To control an oil and gas permitting war escalating in Wyoming’s oil fields, a Cheyenne lawmaker is suggesting a nearly 2,000 percent increase in drilling application fees.
Wyoming charges oil and gas companies $500 to apply for a state drilling permit, a fee set by state regulators, not lawmakers. House Bill 261 would both solidify the cost of permit in statute and increase it to $10,000.
If, and when, an operator drills a well, most of that application fee, $9,500, would be returned, explained Rep. John Eklund, R-Cheyenne, the bill’s sponsor. But if this measure was in place, the battle for control of drilling that’s happening in the Denver Basin and the Powder River Basin could be stymied.
Companies jockeying for position could focus on development and mineral owners could get a better deal, he said.
Wyoming faces a backlog of more than 25,000 drilling permit applications from oil and gas companies. The tide of applications started as crude prices began to improve in 2017 but picked up velocity as oil and gas firms began competing for future interests. Wyoming rules give greater drilling authority to the first company with a permit in any given drilling section, so even for those not ready to drill, many felt rushed to stake a claim.
Some producers argue the race is a necessity to secure their ability to drill in the future. Others have been dragged into the race for fear of losing an advantage or are simply increasing the value of their assets in order to sell them down the line.
For Eklund, Wyoming’s outdated rules have led to companies taking advantage of mineral owners and each other. They are blocking other firms and mineral owners from making a fair return on Wyoming resources, he said.
Had Eklund’s new fee been in place, the price tag for the current permitting war would have topped $250 million in state fees by now.
“My hope is, if nothing else, to bring awareness of this problem we have with our present mineral statutes,” he said.
Eklund’s bill — just an amendment to current language — has certainly grabbed attention in Cheyenne.
Pete Obermueller, president of the Petroleum Association of Wyoming, said the rules do need updating.
“I think it’s fair to say that our statutes and regs haven’t kept up with technology,” he said “What we need is efficient and effective regulations to make sure that people are producing.”
Obermueller said he did not support Eklund’s attempt, however, nor a handful of other measures taking a piecemeal approach to the challenge, he said.
Most of the approaches are trying to address symptoms of the problem and not the root, he said. The root issue is how producers secure operatorship.
With the current focus on oil and gas in the Legislature, it’s likely that many of these issues will be taken up during the interim session, a more appropriate venue, Obermueller said.
“What we are hoping to do is take a more complete look and try to solve that issue,” he said. “Industry recognizes that is a serious issue.”
The permitting battle has been a growing concern for state regulators. Mark Watson, supervisor of the Wyoming Oil and Gas Conservation Commission, has noted that the permitting war is a challenge, overloading the commission’s monthly hearings with disputes and flooding the commission with paperwork. He’s instituted a new policy to prioritize only the application for wells that are ready to be drilled.
Watson declined through a spokeswoman to speak to the Star-Tribune until after his planned testimony on the bill before the House minerals committee Wednesday in Cheyenne.
Ken Hendricks, who sits on the Oil and Gas Conservation Commission, said something did need to be done about the many applications for permits to drill that would likely never lead to wells being drilled. He said he understood both sides of the issue.
Hendricks represents the engineering and industry perspective on the commission. He used to work for Anadarko Petroleum, one of Wyoming’s largest oil and gas players.
Anadarko is also one of the key figures in the permitting rush both in the Powder River Basin and in the Denver Basin outside Cheyenne.
The company was brought before the Oil and Gas commission by mineral owners in Laramie County last year who believed the company was operating as a monopoly.
They were not successful in protesting Anadarko’s applications for permits, but they did find a mic to express frustration that Anadarko held drilling control but wasn’t drilling.
Mineral owners in nearby Colorado have raised similar concerns, recently suing the Colorado Oil and Gas Conservation for state rules that the mineral owners argued were an affront to their rights.
It was largely the jockeying for drilling control in Cheyenne that led to Eklund’s bill.
Technology has changed dramatically, from the straight-down wells of the past to two-mile lateral wells more common today. And now companies are taking advantage of the old rules, he said.
“The state of Wyoming needs to do much like some other states have done and reform all of our laws so that they reflect what’s happening here, which is a lot of horizontal drilling,” he said.