It's starting to snow outside M & K Oil Company, LLC in Gillette. Nathan McLeland is a third-generation manager there. Last summer, another producer put him in a bind; let's call him Rick. Rick said he was going to start developing on McLeland's leases either with or without him.
"We're gonna drill here, we're gonna do this way. And if you don't sign our joint operating agreement or you don't go along with what I'm going to do, I could force pool you,"McLeland recounted that he had heard.
That would basically mean McLeland forfeits his leases. Needless to say, he made a deal. While they both had rights to the minerals, Rick was the controlling operator a.k.a. the decision maker. He had that status because he was the first to file a permit.
"Currently, the way it works in Wyoming right now is whoever files the permit first becomes the operator. And so, you can have someone with a small percentage of the
ownership making all the decisions for this big area of land," McLeland said.
He said this first-in-the-door method of operator-ship has created a land grab where everyone wants to be the first to file a permit.
"They're permitting as fast as they can so that no one else gets in and becomes the operator of something they own." McLeland said, "And it's not, I guess, a productive system and a co-operative system."
Wyoming's Oil and Gas Conservation Commission (WOGCC) said permit requests have grown to unprecedented numbers with up to 30,000 applications on their desk currently. Meanwhile, they say those permits often aren't resulting in new production. In some cases, it's even stopping producers from drilling.
"The complaints were slowly trickling in to the legislators over the summer and the fall," said Mike Greear, a Worland representative and chairman of the House Minerals, Business and Economic Development committee. He said all these problems come down to a simple change in the industry: horizontal drilling.
"Everything's geared towards vertical drilling and with this horizontal drilling where they can place one pad and reach out two miles and drill, you know, what I've heard at times 20 different wells from one pad location. It's really created an issue with landowners, minority mineral interest holders," Greear said.
Five bills aimed to deal with updating regulations this past session. One sought to put financial pressure on developers to actually drill. Another would have dealt with McCleland's situation of operator-ship. Several more tackled split estate issues with landowners. But none of them got very far. Greear explained that's because he has a plan for a comprehensive solution during the interim session.
"What I tried to do early on as the chairman of minerals is get my mind around the issues, sat down with some of the key players and just say, 'Hey, rather than piecemeal legislation that could cause us some problems down the road or have the unintended consequences that a lot of legislation does, just take a metered approach,'" Greear said.
Greear said the first step will be to hear solutions from the Governor's office, regulatory agencies, and the Petroleum Association of Wyoming (PAW). Come August, he hopes to hear from landowners and any other stakeholders too.PAW said it would like to see the updated system encourage partnership, lower the volume of permit applications, and encourage smooth development.
Supervisor of the WOGCC Mark Watson said he would like to see the system become more efficient so they stop getting flooded with permit requests especially if the operator doesn't intend to drill.
"That's our main thing is we want to see these wells drilled and the minerals developed," he said, adding the ultimate goal is orderly development but that's complicated. "It's not something you can bang out really fast."
And landowners want this fixed too. Jill Morrison, executive director of the Powder River Basin Resource Council, said restructuring the rules needs to require stronger property rights protections. She explained mineral producers often abuse the outdated statutes.
"Under the Split Estate Act, they can come in and if they say that you haven't negotiated in good faith with them and that's part of one of the problem's, what defines good faith negotiations. They come in and bond in and you're left with no ability to have a say in what goes on your property," Morrison said.
She said she's also worried about the rapid development of horizontal drilling when it comes to reclamation for horizontal wells. So, she hopes to have a voice in the process of modernizing all these rules during the interim session.
"We haven't had any invitations but I think we'll have to insert ourselves into the process."
Morrison said she'd like to see the companies be required to drill within six months of getting a permit application so they stop locking up land.
Nathan McCleland at M & K Oil Company, LLC said he's optimistic the legislature's plan will help bring solutions to light.
"I think now people are realizing that this is not a good system. It doesn't create efficiency. It doesn't lead to wells getting developed and drilled. You know, I think we can come up with something better," McCleland said.
Representative Mike Greear said the first interim meeting to start discussing the issues will be in May in Gillette.