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Wyoming faces a glut of drilling permits. But a solution might be coming.
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Wyoming faces a glut of drilling permits. But a solution might be coming.

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Government Shutdown Drilling

Roy Merrill, an engineer working on a Wold Energy Partners drill site outside Rolling Hills, points out components of the rig during a tour of the site in October 2017. A new rule approved by Wyoming's Oil and Gas Conservation Commission seeks to address the issue of permitted drilling sites in the state sitting idle.

Responding to a historic influx of drilling requests, Wyoming’s Oil and Gas Conservation Commission voted Tuesday to advance a new rule to overhaul its permit application process.

The vote, which followed a public comment period of largely positive reactions from operators, mineral owners and ranchers, gives other owners an opportunity to challenge inactive operators.

In the past three years, the commission has received just under 66,000 drilling permit applications from oil and gas operators. Wyoming calls itself a “first to file state,” meaning the first developer to apply and receive a permit over authorized spaces in a drilling spacing unit becomes the “operator.” The rush to secure as much control over a unit as possible has led to a deluge of permit applications, even if an operator elects not to follow through with drilling.

A permit to drill lasts two years and can be renewed. But as it stands, the permitting system has led to an unprecedented wave of applications. Only a fraction of land sanctioned for drilling is developed.

The race to secure permits and hold claim to drilling spacing units has led to unhappy operators and mineral owners. In particular, smaller companies and owners have cried out to the commission for a fair shake. Too much land, teeming with minerals underneath, remains untapped due to sluggish developers taking over a unit and choosing not to extract, the argument goes.

But a recent reexamination of the permitting rules seeks to amend this gridlock.

In July, Watson introduced modifications to the permitting rule that he posits will encourage drilling, curb the influx of permitting applications and ultimately “level the playing field” between operators and mineral owners of all sizes.

Put simply, if a permit’s two-year lifespan comes to an end and the operator has not advanced drilling activity, other working interest owners — neighboring companies or mineral owners sharing the drilling spacing unit with the reigning operator — have a window of time to apply for a permit.

An inactive operator suddenly risks losing its right to drill after two years. Other owners eager to work the land have an opportunity to elbow into the playing field.

More revisions to the rule

The 45-day public comment period, which ended on Sept. 14, brought in dozens of responses to the suggested rule, many positive. Several operators heralded the change as acceptable, albeit with some minor adjustments.

“The challenge of this rule is to encourage drilling in Wyoming while establishing a disincentive to file for — and hold indefinitely — permits without a reasonable intent to drill or without a material demonstration of drilling activity,” said Pete Obermueller, president of the Petroleum Association of Wyoming.

Though the association largely supported the proposed revamp of the rule, it did offer some feedback, such as extending the time period other working interest groups have in applying for a permit to drill. In addition, the group urged the commission to collect more data on applicants to determine intent and clarify expectations for approved permit holders, among other recommendations.

In a revised version of the rule presented Tuesday, the commission said it would extend the period other working interest groups have to submit an application to drill from 15 to 30 days. In its most significant update to the draft rule, the commission also set criteria for selecting an operator in the event of a contested case involving multiple operators “deemed equal.” After considering all submitted evidence, the applicant with the “largest percentage of working interest ownership” will receive the permit.

The new rules churned up substantial reactions from land and mineral owners in Wyoming too.

According to the Wyoming Land and Mineral Owners Association, the new rule still causes a certain degree of “regulatory uncertainty,” and could discourage operators from leasing minerals and drilling.

“Although the new rule is a step in the right direction, improvements can be made to it that will protect both mineral owners and Operators,” Conner Nicklas, an attorney for the mineral owners group, said in a written statement. “A new system must be created that no longer incentivizes permit hoarding, but instead incentivizes safe and orderly development of minerals.”

Mineral owners remain concerned that the commission’s rules still suppress healthy competition and hinder the development of Wyoming’s oil-rich lands. In short, operators have the upper hand in leasing negotiations and will likely continue to “hoard permits” under the new rule, according to comment submitted by the Nicklas.

The Powder River Basin Resource Council, a group advocating on behalf of landowners, also expressed concern over the new rule.

“We do not believe the proposed rule by the (Wyoming Oil and Gas Conservation Commission) will solve these problems and may instead prove to be cumbersome, complicated and difficult to administer,” said Robert LeResche, vice-chair of the group and former commissioner of natural resources of Alaska. “We suggest the (commission) might better address these problems in a more straightforward manner by requiring companies to drill within six months of getting an APD or to demonstrate a rig has been scheduled to drill the well within a year.”

In addition, LeResche said the commission could also better filter out inactive operators and rampant land speculation by requiring applicants to post bond for plugging the well and reclaiming the facilities before receiving approval to drill.

The proposed rule will advance to the next stage in a 33-step rule-making process. Mark Watson, supervisor of the commission, expects the new guidelines will take effect early next year.

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