Fundamental shifts in how Wyoming handles oil and gas development may be around the corner, as sweeping amendments to a new drilling permit rule began to advance July 30 through an extensive rule-making process.
More than 100 operators, landowners and lawmakers packed the Oil and Gas Conservation Commission for a public meeting on a new proposed rule designed to curb the record volume of drilling applications that have swamped state regulators. The new rule, which would prevent a developer from controlling untapped land indefinitely, has sparked widespread interest across the state, as nearly 150 participants joined the public meeting by phone.
Mark Watson, supervisor of the commission, proposed the new rule at a commission hearing on July 9, saying it would “level the playing field” and create opportunities to challenge idling operators.
“It fundamentally changes the way permitting works in the state of Wyoming,” said Pete Obermueller, president of the Petroleum Association of Wyoming. “Is it perfect? No. But we will introduce clearer language and get people to a better level of understanding. It’s a thoughtful solution.”
Under the current permit rules regulating oil and gas drilling, operators must file a permit application, or APD, with the commission before extracting minerals from leased land.
Following a rise in oil prices around 2017, oil and gas companies began sweeping up as many permits as possible. The race for permits led some operators to lay claim to acres and acres of land, with no immediate plans to drill. On the sidelines, other companies itching to immediately drill had few avenues to challenge the authority of operators who filed for a permit first.
Meanwhile, an overburdened Oil and Gas Conservation Commission was left thumbing through a swelling stack of permit applications and protests from competing operators.
Under the new rule, Wyoming would remain a “first-to-file state,” meaning a developer that successfully submits a permit application first becomes the operator of a what’s called a drilling spacing unit. It also allows other developers the opportunity to challenge an operator within 15 days after receiving a horizontal well application notice.
If interested developers miss this 15-day window, they have another chance to file a challenge when an operator’s permit comes up for renewal after two years.
Watson acknowledged that the 15-day period was brief and encouraged developers to be prepared.
“You better know what’s going on ahead of time,” he said. “If there is something you really want to drill, you should be keeping up on it.”
To Obermueller, the new opportunity to unseat operators, especially those who have failed to drill, could generate needed competition.
“The goal was to resolve the permit backlog, reduce the time spent on protests and introduce competition to the field,” he said of the new rule. “The reason we want competition is to incentivize actual drilling.”
If an operator wins a permit but fails to drill within the two-year period, other developers can file a challenge within 15 days of a notice, even if the newcomer didn’t file a permit application first.
If the commission grants the new developer the permit, the initial operator has a 30-day exclusive right to apply for the permit again after an additional two-year period. The new rule also maintains the authority of the commission to decide each application on a case-by-case basis within the established rules.
“Our commission should have the latitude to make a decision based on what is put in front of them,” Watson said. “They will take all the information (submitted in applications and protests) together and make a decision.”
Not far enough
But some groups affected by oil and gas development said the new amendments fail to go far enough.
A mineral owners group expressed alarm over the new rule, saying it does not protect mineral owners “from being exploited,” according to a July 19 statement sent to the Star-Tribune 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.
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.”
The Powder River Basin Resource Council, a landowners group, has worked for decades to advocate for the rights of surface owners affected by oil and gas development.
“It seems more reasonable than the current situation,” Jill Morrison, executive director of the council, said in an interview prior to the meeting. She called the rule change “long overdue,” but acknowledged that issues remained.
The majority of land in Wyoming is considered split estate land. Often a private party owns the land’s surface, and the federal government owns the minerals beneath. When developers obtain permits to extract the minerals beneath, private surface owners have to negotiate with companies for adequate compensation for possible damages from extraction. Landowners often stand at a disadvantage and have limited recourse to hold developers accountable to their promises, she said.
The new rule will likely not address these issues facing landowners, Morrison added.
Watson admitted during the meeting that the proposed rule would not satisfy everyone. But he welcomed the public to submit feedback.
“Frankly, we just want this rule to work for everybody,” he said.
The public comment period for the proposed new rule runs until Sept. 14.