalty payments. But since that time, the management service has tried to terminate that way of calculating royalties, claiming that it was only approved temporarily.

The Interior Board of Land Appeals has denied the management service’s appeal, and has approved the tariff methodology.

The coalition alleges that Shell and Mobil’s carbon dioxide companies sold the resource to Shell and Mobil Oil for less than their production costs so that the oil companies could make a greater profit from oil recovery operations in West Texas. The coalition is also disputing the tariff method of calculating royalty payments, saying that McElmo Dome landowners should be paid based on the final selling price of the carbon dioxide, not the value of the carbon dioxide when it is extracted.

Shell claims that it bought the mineral leases from landowners and other leasees based on the promise that it would pay the leasees for the price of carbon dioxide from wellheads in Colorado, not the West Texas price.

In the past, oil companies produced oil by water flooding, whereby water is injected into oil reserves, forcing the oil to the surface. Initially it was a successful technique, but much of the oil remained trapped within underground pockets. In the late ’70s, Shell and Mobil found that injecting carbon dioxide into these pockets freed the oil and brought it to the surface.

The use of carbon dioxide should increase the productivity of the West Texas oilfields by 53 percent, according to Shell promotional literature.

Shell and Mobil joined together in the early 1980s to develop the McElmo Dome, the purest supply of carbon dioxide near the West Texas oilfields.

They purchased 88 percent of the leases to become the largest working interest owner of the field in the early ‘80s.

Shell, with the support of Mobil, spent $1.18 billion building the on-site facilities and a 502-mile pipeline extending to Texas, according to the lawsuit. Since then, the field has produced carbon dioxide for oil fields in both Colorado and Texas, but most of the resource is still piped to West Texas.

The claims coalition is now asking Shell and Mobil to pay them either a higher amount for the carbon dioxide or to reduce the percentage of transportation costs that the landowners are forced to pay.

Andrew McCollam, one of the attorneys representing Shell, said that neither the landowners nor the carbon dioxide companies are happy with the declining price of CO2.

McCollam explained the reduction of royalties in terms of simple economics — supply and demand. As the price of oil rises, so should the price of carbon dioxide — theoretically. But McCollam said that the price of oil has been so volatile in the past 10 years that there hasn’t been enough profit to justify new oil-recovery projects, which are extremely expensive to maintain and develop.

"I understand perfectly that people would like to get paid for a higher price," McCollam said. "The CO2 price has gone down a lot. I’m not happy about it going down either."

Shell Western E&P was set up to maintain and develop the resource as a separate company. McCollam said that Shell was honest with the government from the beginning, and that there was not a conflict of interest between the two companies because Shell CO2 wanted to make a profit just as much as Shell Oil did.

McCollam said that because the McElmo Dome supply exceeds the demand for carbon dioxide, decreasing the price would not raise profits either for Shell CO2 or Shell Oil.