Landowner Lawsuit Raises Questions About WY Rules, Markets, And Companies

Dec 19, 2019

Entrance to Rabou Farm
Credit Cooper McKim

Close to the Nebraska Border in eastern Laramie County, vast swaths of farmland give way to a property neatly outlined by silos and rehabbed farm buildings. An American flag welcomes visitors to the main house.

This is Ron Rabou's farm; he's one of 35 parties in the area suing a massive oil and gas company called Anadarko Petroleum; it was recently acquired in a blockbuster sale to Occidental Petroleum. Most of the plaintiffs, like Rabou, are farmers and ranchers.

But before getting into that, Rabou wants to explain how this property came to be. He says his great-great grandmother homesteaded here in 1905. He's since transformed it from a little operation to a much larger one with way more crops. In fact, he's had to change a lot.

"We run a hunting and outfitting business out of here. We offer corporate retreats and we offer our buyers to come out and have important experiences," he said.

Rabou explains he's had to be creative in order to remain a stable operation year over year.

"We've had to reinvent who we are, what we do and why we do it. What we've developed and built on this farm is our ability to gain assets that have marketability and profitability potential for us. And so, minerals, obviously are a part of that. And so, for this operation, that's been stolen, it's been taken away," he said.

He also invested in parcels of land with likely highly valuable minerals underneath, hoping to one day pull them from the ground. Many other landowners in the area took a similar tack, but due to the actions of Anadarko, Rabou says it's looking more and more unlikely they will reap the benefits.

Rabou showing his harvested black kabuli chickpeas.
Credit Cooper McKim

This is what the lawsuit revolves on: homeowners in southeast Wyoming say Anadarko has found a way to take control of their minerals without consent. Normally, if you own land with minerals underneath in Wyoming, an operator approaches you and negotiates a deal where they drill and you get top dollar. But that didn't happen here. This lawsuit with three dozen landowners behind it alleges Anadarko has used strategically permitted away other's land to create a monopoly and keep competitors out.

Investment In The Future

Rabou jumps into a truck to show me the land in question. According to the complaint filed in court, Anadarko bought up land and minerals surrounding many landowners. It then used its position to take control of minerals that weren't their own and now has control of minerals in more than half the county. According to state data, Anadarko filed the second most applications for drilling permits in the past decade in Wyoming. Only EOG Resources, another oil and gas company, filed more. 

Anadarko's rise in applications for permits to drill over the past decade.
Credit Wyoming Oil and Gas Conservation Commission

Anadarko used broad horizontal drilling permits to do it. Rabou and affected landowners fought hard to stop some of the permit applications from progressing through hearings at the Wyoming Oil and Gas Conservation Commission. Rabou says Anadarko didn't even try to negotiate with him.

"It had nothing to do with that at all and everything to do with, 'We're going to come in, we're going to do what we want. This is what we did. You'll have to live with it,'" he says.

Rabou pulls to the side of a road, with little else but farmland in view shaded red and blue from the sunset. He jumps out of the car and into leftover snow. This is where the Rabou Farm grows winter wheat. It also holds minerals. 

Rabou pointing to the land in question with minerals underneath.
Credit Cooper McKim

Even if Rabou wanted to lease out his minerals and make some money he says he would be a distinct disadvantage because of this whole permitting debacle. We jump back in the car and Rabou says it feels like a crop has been taken from him.

"When you have additional assets on your land, that you have an opportunity to one day, hopefully be able to say you know what this is maybe this is maybe an opportunity that we have to pay some debt off. This is maybe an opportunity that we have to expand our place," he says.

But Rabou says that's no longer possible. So, he joined the lawsuit to take a stand.

Alleged Monopoly

Bob Schuster, noted Wyoming trial lawyer and lead attorney for the plaintiffs, says Anadarko has indeed taken control of the majority of Laramie County's minerals but it hasn't actually drilled a well since 2013 in the county. According to the state data, it wasn't used for production, but simply for gathering information.

"What they have done is locked up this land so that it can't be leased. It can't be drilled. That hurts the landowners. It hurts Laramie County, it hurts the state of Wyoming," Schuster says

He says he considers that a monopoly which is not legal.

