Published July 23rd, 2019 by Budd-Falen Law Offices, L.L.C.
On Thursday June 6, the Wyoming Land and Mineral Owners Association submitted a Petition for Rulemaking to Governor Mark Gordon, and the Wyoming Oil and Gas Conservation Commission demanding that the Commission take steps to protect land and mineral owners concerning the controversial regulations that govern applications for permits to drill (“APD”). The petition claims that the current rules harm both mineral and landowners in the state because it incentivizes hoarding of permits, prevents drilling in the state, and transfers value from the mineral owner to oil and gas companies and speculators.
Conner Nicklas, an attorney at the Falen Law Offices, the firm representing the Wyoming Land and Mineral Owners Association commented on the Petition. “One of the many great things about Wyoming is that we still value independence, fairness and efficiency. Imagine owning a car, but not owning the right to drive it anywhere, and then having to sell or lease your car for less than it is worth. Unfortunately, this is the situation that many mineral owners have found themselves in. In filing this Petition, the Petitioners speak on behalf of mineral owners across the state who have been harmed by these unfair regulations and are banding together to stand up for their rights to a powerful and united industry.”
The Petition claims that under the current regulations, many mineral owners are prevented from leasing or selling their minerals because oil and gas companies holding permits on their land actively hinder their efforts. One of the biggest complaints the Petitioners have against these oil and gas companies holding the permits is that even though the company might hold a permit to drill, they do not necessarily have any intention to drill. What results, according to the Petition, is that an oil and gas company holding a permit over a mineral owner may use it as leverage to buy or lease minerals from the mineral owners at below the fair market price.
The Petitioners also claim that the current regulations do not promote efficiency. Pointing to the fact that as of the beginning of May there are over 41,000 pending or approved APDs in the state, despite there only being 30 to 35 rigs in the state. Anadarko, perhaps the most controversial permit holder in the state has over two thousand APDs in Laramie County alone. Despite the large number of permits, Anadarko has only drilled a single well (a test well) in Laramie County since at least 2013.
In the Petition, the mineral owners requested that the Wyoming Oil and Gas Commission change regulations to focus on two items: first protect mineral owners’ right to develop their minerals across the state; and second eliminate waste that is created under the current regulations. The Petition claims that a system that incentivizes permit hoarding without drilling directly infringes on their right to develop minerals because it allows a single company to stop development in a region by holding all of the permits to drill. The Petitioners also claim that the current regulations actually promote waste because many permits are used specifically to prevent other companies from drilling in an area. In not using the permits, the Operators are actively wasting time and opportunity of others to develop those minerals.
The Petition also points to additional problems with the current regulations. There is an influx of paperwork and administrative burden that is created. There are over 41,000 approved and pending APDs in the system, and many of those are being protested. These protests come with additional paperwork and protest hearings because producers across the state are competing for operatorship in their drilling areas. With so many applications and protests, there is a bottleneck effect taking place that will make it nearly impossible for the Commission to conduct its regular business. Further, mineral owners are also often overwhelmed by the number of notices they receive, which require legal review and rack up legal fees that the owners have to pay. Roger Lemaster, a member of the Wyoming Land and Mineral Owners Association claims that he has well over 1200 pages in notices sent to him in the past two years alone. This mass number of applications and protests also creates uncertainty as to when an application might be heard or what the outcome of the hearing is.
The Petitioners propose “Drill for Wyoming.” Drill for Wyoming is a first-to-drill as opposed to a first-to-file system that promotes development, rather than a race to obtain APDs. Under Drill for Wyoming an APD will be granted to all working interest owners in a drilling area who comply with certain Commission rules. The first Operator who actually starts development of the minerals will receive one year of exclusivity during continuous development. However, there are also provisions that limit the number of years that an operator can obtain exclusivity, so a company cannot hoard permits.
“Drill for Wyoming” would eliminate permit hoarding, creating fairness for mineral owners, and reduce the waste that is incentivized by the current system. Ultimately, Drill for Wyoming eliminates barriers against the free market, while also protecting correlative rights.
The Drill for Wyoming proposal has been developed and promoted by both Operators and mineral owners. Those working on the proposal believe they have struck the rare balance between efficient regulation and protection of private rights, a balance which aligns with the values that Wyoming has always held so deeply to promote fairness and efficiency.
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