The clamor over whether Idaho and mineral right owners are getting their fair share of the money from oil and gas produced in the state has reached the Idaho Legislature.
Enhanced by production of Idaho’s single producing oil well, severance tax receipts have jumped this fiscal year after four years of modest returns from the eight producing wells in Payette County owned by AM Idaho, a subsidiary of Houston-based Alta Mesa. Since July, severance taxes have more than doubled the previous year receipts and are more than the last three years combined, at $141,000.
But landowners, mineral right owners and Payette residents have complained that Idaho regulators don’t have sufficient authority to ensure private property rights are protected. They also are calling for more transparency to give them a better chance to protect themselves and to enhance competition.
These questions got traction earlier this month when two of the largest landowners in southwest Idaho, Harry Soulen of Soulen Livestock Co. in Weiser and J.G. Schwartz of Big Willow Ranch near Payette, met at the Capitol with House Speaker Scott Bedke and Gov. Butch Otter. Soulen said he is a strong supporter of the oil and gas industry and wants everyone, including Alta Mesa, to benefit.
“If everything is on the up and up, then I don’t know why (Alta Mesa) wouldn’t want production records turned over right away,” Soulen told the Statesman. “We want to verify what they say they’re producing.”
Lawmakers met with Otter on Monday in his office to discuss the issue. Lawmakers in the early weeks of the Legislature are expected to review new oil and gas rules already approved by the Idaho Oil and Gas Conservation Commission.
Midvale Republican Rep. Judy Boyle is expected to introduce bill-of-rights legislation for owners with oil and gas under their land, and other bills also may be introduced. Bedke said Friday he is “in fact-finding mode,” looking into how well production is metered, how wells are “spaced” within drilling units, and how production is reported to the state and to the public.
“I believe it’s incumbent on us as the keepers of the mineral estate, certainly as of the receivers of the severance tax, to make sure that everything is right and proper,” Bedke said. “I don’t know there is a problem, and that’s the problem. I don’t know there’s not a problem, and that’s the problem, too.”
John Foster, a lobbyist for Alta Mesa, said the company “always has and always will follow both the spirit and the letter of the law, even as that law has changed or has been reinterpreted each year we have been in Idaho.”
Idaho law and rules allow an oil and gas driller to withhold production records from the state for six months, and to keep all records secret from the public for a year. Rules going before the Legislature would require drillers to turn records over to the state within 60 to 90 days, and to the public six months after that.
Alta Mesa has argued it needs the delays to protect the well data it has spent tens of million dollars to obtain. But Soulen and other oil and gas companies have argued that keeping the information secret has kept them from being able to attract investment to drill themselves.
Soulen said investors have considered backing wells on his land, but their inability to see production records from other wells drilled in the area have prompted them to pass. Even when the records are available, a records request must be filed with the Idaho Department of Lands.
Utah and other states makes records available online, allowing investors to verify what drillers tell them, Soulen said. How the state sets its spacing units around each well also has been used to keep other drillers out, he said.
The state sets 640 acres as a default for natural gas wells, which means a company can drill just one well in the middle of a 640-acre section unless it shows the state seismic data that suggests the reservoir deep beneath of ground is smaller. But downsizing the unit would bring public review and uncertainty for a driller. Department of Lands Director Tom Schultz said he has looked at how other states space wells and Idaho is in line with them.
C.J. McDonald of Lonetree Petroleum argued to state rule-makers that spacing should be set at 160 acres. To control the larger tract, a driller must lease all the land or pay significantly higher royalty.
Foster said nothing in state law stops McDonald or other drillers from competing in Idaho.
“No other entity has a bigger vested interest in increased competition than does Alta Mesa,” said Foster. “More operators would only help our efforts to explore this new play, by bringing more investment in infrastructure and data.”
Soulen said he and Schwartz also expressed concerns about how drilling rights are leased and how Alta Mesa interprets the language. He acknowledged that the lease is a private contract between the mineral rights holder and the companies, but said the state must ensure that each party has full, consistent information.
In the case of mineral right holders who are forced to turn over their rights to drillers like Alta Mesa through the integration or “forced pooling” process, the state has an even higher bar of responsibility to protect the property right owners, Soulen said.
AN ISSUE OF FAIRNESS?
In a December hearing over Alta Mesa’s request to integrate a 640-acre tract in Fruitland between U.S. 95 and the Snake River, attorney James Piotrowski said requiring landowners to give up their rights without knowing the value below is unfair.
The hearing officer’s decision is expected to be released Tuesday.
Shelly Brock is an Eagle resident on the board of Citizen Allied for Integrity and Accountability, which has been raising money to help homeowners pay to challenge drilling decisions. She said she is glad that state leaders are raising the questions her group has had for several years.
“In more mature oil- and gas-producing states, they aren’t allowed to get away with this,” Brock said.
Lands Director Schultz will bring his counterparts from other Rocky Mountain states to Boise next month to present the findings of their review of Idaho’s oil and gas regulatory program. Idaho has changed its program incrementally, but it has just one and half full-time employees.
“The department is learning,” Schultz said.
Foster said Idaho remains a frontier in terms of oil and gas development, which means that oil-exploration companies are owed some flexibility as they seek monetary return on their investment and risk-taking.
“We are very proud of the science engineering and fundamental values that have gotten us this far,” Foster said. “We’re tired of being attacked.”