A question about royalties from the oil-rich Aneth fields of southeastern Utah has evolved into a convoluted dispute between the state of Utah, the Navajo Nation and a Texas oil company.

The controversy is yet another chapter in the troubled relationship between the tribe, the state and the 6,500 Navajos who live on the smallest portion of the sprawling tri-state reservation.At issue is whether Chuska Energy Co.'s operating agreement with the tribe is subject to a 1933 act of Congress granting Utah Navajos 37.5 percent of the royalties paid by oil and gas lease-holders on reservation land.

State officials say they are simply trying to protect the Navajos' interests in keeping with the federal law that guarantees them a share in the treasure trove of oil and gas beneath the Paradox Basin.

"That's the real question here. The tribe certainly has a right to enter an operating agreement. Our question is whether that supersedes the legislative intent," said Enid Greene, deputy chief of staff for Utah Gov. Norm Bangerter and his specialist in Indian affairs.

"We're not convinced that the operating agreement does that. We just want to make absolutely sure that the Utah Navajos get the benefit," she said.

But officials of the tribe and Chuska Energy maintain they are not affected by the act because the operating agreement makes the company an agent of the tribe.

At current oil prices, Chuska receives 80 percent of the gross proceeds of oil and gas drilling on the reservation, while the tribe receives 20 percent.

Utah Navajos get about 2 percent of the tribe's share, said Stanley Pollack, assistant attorney general for the natural resources unit of the Navajo Tribe.

John Powless, director of Utah's Division of Indian Affairs, has speculated the trust fund and the state could be losing "hundreds of millions of dollars."

"I have no idea what he's talking about," Pollack said. "Utah isn't losing money. It's losing the opportunity to impose severance taxes."

Indeed, Pollack labeled the state's action as a tax grab at odds with the Indians' interests, a characterization that made Greene bristle.

"The first part of that comment is laughable and the second part is insulting," she said.

The royalties derived from some 16 other oil companies, all lease-holders, are funneled through the Bureau of Indian Affairs to the state of Utah. Then 37.5 percent of that money - about $1.7 million in 1990 - is invested and the interest income disbursed to Navajo agencies by the UDIA.

Last year, the interest amounted to more than $749,000, which under the law must be spent on health, housing and other critical Navajo needs.

In fact, the administration of the trust fund itself has been criticized harshly by many Utah Navajos and state officials. It now is the subject of a legislative audit, and lawmakers recently reorganized the UDIA to give Navajos much more involvement in the fund's management.

Chuska, meantime, maintains there are "very major legal, financial and practical distinctions" between its contract and standard leases held by the other oil companies.

In the meantime, the attorney general's office has had the matter under "active review" for about two months at the request of the State Tax Commission and San Juan County, both of which are interested in the tax status of the tribe and Chuska, said Assistant Attorney General Brian Tarbet.