Letters from the West

Passing oil and gas industry reform in Idaho brought many interests together

Idaho Gov. Butch Otter listens to a presentation by an Alta Mesa employee by one of its wells in New Plymouth in 2014. Otter in March 2017 visited Washington, D.C., seeking to give the state control of the EPA injection well program so the company can economically dispose of water it gets out of the ground during drilling. The state now seeks to pass that control to the EPA.
Idaho Gov. Butch Otter listens to a presentation by an Alta Mesa employee by one of its wells in New Plymouth in 2014. Otter in March 2017 visited Washington, D.C., seeking to give the state control of the EPA injection well program so the company can economically dispose of water it gets out of the ground during drilling. The state now seeks to pass that control to the EPA. rbarker@idahostatesman.com

The oil and gas bill that passed the Senate on Thursday grew out of Southwest Idaho residents’ frustrations that they and the state were not getting a good deal; the desire of a competitor to be able to drill; and the vision of an Idaho oil and gas industry that could be prosperous and well-regulated.

Idaho Gov. Butch Otter has voiced support for the bill. Once he signs it, it will increase protections for royalty owners, provide transparency to the state and the public, and encourage competition in the state’s nascent oil and gas industry.

Its genesis was the passage in 2016 of a law that Alta Mesa bulled through the Legislature making it easier to force mineral-right holders to give up rights with terms they had to accept. That made people like Boise’s Charlene Quade, who owns a lot in Fruitland, spend more than $15,000 to fight a contract she says isn’t fair.

“I’m concerned about what I would perceive as an enforced government taking,” Quade told the House Resources and Conservation Committee at a hearing this week.

MORE PLAYERS GET INVOLVED

At the same time the 2016 bill passed, the Idaho Petroleum Council, an independent voice for the state’s industry, blew up. Alta Mesa’s representative pushed for the dismissal of Executive Director Suzanne Budge, a veteran lobbyist in Boise who worked for years in the oil and gas industry in Texas, Oklahoma and Alaska. She had a vision to make Idaho’s regulatory framework like that of surrounding states, which increasingly had her at odds with Alta Mesa.

But after the council was all but dissolved, she remained involved, working closely with Reps. Judy Boyle, R-Midvale, and Ryan Kerby, R-New Plymouth, as well as Sen. Abby Lee, R-Fruitland, who represent the district where 22 wells have been drilled and eight are producing oil and gas for Alta Mesa.

Another critical player also became involved. C.J. McDonald, CEO of Lone Tree Petroleum in Wyoming, had been quietly buying up leases and raising capital to finance drilling plans in Idaho. McDonald believes that the Idaho oil and gas play has far more potential than Alta Mesa has suggested.

McDonald wanted to be able to show investors he could begin drilling without going through a complicated state process and public hearing, where competitors or critics could stop him. To do that, he said, he needed the spacing around a well to be 160 acres, instead of the state’s default size of 640 acres. McDonald said he could get one landowner with 160 contiguous acres, but it would be harder to get all the landowners in 640 acres on board.

McDonald also would benefit if Idaho made production data, such as well logs, public sooner, and put it online without the need to file a records request, as other states do. Then he could point investors to the website to verify what he was telling them about the state’s oil and gas potential.

He began working with Budge and former U.S. Sen. Larry Craig, a lobbyist who had represented an earlier exploration company that dropped out of Idaho. The pair said they were not paid to lobby the issue, but hope to get oil and gas clients in the future.

Of course, McDonald’s interest was not altruistic, but his interest in transparency lined up with the landowners who were unhappy with Alta Mesa. Those people included Randy and Thana Kauffman, whose farm lies in the Willow Creek area of Payette County at the center of Alta Mesa’s oil and gas play, and has the state’s only producing oil well.

They negotiated their lease in their living room in 2012 with Richard Brown, CEO of Snake River Oil and Gas, and believed their royalties would not be reduced by the expenses of getting gas into a pipeline, marketed, transported and processed. But they said in a letter to Boyle that they had been charged $1.50 per thousand cubic feet for their natural gas, which made what they cleared half the royalties that owners get elsewhere.

