Wyoming’s oil and gas sector is still digesting fresh changes to the state’s drilling regulations. But for Mark Watson, the proposed rule change was a long time coming.
“(Changing) the permitting rule was the No. 1 thing that kept me awake at night,” said Watson, supervisor of the Wyoming Oil and Gas Conservation Commission.
Oil and gas operators have flooded the state with an unprecedented number of drilling applications in recent years. Watson has received over 57,000 drilling permit applications from oil and gas operators since 2016 — a record number for the state. And of the nearly 12,000 permits approved by the state the past three years, only a small fraction hold active wells — a point of friction between companies, public officials and mineral owners. As the rules stand, oil companies can hoard vast acres of land with no immediate plan to drill.
“I would wake up in the middle of the night and write notes about ways to manage the volume or the burden on the staff,” Watson said.
The supervisor wrote draft after draft of new policies, hoping to solve the deluge of permits weighing on the commission, while also satisfying the interests of Wyoming lawmakers, oil and gas companies, landowners, and environmental groups. So during this month’s commission hearing, Watson introduced a new rule with the intention of “leveling the playing field” for operators itching to lay claim to Wyoming’s oil-rich fields. Commissioners voted unanimously July 10 to move the rule forward in a 33-step process.
But a group of land and mineral owners are critical of the proposed changes, arguing the rules do not go far enough to protect mineral owners “from being exploited,” according to a press release sent to the Star-Tribune on Friday by Falen Law Offices, a Cheyenne-based firm representing the Wyoming Land and Mineral Owners Association. To the mineral owners, the revised rule falls short of protecting their interests by failing to encourage immediate drilling or break up the monopolies held by large companies.
The group formed in May to advocate for the mineral owners.
“As citizens and owners of that land and those minerals, we need to be a part of that decision-making process because it affects us,” said Roger Lemaster, chairman of the association and a farmer from Burns.
Watson responded in a statement: “Throughout the process of crafting the proposed rule, the (commission) took into consideration the concerns of all stakeholders, including those of mineral owners, as well as any unintended consequences that have resulted from the present permitting process in recent years due to the advancement in drilling technology.”
Wyoming will remain a “first to file” state, meaning the first company to apply for a permit has the right to drill and be the operator of a drilling spacing unit.
However, under the proposed new rule, other interested operators do have additional opportunities to file a hearing application for a permit if they do so within 15 days of receiving a horizontal well application notice. Therefore, an operator who is second to file can challenge a first-to-file APD without waiting for two years, according to Watson.
Gov. Mark Gordon heralded the proposed change as a positive response to the shifting oil and gas landscape. Pete Obermueller, the president of the Petroleum Association, praised the proposal as “a step in the right direction.”
“The proposed rule fundamentally alters the permitting system for oil and gas operators in Wyoming. While it isn’t perfect and will hopefully be refined in the coming weeks, it does allow for direct competition between operators when wells are not drilled,” Obermueller added in response to concerns expressed by landowners. “The intent is to award permits to those companies that intend to drill. For mineral owners who want drilling instead of just permits held in perpetuity, this rule is clearly helpful.”
The sprint to procure coveted permits picked up pace when oil prices improved in 2017 and drilling projects, led largely by private equity firms in east Wyoming, heralded successful returns. Companies have since made a habit of obtaining multiple permits with no immediate plan to drill, laying claim to vast amounts of land. The lack of activity has often left mineral owners hoping to lease their land high and dry.
To the Wyoming Land and Mineral Owners Association, this current rule has also led to a small number of companies holding “monopolies” over the land, a trend that has discouraged healthy competition in oil-rich regions. Mineral owners hoping to profit by leasing their land are forced to accept deals well below market value, the landowners group said in the statement.
In the DJ Basin in southeast Wyoming, the relationship between small mineral owners and Anadarko Petroleum Company, the prevailing private landowner in the state, has a long and fraught history.
The company owns a checkerboard of 4.2 million acres of minerals and 1 million surface acres in Wyoming, much of the land untapped. And that’s what has given mineral owners trouble.
As Anadarko’s neighbors, mineral owners protested the lack of drilling by the company, arguing the company’s inaction made other companies less inclined to drill in the region too. Stunting competition led to a suppression of potential profit streams for nearby land and mineral owners, they said.
But to the Wyoming Land and Mineral Owners Association, the rule fails to go far enough.
“We want the state to benefit and we want drilling, but we are the landowners, we are the mineral owners,” Lemaster said. “I don’t think there is enough change to make it fair to the land and mineral owners of Wyoming.”
But to Watson, the rule was designed with the interests of mineral owners in mind, along with the goal of preventing large companies from consolidating land without extracting resources.
“Designed to modernize the permitting process and encourage the efficient and appropriate development of Wyoming’s oil and gas resources, the proposed rule does not favor large companies over small companies, but instead provides a level playing field for any company who intends to develop minerals,” the supervisor said in a statement.