The Idaho House Resources and Conservation Committee voted Tuesday to send a controversial rewrite of the state’s oil and gas regulations to the floor for amendments after a vote to kill the bill failed by one vote.
The bill aimed at protecting royalty owners, providing transparency and encouraging competition in the state’s nascent oil and gas industry was sent to the amending order after two long afternoons of hearings. It could die unless the full House votes to bring the bill out of the amending order, to either send it back to the committee for changes or to amend it on the House floor.
A number of landowners, contractors and employees testified against the bill and said that Alta Mesa, the company that is drilling oil and gas in western Idaho, had treated them fairly.
But Rep. Judy Boyle, R-Midvale, who had reworked her bill after talks between oil and gas companies, landowners and state officials, used the example of a Payette couple to walk the committee members through the flow of gas, oil, and other petroleum products from the family’s well. Randy and Thana Kauffman sent a letter, Boyle said, but were afraid to testify for fear of retaliation by Alta Mesa.
“They finally decided they could come forward,” Boyle said.
The only producing oil well in the Willow Field at the center of Alta Mesa’s operations in Payette County is on the Kauffmans’ land.
The couple have a contract that states they should get 12.5 percent royalties for the minerals, free of costs such as transportation, processing and marketing. The company gets the other 87.5 percent, Boyle said.
But Boyle said products that come out of their well go to the gathering station and are then sold to a marketing company called Asset Risk Management. Boyle said she was told by an Alta Mesa lobbyist that ARM was a third party with no Alta Mesa interest, but she said Alta Mesa CEO Hal Chappelle told her March 2 that he owns 10 percent of the marketing company.
Boyle said the Kauffmans are being charged for sending the gas down the pipeline, processing it at Alta Mesa’s subsidiary processing plan and going to the end purchaser — “exactly what their contract says will not occur.”
“I vote against regulations all the time,” said Boyle, “but we have one company here (with) a monopoly, total monopoly, and I like many Idahoans are much too trusting. We allowed Alta Mesa to write the rules and the laws to the detriment of my constituents and the endowment.”
Boise attorney Mike Christian, who represents Alta Mesa, said he “takes personal offense” at charges the company is not treating royalty owners like the Kauffmans fairly.
Christian criticized the process for writing the bill that left Alta Mesa out until the very end, and left other some other companies out completely. He said provisions that set a default contract that landowners can use if they don’t make other contracts, which clearly keeps the company from deducting transportation, marketing, processing and other costs, lets the state interfere in private enterprise.
He also said that forcing Alta Mesa to pay royalty owners who are forced to sell their rights under the same no-deduction contract the state uses would greatly reduce the economic return of wells.
Many lawmakers, including Rep. Fred Wood, R-Burley, agreed with Alta Mesa’s argument about the state setting the terms of contracts between private parties.
“I don’t want the state involved in our commercial dealings,” said Rep. Dell Raybould, R-Rexburg.
The bill changes the makeup of the Idaho Oil and Gas Conservation Commission. The new version puts three petroleum industry experts, the Department of Lands director and a county commissioner from an oil producing county on the commission.
The bill would open up to public review records that had been closed to the public and, for six months to a year, the state. To help other drillers compete, it would require the Idaho Department of Lands to post the records on its website and release them without first requiring a public records request.
The new bill also would allow operators to use default spacing for gas wells of one in 640 acres or one in 160 acres. The unit spacing can be changed and shaped to ensure that gas reservoirs are developed to best conserve the resource and ensure mineral rights holders are properly compensated. Alta Mesa wanted to keep the 640 acre spacing that’s in current law.
The bill would require operators to show that it has 67 percent of the royalty owners in a spacing unit in support of its application to force all owners in the pool to allow drilling. But after a period of time, that requirement could drop to 55 percent of royalty owners.