Idaho House Committee Throws Curveball to Industry Holding up Oil and Gas Rules

(EnviroNews Idaho) — Boise, Idaho — In what represents at least a temporary monkeywrench for the oil and gas business, on Jan. 19, 2015, the Idaho House Resource and Conservation Committee threw the industry a curveball when it decided to hold up a vote on Idaho’s newly proposed oil and gas rules, in what was expected to be just another rubber-stamped approval.

Idaho, has had little in the way of oil and gas exploration over the last century — so little in fact that the Gem State has never even needed a permanent specialized regulatory body to govern industry activities — until now that is.

In July of 2013 Idaho formed its Oil and Gas Conservation Commission to regulate the oil business, but in order to do so, the Commission, as well as industry, needs a playbook to abide by — a set of rules that will ultimately govern industry activities while laying out the guideposts defining the dos, don’ts, cans, and can’ts.

The Commission and industry, as well as the people of Idaho, need codified rules if oil and gas operations are expected to go forward in any kind of orderly fashion, but arriving at an agreeable set of rules has not been easy, and the process is apparently not over yet.

Several hotly contested rule-making meetings were held over the course of 2014, and multiple issues have left concerned citizens and activists stewing with a bad taste in their mouths.

One of the primary concerns in the soon-to-be-voted-upon rules has been unique language contained within the section titled “Integration.” This section addresses what is to be done with recalcitrant property owners who do not wish to just come along and lease their mineral rights to an oil or gas operator with dollar signs in its eyes.

“Integration,” or “forced-pooling” as it is commonly known, is the procedural practice of forcing landowners who are not willing to comply with oil industry plans, into the royalty pool for a drilling section. This can make way for the operator to pump minerals from the section in spite of the unwilling parties, while paying them royalties like everybody else in the section — although usually minus a large penalty of hundreds of percent for their rebelliousness.

These forced-pooling practices are widespread around the U.S. although the percentage of mineral-right-acreage needed by consenting mineral-holders required to force a pool varies greatly state-to-state. In some places, even if the acreage of willing owners totals a minuscule 1 percent in a section, it can be enough to gain a hearing in front of the regulatory body in an attempt to make their case that the other landowners/mineral-holders should be forced into a pool so that industry may proceed. The regulatory body (such as the Idaho Oil and Gas Conservation Commission) would then be charged to make a ruling for that section based on the totality of circumstances.

In Idaho, as the proposed rules stand now, the compliant parties in a section would have to own at least 55 percent of the acreage containing mineral rights to gain a hearing to potentially force pool the others. However, there is unique language in Idaho’s “Integration” section that says that a mineral owner can be “deemed leased” if they do not make an election within the election period laid out in the integration order. Local activists and informed citizens say the “deemed leased” language wreaks of something fishy.

Residents Furious About Being Force-Pooled Into Idaho’s First Fracking

There are myriad reasons why a landowner may wish to not lease their minerals to the oil industry at any given time such as: (1) Oil prices may be very low (like now) and it may not be a good economic juncture to exploit their minerals. (2) They may not agree with the business of oil extraction at all due to environmental, climate or other concerns. (3) They may be fearful of degradation or the devaluation of their property from oil and gas plunder. (4) They may fear winding up in mortgage default, as many real estate contracts clearly state that participating with any activities that cause environmental degradation can land a party in default of their mortgage contract.

The issue of potential mortgage default as a result of participating with oil and gas endeavors was discussed by former real estate agent and activist leader Alma Hasse in an exclusive interview with EnviroNews Idaho’s Blair Koch back in August of 2014.

How Participating With Fracking or Drilling, Voluntarily or Forced, Could Put You in Mortgage Default

Before Monday’s Resource and Conservation Committee hearing on the rulebook, Gem County resident and property rights defender Joe Morton sent out an email to the Commission and other key parties, blasting what he stated as major “problems” with the proposed rules.

That email apparently had an impact as Chairman Dell Raybould started off the meeting with a bang going straight to and quoting directly from Mr. Morton’s email as he hammered down on the “deemed leased” language — a point that he said was what “has caused all the interest.”

After calling Idaho Department of Lands Oil and Gas Program Manager Bobby Johnson to the podium, Chairman Raybould, before he allowed Johnson to start with his presentation decided to chime in with something “for Mr. Johnson’s information”:

There is some interest on this rule. I’ve received some emails about this from concerned citizens. So, what I’m suggesting we do this morning, or this afternoon, is to go ahead and review this rule but, there’s one section of this rule that I think you might want to pay particular attention to. That’s the one that’s caused all the interest, and that is the rule on integration. And that would be integration of land sections that would be found in a parcel that a drilling permit is issued to.

