GILLETTE - Financial incentives and planning assistance are parts of the Bureau of Land Management's new policy and guidance rules aimed at avoiding and resolving conflicts in Wyoming that arise where coalbed methane gas production threatens to slow coal production in the Powder River Basin.

BLM staff is ready to finalize the new rules and recently held an open house meeting to discuss the plan in Gillette.

The federal agency is offering a 50 percent royalty rate reduction to entice coalbed methane developers to quickly harvest the gas before their operations interrupt coal production, according to BLM officials. Potential conflict areas have been mapped so both industries can coordinate plans, and the BLM will give priority to permitting coalbed methane gas wells in the identified conflict zones.

"We're trying to optimize the coal and coalbed (methane gas) and at the same time eliminate the conflicts," said Barney Whiteman, BLM petroleum engineer.

When coalbed methane pioneers Bruce Martins and Chuck Peck demonstrated that methane gas could be extracted from Powder River Basin coals for a handsome profit, they also created what some people referred to as a "happy" dilemma.

The coal that was once thought of as one resource for the mining industry became two resources for two industries. This meant that coal mines and oil and gas operators had leasing rights that overlapped one another. In most cases, oil and gas operators hold the senior lease, according to BLM officials. That means they have the first right to produce their minerals.

RIM Operating and M&K Oil each have resolved the major conflicts they found themselves in with coal companies. But not before coal officials helped to spawn a bill that Wyoming delegates tried to push through Congress. (Please see related story, A1).

In 2002, the Powder River Basin Resource Development Act was dropped from the National Energy Policy bill in favor of an administrative solution, which led to the BLM's new policy and guidance rules.

"This is the administrative resolution to that legislation," said Mike Karbs of the Casper Field Office.

When the coal is gone, the gas is gone, too. But when plans mesh, coalbed methane developers actually help the coal mines by pumping water out of the coal aquifer to make for a more stable coal bench, and by getting rid of the methane" a safety hazard for miners.

But the timing of the two activities doesn't always work out.

To resolve the problem, the BLM has created a Conflict Administration Zone around each active coal lease. This is where there is a potential for a coal mine's plan to run into coalbed methane gas development.

BLM officials said they will provide more timely notice about potential conflicts to coal and gas developers within the identified conflict zones.

"All APDs submitted within a (conflict zone) will be given a high priority for processing," the Instruction Memorandum reads, referring to applications for permit to drill. "This will allow extraction of as much of the (coalbed methane gas) resource as possible before a conflict with the advancing mine."

The Conflict Administration Zone for each mine will be reviewed annually, Karbs said.

The teeth of the memorandum instruction is in the BLM's authority to require "the proper and timely development of leased resources," according to the memo. If BLM officials determine a coalbed methane gas lease within the identified conflict zone is not being diligently developed, the lessee will be asked to develop the lease immediately.

As an incentive to the coalbed methane gas lessee, the BLM may offer a 50 percent reduction in the federal royalty rate, "in the interest of optimizing both the coal and (coalbed methane gas) recovery."

That means the lessee would be charged only a 6.25 percent severance tax.

"There's still a lot of good gas around these mines," Whiteman said. "And you're capturing gas that would otherwise be vented."