Current Edition

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Natural Resources

Opinion by Ryan Lance

OSLI Advances Total Program Compliance Initiative by Ryan Lance

The vast majority of our lessees – grazing, oil and gas, coal, uranium and otherwise – are tremendous. They pay on time. They report on time and with great accuracy. They try very hard and appreciate that the work of the Office of State Lands and Investments (OSLI) is tied to the noble cause of funding K-12 education and the work of other important institutions like the Veteran’s Home and State Hospital. From Stock Growers, Wool Growers and Farm Bureau to the Petroleum Association of Wyoming and Wyoming Mining Association and all of their dedicated members, I have been fortunate to work with folks that are tremendous stewards of state trust lands. 

Several months ago, Anne Harris approached me with a problem. Anne is charged with ensuring that surface impact payments associated primarily with mineral development are paid to the state trust land beneficiaries and our state grazing lessees in accordance with state law and the Board of Land Commissioners’ rules. Her calls to particular companies were going unanswered, and her demands for payment were falling on deaf ears. 

As we talked, I learned that other calls from our office for certain companies to permit and pay for coal bed natural gas reservoirs and other facilities were also being ignored. Short of several dozen lawsuits to recover, in many instances, fairly small dollar amounts, we felt as though we did not have many options to force compliance. This was especially true where facilities, including reservoirs, were already built, and we had limited or no bonding in place to reclaim them. 

Early in my tenure as director, Harold Kemp, then head of the Office’s Mineral Leasing and Royalty Compliance Division, came to me with a similar problem. Several companies were not paying their royalties and other required payments and were delinquent in submitting mandatory documents and reports. Many, if not all of their wells were shut in, with little or no chance of them being restarted given the price of natural gas and the limited production potential for the wells. Despite unpaid royalties and other delinquencies, our primary concern was that we had little or no bonding in place to properly plug and abandon the open well bores. When pressed, several of the companies simply threatened to walk away, leaving the state to clean up the mess. As with Ms. Harris’ conundrum, we seemed to have little leverage.

Many of the issues we were facing involved coal bed natural gas producers. Further, most of these producers were not the state’s lessee, but were actually only assigned the rights to that portion of the leasehold covering the shallow coal seams. As we dug further, we learned that most of our underlying lessees had great interest in retaining their leases, as the deeper rights had become increasingly attractive with enhanced fracking and other technologies that were and are still unlocking thousands of barrels of oil every day in these previously uneconomic production zones. 

Our ability to force compliance was becoming a bit clearer. First, if a company would not pay its royalties, surface impact payments or meet its other obligations, we would simply move to cancel their leases or assigned interests. Pursuant to the terms of our lease and assignment forms, the underlying lessee and assignee are both responsible to adhere to and ensure full compliance with the terms of our lease. Functionally, they are both on the hook. With the increasing value of oil in the deeper zones, and thus the great desire to maintain their lease ownership, we could apply some pressure. 

But there was still a concern that even the most responsible lessee would simply walk away, especially where the deep rights were unproven or known to be of little value. We could file suit to compel compliance, but such an option seemed unwieldy given the number of leases involved. Plus, we still had Anne’s issues to contend with, which would require an all together separate gaggle of lawyers to sort out. 

The answer that has emerged is simple: Total Program Compliance. If you are delinquent with any obligation with the OSLI, the State’s trust beneficiaries will no longer provide any accommodation to you or your company. No easements. No assignments of interests. No suspensions or extensions. No consent to transfer anything to anyone. No favorable recommendation from the director. No preliminary approvals. If you or your company walk away from a lease, do not call OSLI for anything until you clean it up. This applies to all of the state’s lessees – not just oil, gas, coal and other producers. 

While simple in concept, even the most well intended bureaucracy will experience some hiccups in the implementation of nearly anything. To combat the inevitable problems that arise in organizations, particularly in terms of communication, we have merged the surface and mineral leasing operations of OSLI into one division. We are working towards integrating our surface and mineral leasing applications and data. We have sought and received Board of Land Commissioner approval to authorize the director to cancel leases or assigned interests for two currently delinquent operators if the companies do not follow through with their obligations. If no one steps forward, we have informed the Wyoming Oil and Gas Conservation Commission that we may need to tap the state’s orphan well fund to plug, abandon and reclaim deserted wells. Simply put, we are no longer kicking the can down the road on non-compliance. 

As a result, reservoir permits are starting to trickle in, together with other applications, reports and payments. Just last week, I received a check for nearly $35,000 for unpaid royalties, penalties and interest for one of the companies for which the Board had authorized lease cancellation.

Further, pursuant to direction from Governor Mead and the other members of the Board of Land Commissioners, we have initiated a review of all of our agency-issued directives and mandates to see where we might be less bureaucratic. Oftentimes, these edicts were crafted to address the behavior of a limited few (mostly those that Anne and Harold brought forward), but had the unintended effect of needlessly hitting those that play by the rules. Early numbers indicate that of the over 50 internal and external directives that had been issued for mineral royalty compliance alone, we will cut over 20 and pare back most of the rest. At the end of the day, the few bad apples should not be allowed to spoil the bunch. 

But back to my initial statement – the vast majority of our lessees are dedicated and thoughtful. All too often, government can only find the stick – never the carrot. As such, I have tasked staff with identifying those lessees that are doing it right – and I look forward to sending letters of thanks to those folks. It is not much, but it is something. 

To close, I offer my best in the New Year…and my prayers for moisture.