For Mr. Johnson’s information, and for the committee and others here in attendance, I received some emails, and I’d like to read part of this one email that I received that probably brings forward the question that most of us have about this particular rule. This outlines it. I don’t know weather this is exactly correct or not. And Mr. Johnson can answer to these questions if they’re not correct and make it clear to us. But it says to the committee: “… now you consider voting on new Rules which will force-pool, “deem lease”, and take from those who do not wish to give up their mineral rights — so that “the PRODUCERS … may realize and enjoy the greatest possible good from these natural resources.”? Specifically, the new language in section 130 – h – titled “Integration” – states that one of the requirements for industry to force-pool a non-consenting property owner is to submit “Affidavits indicating that at least … 55% of the mineral interest owners in the spacing unit support the integration by leasing or participating as a working interest owner.”

And then he (Joe Morton) explains a little bit. He says, “What this actually means is that if a drilling unit consists of 100 acres – – where one owner owns 55 acres & 45 owners own 1 acre each – – Then ONE mineral interest OWNER, controlling many acres, can take from the desires of many smaller landholders who are his neighbors.”

Now that’s a question that has come up. I’ve discussed this with the chairman of the Senate Resources Committee. He called me and we discussed this, and I think this is a problem that we probably need to answer before we go on and discuss a lot of the other things in this particular rule.

After some dialog and Johnson initially denying that people could be forced to participate, the Chairman was not satisfied and pressed the issue again:

Raybould: I guess that doesn’t answer my question. That means in any of these scenarios that you pointed out those junior, or minority landowners there would have to be involved in that lease even if they didn’t want to be, in any instance.
Johnson: Chairman Raybould that is correct. If it came to an integration order through the commission, they would be forced choose one of these electives to participate.
Raybould: Ok. Thank you.

A few minutes later, Representative Fred Wood of District 27 made a motion to hold back any decision on the rules that day for further review, citing vast issues that needed further examination.

Chairman Raybould sat tight on Wood’s motion in consideration of citizens that had driven from out of town to testify saying, “We’ll hold that motion for a moment. We have a number people signed up here to testify on this particular bill, and if they’re [from] out of town I would not want to cause them the problem of having to come back again. So, I think before we have committee discussion on this, I’m going to call on these people who have signed up, if they would like to come testify, and then after that, then we will vote on Representative Wood’s motion.”

After several people who had signed up to speak balked, Morton took to the podium first and discussed several other issues going on in his neck of the woods as a result of oil and gas exploration, and pointed out that Idaho has adopted an extremely low severance tax of 2.5 percent for oil and gas, where most other states are much higher.

Alta Mesa attorney Michael Christian stood up to speak in support of the rules to the Commission and said that Alta Mesa has had a “good relationship with the Department of Lands.” He also went on to address the forced-pooling issue arguing that integration is already included as part of Idaho statute and that the proposed rules only add guiding stipulations to what is already law.

Christian went on to remind the Commission that Idaho has already made the decision to develop its oil and gas resources, and that integration has been added to the regulatory framework to make sure that goal is achieved.

Representative Mat Erpelding of District 19 pressed both Christian and Bobby Johnson as to why a supermajority number was not required for integration instead of the proposed 55 percent. Christian rebutted citing as an example states like Oklahoma where any percentage of mineral holders can petition for integration.

Idaho Concerned Area Residents for the Environment (ICARE) Executive Director Alma Hasse spoke to the Commission as well and reiterated potential pitfalls of oil and gas development that could potentially place a property buyer in mortgage default. She said that her mortgage company has told her that if she were to be “deemed leased” that this would indeed constitute a breech of contract.

After hearing the various dialog, Chairman Raybould wrapped things up and made a move to vote on Rep. Wood’s motion to hold up the rules, but not before he could be interrupted by Representative Vicki Purdy who wanted to speak out in favor of the rules and against the motion to delay a vote on them.

Raybould responded by saying that if the motion were to be passed, that his intention would be to bring back the rules with a “substantial amount of time” to review them in their entirety. A few minutes later, to the surprise of attendees, Rep. Purdy requested that a roll-call vote be taken instead of a simple voice vote which is used the majority of the time.

In the end, the Commission sided with Wood on his motion with Purdy and Rep. Paul Shepherd being the only NOs on the roll-call that Purdy herself had requested. Almost unanimously, they opted to hold the matter over to hear more testimony and gain a better understanding of the rules before casting any votes on the matter.

According to attendees, representatives in attendance from Idaho’s primary oil operator Alta Mesa didn’t seem too happy about the Commission’s decision for the meticulous review, as the state’s leaders have for the most part signed off on all their requests to date, with little pushback at all. The hearing to make these line-by-line reviews will reportedly be held on either January 27th or January 29th according to local sources.

Concerned and hopeful residents alike are now eagerly awaiting — wondering weather the review holdover is merely for show, or weather the Commission will take the initiative to reject portions of the rulebook, or to demand any changes to it.

