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Idaho Oil, Gas Forced Pooling Questioned in Federal Court Ruling

A ruling by the U.S. District Court in Boise, ID, has turned loose state energy officials to determine the full impact and fate of oil and gas leases that a privately held producer obtained through forced pooling.

The court on Monday directed the Idaho Oil and Gas Conservation Commission (IOGCC) to vacate its past order, rescind the leases and hold a hearing on the matter. IOGCC spokesperson Sharla Arledge told NGI's Shale Daily on Wednesday that the commission is reviewing the order to determine its next action, which would be to either hold a hearing or appeal.

"The state of Idaho is reviewing the decision and the IOGCC will evaluate its options," Arledge said.

Legal action in this case was focused on a process called integration in sorting out mineral rights and royalties of landowners. In Idaho, owners with at least 55% of the overall mineral rights in a given geographical area can force the owners of the minority rights to agree to a lease. Integration of minority amounts is applied in many oil- and gas-producing states.

Citizens Allied for Integrity and Accountability (CAIA), a group representing residential property owners, brought the lawsuit by contesting the application of integration on a 640-acre parcel along the Snake River near the Oregon border. Houston-based producer Alta Mesa Holdings LP applied the principal to some minority mineral rights owners that were holdouts.

The state upheld the integration process, and Chief U.S. District Court Judge B. Lynn Winmill determined that integration was within state authority. However, the court ruled it also violated U.S. Constitutional protection of procedural due process for protecting individual rights in the face of state authority.

Winmill granted the plaintiffs' claim for financial damages and motion for a partial summary judgment, but denied other parts of their pleading.

The IOGCC was instructed to vacate the final order, rescind the lease contracts plaintiffs Charlene Quade and Rachael Holtry and hold a hearing “that complies with due process by explaining the factors that will be considered when determining whether the terms and conditions of an integration order are 'just and reasonable'," Winmill’s ruling stated.

Idaho has never been a big target for energy exploration. However, the state legislature in recent years passed state Senate Bill 1339 to streamline the oil and gas permitting process. A trio of bills enacted (House Bills 48, 49 and 50) also updated rules regarding fees, permitting processes and operating regulations.

Last year, the Idaho Department of Lands (IDL), whose director is a defendant in CAIA lawsuit, began the state's first audit of oil and natural gas wells operated by Alta Mesa units, the lone producer in a state, dating back three years. IDL approved Alta Mesa's integration application, which eventually prompted the CAIA landowners, Quade and Holtry, to sue.

In beginning the audits, IDL said it was not carrying out its regulatory role, but rather its role as "owners of minerals, commissioning a review of payments and royalties similar to what working interest partners or nonworking interest owners do."

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