Exploration

Wyoming’s oil and gas industry is closely watching this bill

Wyoming Pooling
Casper Star Tribune – One bill up for debate during this year’s legislative session in Wyoming could be a game-changer for the states oil and gas business and is aimed at leveling the playing field for mineral owners.

House Bill 14 proposes to revise the terms under which permitted oil operators negotiate with non-leasing mineral owners within a drilling spacing unit, or an area designated for development.

Proponents of the draft bill hope it provides more protection for unleased mineral owners, without stunting oil and gas leasing. Mineral owners often make a deal and lease their minerals to operators who then help extract the oil from the ground.

Multiple operators, landowners, mineral owners or the federal government often have a stake in a single drilling spacing unit. The myriad interests circling around one drilling unit can make things complicated, fast.

The Legislature’s Minerals, Business and Economic Development Committee advanced legislation in November in an effort to expand the options unleased mineral owners have when negotiating with permitted operators.

The bill was heard again in committee on Friday. Members voted unanimously to advance the bill.

How does it work?

At its core, the bill amends the state’s approach to “forced pooling,” a statute that helps propel drilling activity even if a mineral owner within a shared drilling spacing unit doesn’t consent to drilling under an operator’s proposed terms. It enables multiple working interests in a single drilling unit to pool their funds to cover costs associated with drilling.

Under current law, if an unleased mineral owner in a drilling unit does not consent to a lease offered by a permitted operator, drilling can still commence. But the non-consenting mineral owner must absorb a penalty — 300 percent of the costs and expenses incurred during drilling and completing a well. Meanwhile, the primary operator will take on the mineral owner’s share of production costs.

But if the new bill becomes law, a mineral owner will have more choices. 

If an owner elects not to participate in drilling under an operator’s suggested terms, he or she would be penalized at a reduced amount — 200 percent of production costs on the first well, and 150 percent on subsequent wells. What’s more, the mineral owner will reap 16 percent of the mineral royalty interest during the time the owner is paying the risk penalty.

If wells happen to be productive, formally non-consenting mineral owners can change their minds and start participating in drilling activity, too. At that point, they effectively become working interest owners and chip in their share of the costs, but also enjoy all the revenue generated from their designated tract in a drilling spacing unit.

Conversely, a non-consenting mineral owner could also simply continue accepting that 16 percent royalty interest.

Ultimately, the new bill offers the unleased mineral owner more options.

“Under current law, it’s up to that unleased mineral owner to work out a system themselves to get paid for their minerals,” explained Pete Obermueller, president of the Petroleum Association of Wyoming. “This bill just adds some statutory protection for those people.”

The proposed bill comes on the heels of a new rule, instituted by Wyoming’s Oil and Gas Conservation Commission to curb the record influx of oil and gas drilling applications.

“The whole goal here is to get Wyoming as many wells drilled in Wyoming and to generate as much revenue for the state,” said Howard Cooper, president of Three Crown Petroleum LLC.

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