Below is the email that Joe Morton sent to the Idaho Congressional Resource and Conservation Committee prior to the meeting in its entirety:

Dear Honorable House Resources & Conservation Committee Members,

My Name is Joe Morton – I live at xxxxxxxxxxxxxxxxx on land that has been owned by my family for over 30 years – I speak on behalf of the many who can not attend this meeting today.

Because this legislative authority gave no other industry or group in Idaho such advantages by Statute, which mandates its State overseers to have: “authority over all persons and property, public and private…”… so that “the producers … may realize and enjoy the greatest possible good from these vital natural resources.” (This language is noted in Idaho Code § 47-315 & 317)

They have failed to represent those who wish to retain their minerals on their private land for their children’s children.

There are two problems with these rules:

NUMBER 1 – Back in September when Mr. Johnson notified the citizens of a public hearing for these new rules, he stated – There was NO “negative fiscal impact on the state as a result of this rulemaking.”

But yet just in the previous month’s Oil & Gas Commissioners meeting – Director Mr. Shultz asked for & received an additional $83K – so that “They could fund regulatory personnel.” (http://www.idl.idaho.gov/oil-gas/commission/minutes-archive/080514-finmin-oil-gas.pdf )

Additionally, Idaho’s Tax Commission records note money received from Industry for severance tax receipts, show that the city of New Plymouth has received less than $100 for its operating well since it started producing in 2014 (http://tax.idaho.gov/reports/EPB00073_12-31-2014.pdf )

So it is true – the PRODUCERS … do in fact “realize and enjoy the greatest possible good from these natural resources.”

Currently and into the foreseeable future – with the low gas prices – The Oil & Gas Commission operates in the red and at the expense of taxpayers who do not benefit from this.

NUMBER 2 – And now you consider voting on new Rules which will force-pool, “deem lease”, and take from those who do not wish to give up their mineral rights — so that “the PRODUCERS … may realize and enjoy the greatest possible good from these natural resources.”?

Specifically, the new language in section 130 – h – titled “Integration” – states that one of the requirements for industry to force-pool a non-consenting property owner is to submit “Affidavits indicating that at least … 55% of the mineral interest owners in the spacing unit support the integration by leasing or participating as a working interest owner.”

What this actually means is that if a drilling unit consists of 100 acres – – where one owner owns 55 acres & 45 owners own 1 acre each – –

Then ONE mineral interest OWNER, controlling many acres, can take from the desires of many smaller landholders who are his neighbors.

Additionally, in section 131 – 4 – it states – “If a property owner fails to make an election within the election period set forth in the integration order, such owner’s interest will be DEEMED LEASED under the terms and conditions in the integration order.”

This means that these mineral rights owners will NOT actually have the property rights that their private ownership of land entitles them to. When you own land and mineral rights, you expect to be able to dispose of them according to your own will, in your own time.

What these IDAPA Rules DO NOT make clear – is that if an unlicensed, unregistered, out-of-state landman comes to your door and promises enough of your neighbors a get-rich-quick scheme so that they are talked into giving up their mineral rights – Then you and your neighbors whose acreage totals only 45% of the unit will be “Deemed Leased” – even if you choose to NOT give up your minerals at today’s low prices…. Even if you choose to NOT give up your mineral rights EVER –

Adding this language to rules of a state mandate which has “authority over all persons and property, public and private…” – so that “the PRODUCERS … may realize and enjoy the greatest possible good from these vital natural resources” – IS WRONG

I ask that you REVISE the integration requirements so that the citizens who do not wish to give up their mineral rights are protected. The language as it is – represents a Taking by the state – and is an affront to its law-abiding citizenry.

This body has claimed a financial benefit for the State and a few big landholders AT THE EXPENSE OF the greater part of the state’s residents – people who expect private property “rights” to mean “RIGHTS”, not “Deemed Leased”.

I invite all of you to my home to witness the following:

1 – Scared hillsides and damaged land by the “thumper trucks” being dragged through to mud because the ground does NOT permit seismic activity at this time of year.

2 – Damage to crops and fields because Alta Mesa / Dawson Geophysical continue to operate under the premise that “we will pay for damages”

3 – Damage to roads because of the “thumper trucks” traversing into the fields without use of road entrances.

4 – Commercial operation facilities including helicopter pads, fuel storage and equipment on agriculture land without conditional use permit(s) or approval from county governing authority.

5- Failure to comply with Clean Water Act and associated federal regulations by disturbing greater than 1 acre of ground and making any effort to control Stormwater Runoff of mud, silt, oil and commercial operations into the Payette River.

Additionally, I ask that you take immediate action to increase the existing bonding requirement for seismic activity from the $10,000.00 to the amount required to pay for damages to Gem, Payette county private and public property.

Thank you in advance for your prompt response.

Sincerely,

Joe Morton

Idaho House Committee Throws Curveball to Industry Holding up Oil and Gas Rules

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