So, Anadarko has all this land, but you might be wondering, why can't some other operator just come in and develop if Anadarko isn't going to do it. They technically could, but a plaintiff court filing argues Anadarko has found a way to keep competitors out. It says, as the landowner and operator, Anadarko leased the land to itself at a royalty rate above market standards. In other words, attorneys say other competitors wouldn't be interested because it would cost more than normal to drill there.

So, to recap the plaintiff's complaint, Anadarko has permitted a bunch of land in Laramie County, it hasn't drilled there since 2013, and it doesn't seem to want anyone else to drill. 

A drawn up map done by the plaintiffs attorneys of where Anadarko controls minerals in Laramie County.
Credit Plaintiff Attorneys

"They care about their asset and maximizing the value of it and in this case, they have tried to maximize that illegally because it's illegal to have monopoly power. It's illegal to have such control that you then overwhelm your neighbors and they can't exercise their own rights," Schuster says.

Occidental Petroleum acquired Anadarko this year in a blockbuster sale; neither responded to requests for an interview. But one representative did say in a statement: "We believe the litigation is without merit and intend to vigorously defend it. We do not expect that the litigation will have any impact on the timing or outcome of our pending sale process."

The company has yet to file a response in court, so fully understanding their position is still difficult. It requested an extension to respond and now has until December 30.

State-Approved Methods and Future Impacts

For Schuster and the landowners, there's another problem in all this: it could happen again. Some have already heard of it happening elsewhere. It could happen again because the maneuvers Anadarko used to assert itself as Laramie County's operator could not have happened without Wyoming statute behind it. Rules which allow companies to lease to themselves and permit thousands of acres of land with no intent to drill.

The Wyoming Oil and Gas Conservation Commission (WOGCC) is working to fix that second one.

Schuster says these statutes are a problem in this case because with the current system, companies can flood the commission with permit applications and gain control over an area, tying it up for years.

No statutes are being challenged legally, but Schuster says they need to be changed.

"Those people hopefully will pay attention and hopefully will then take corrective measures so that this doesn't happen in the future because it shouldn't happen in the future. Because It's wrong," he says.

Tom Kropatsch, deputy supervisor for the WOGCC, which oversees these statutes, says the commission is following this lawsuit

"If there's some decision that affects the statute or a rule that we have in place, then, we would just wait till those decisions come out and if something needs to be revised, and we work towards that," he says.

Section of the updated WOGCC statute questioned in legislature this year.
Credit Wyoming Oil and Gas Conservation Commission

Last March, during a WOGCC hearing regarding this issue, the Casper Star Tribune reported Governor Mark Gordon spoke for the need to change statutes that lead to the commission being flooded with permits.

"The issue is very real and needs to be dealt with," the governor said. "I make that point because this audience understands what that means," Gordon said.

Albin Representative John Eklund is a plaintiff in the case. He raised one of many bills intended to update Wyoming's statutes to better consider the implications of horizontal drilling. His bill sought to minimize the number of operators filing permits without an intent to drill. The bill died in committee.

The House and Senate chairs of the Minerals, Business & Economic Development Committee Mike Greear and Jim Anderson respectively also released an op-ed recognizing the need to update regulations to fall in line with changing production methods. It announced plans for an interim study with the goal of modernizing the state's laws.

Carl Larry, market specialist with Refinitiv, a financial data provider, says if Anadarko was selling parcels to itself at an inflated value that could create an economic bubble. If the company lost the case and the bubble popped, he says it could be devastating considering how low energy prices are and the lack of foreign demand.

"I don't think the industry can handle something like this. We can see other people question other companies and their lease sales within their subsidiaries. So, it could be this domino effect where at a worst-case scenario, this could just really just crush the industry," he says.

The Answer

As far as the case's outcome, University of Wyoming associate law professor Tara Righetti says there's no obvious right or wrong side here. She's not involved in this case, but says, while it's clear landowners have struggled for control of its minerals, that doesn't mean they're right legally.

"Exactly, I would say just because something disadvantages a party doesn't necessarily mean that there's a remedy," she says.

While the court figures out if there IS a solution, landowners are still waiting for Anadarko's official response. Whoever the court ends up siding with, the other side is likely to file an appeal.

Have a question about this story? Contact the reporter, Cooper McKim, at cmckim5@uwyo.edu.