Their complaints, and others from activists like Joe Morton, a grape farmer from rural Gem County, over how little Alta Mesa was apparently paying to the state in severance tax raised suspicions that the company said were unwarranted. The company had problems with its pipeline and dehydration plant, and because Idaho is far away from other markets, it didn’t get the prices in a depressed market that others could.

Two activist groups sprung up: the Citizens Allied for Integrity and Accountability and the Idaho Organization of Resource Councils, which had members in Idaho who were being required to allow drilling on their land, a process called forced pooling.

Jim Classen, a geologist with a long career in the oil and gas industry, was a member of Idaho’s Oil and Gas Conservation Commission. He accepted the role because he said he wanted Idaho to have a regulatory framework similar to that of other states, helping the state’s industry benefit and prosper in the long term.

He was disappointed that the Department of Lands didn’t have more staff and information available, and that the commission itself didn’t have the power to address concerns raised by people like the Kauffmans.

RETURN ON INVESTMENT

Meanwhile, Alta Mesa and its partners had invested $162 million in Idaho. Their representatives during the rule-making process said the company deserved to have its proprietary production data protected for a longer period of time, because they had taken all the risks to start the industry in the state.

“Based on current prices and the stifling regulatory environment, we will be lucky to ever see profit,” Brown said earlier this month. “That is what stifles competition.”

Boyle began working on her bill last summer, when she could see the state wasn’t addressing her constituents’ complaints. Lee and Kerby also began working on legislation. Boyle kept her bill close to her vest until March 1. Lee had a separate bill, but put aside her political differences with Boyle to work together.

“When it comes to our constituents, we leave politics aside,” Kerby said.

Boyle also had a long feud with Otter, with the two Republicans on opposite sides of many issues. When two large landowners — Harry Soulen, a rancher from Weiser who signed leases with McDonald, and J.G. Schwarz, a Payette rancher — went to Otter and House Speaker Scott Bedke in late December, they convinced the two leaders to get involved in the issue.

Bedke told Otter that meant he would have to work with Boyle. He never blinked.

SCHULTZ UNLEASHED

Otter also unleashed Idaho Department of Lands Director Tom Schultz, whose agency had been overwhelmed with the attention the issue had raised. Schultz took information he had from other states into the bill negotiations.

All of these forces came together at a seven-hour meeting March 9, with state officials, legislators, Alta Mesa and landowners. Boyle’s bill was rewritten, but language she had insisted on — which would give royalty owners and people who were pooled the same royalty deal the state of Idaho gets — was opposed, along with other provisions, by Alta Mesa.

After two days of hearings this week, Alta Mesa attorney Mike Christian’s criticism about the process and his testimony that the bill would undercut the company’s business plan appeared to give him the votes to stop the bill.

Then Kerby, a former school superintendent, made the case for increasing the percentage of land within a drilling unit to 67 percent from 55 percent before the land owners could be forced into a pool. That’s the same margin schools have to win from voters to pass a bond.

Finally, Boyle used the example of the Kauffmans to show why Idaho needed to pass the bill now. The Kauffmans, she said, are being charged for sending the gas down the pipeline, processing it at Alta Mesa’s subsidiary processing plant and getting it 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.”

Alta Mesa lobbyist and spokesman John Foster said the company had no comment for this column.

LATE-NIGHT AMENDMENTS

On Tuesday, a motion to hold the bill in committee failed on a 9-9 vote. The committee sent the bill to the full House’s amending order. That night Boyle, Schultz and others wrote amendments that were ready Wednesday.

They cut out the requirement that in leases with landowners, an oil company must pay the entire costs of marketing, transporting and processing, and addressed other concerns Alta Mesa had brought up. The bill passed the House and the Senate committee unanimously.

The Kauffmans were disappointed with the amendment but said Thursday that they hoped their efforts will help other landowners and the state get fairly paid for their resources.

“Alta Mesa has drilled wells on only a few landowners, so currently only a few citizens of Idaho have been affected,” they wrote. “As this industry grows, more landowners will be affected.”

Rocky Barker: 208-377-6484, @RockyBarker

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