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Idaho Oil, Gas Rules Rewrite Worries Alta Mesa Holdings

With about two weeks left of the Idaho state legislature's current session, a bill (HB 232) to rewrite oil/natural gas rules hasn't moved forward, but if it does, the state's major exploration and production (E&P) company is concerned about a chilling effect on future drilling.

The bill essentially "nationalizes" oil/gas operations in Idaho, said a local government affairs consultant and spokesperson for the state's major E&P, Texas-based Alta Mesa Holdings LP, pointing to a two-page analysis of the proposed legislation that as of Thursday was still bottled up in committee, according to a legislative spokesperson.

As part of the proposal authored by state Rep. Judy Boyle, a Republican from Midvale, ID, the state's Oil and Gas Conservation Commission (OGCC) would be reconfigured to include the governor, director of the Idaho Department of Lands, and two oil/gas experts.

This legislative action comes after a breakthrough year for the state in which it advanced natural gas production and completed assessments of its oil/gas regulatory framework to determine how it compares to other more mature natural resource-producing states. A state review did not find any "gaps" in Idaho's oil/gas regulatory scheme, according to the Interstate Oil & Gas Compact Commission.

For the fiscal year from July 1, 2015 to June 30, 2016, Idaho reported new data on five wells, bringing the statewide total to six producing wells, according to a report last fall from the Department of Lands. Natural gas production was 2.6 Bcf during that period, along with 81,000 bbl of condensate and 88,000 bbl of natural gas liquids.

One aspect of the proposal changes the OGCC, "reforming it to give the governor complete control," the Alta Mesa spokesperson said. "Proponents admit that raising the integration threshold is designed to force operators to pay more," he said.

"I can't speak to the company's specific plans, but if HB 232 or another version of the bill passes, it is fair to say that it would be hard for any company to drill more wells in the next year," said John Foster, a principal and founder of a Boise-based consulting firm, Kestrel West, which is helping Alta Mesa with its government and public affairs in the state.

It is not clear at this point what Alta Mesa's plans are beyond 2017, and the fate of HB 232 may have a lot to say in the matter, Foster said. Among the changes proposed in HB 232, the state legislature would add a requirement for metering wells so operators measure their production and make monthly reports to the state.

"The metering regime is overly burdensome, not predictable, and we don't have the infrastructure to support it," Alta Mesa's bill analysis concluded.

At one point in the legislative proposal there is an attempt to change Alta Mesa's business model with tax language that it alleges tries to change the intent of the entire legislative provision, said the company, whose operations are concentrated in two other states: Louisiana and Oklahoma. "It removes the provision for related parties and for comparable sales to be from the same field or area."

Alta Mesa has determined that the bill is unconstitutional because it would interfere with private contracts. The bill attempts to "dictate the terms of our operating agreements with our financial partners, who choose to invest in the project," according to the E&P's analysis.

The state is just getting started in the oil/gas business aftera number of failed tries over the past 100-plus years. Last year, Idaho completed its first full year of commercial natural gas production, making it the 31st state to produce hydrocarbons. While petroleum exploration in Idaho dates back to 1903, no commercial reserves were discovered until only recently, despite promising geology in the state's southeast and southwest corners, the U.S. Energy Information Administration said last fall in an updated profile of the state's estimated energy resources.

The state lands department recently received an assessment of the OGCC done by the State Oil and Gas Regulatory Exchange (SOGRE), which was also presented last month to the Senate Resources and Environment and House Resources and Conservation Committees. It was in the latter committee that Rep. Boyle introduced HB 232.

"The SOGRE team did not identify material substantive gaps in the implementing regulations [for oil and gas activity]," the report said.

SOGRE's review addressed six issues raised by the OGCC and another dozen that the reviewers raised. These included OGCC commission composition and levels of oil/gas expertise; well spacing and setback requirements; lack of jurisdiction over underground injection control wells; metering/reporting of production wells; and processing times for drilling permits.

A legislative staff member said although HB 232 has not moved for the past week, it could move out of committee in the next few days, but there is only two weeks left of the state legislative session that is scheduled to end March 24. The staffer had no speculation on the bill's fate.

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