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Coalbed Methane Legislation Gains Ground in Senate

Coalbed Methane Legislation Gains Ground in Senate

With bipartisan and Administration support, legislation crafted by the Wyoming Congressional delegation to give coalbed methane leaseholders and production companies some relief from a recent appellate court decision won rapid and unanimous approval by the Senate Energy Committee last Wednesday. The bill, S.2500, is expected to be taken up by the full Senate at any time, and the bill's language also is expected to become part of a manager's amendment to the Interior Department's appropriations bill, which must be approved before the end of the session next month.

The bill, which was drawn up by Sens. Craig Thomas (R-WY), Mike Enzi (R-WY) and Jeff Bingaman (D-NM), would grandfather existing coalbed methane leases. Similar legislation introduced in the House by Rep. Barbara Cubin (R-WY) has been attached to the Parks bill, which is expected to be taken up by the full Senate this week, according to Cubin's chief of staff.

The legislation was crafted in response to a ruling by the 10th U.S. Circuit Court of Appeals that changed 80 years of federal policy by concluding the gas within coal is part of the coal itself and is owned by the coal owner - in this case the Southern Ute Indian tribe - rather than the landowner (owner of the surface rights). The decision reversed a 1994 ruling by a lower court that was in favor of key defendant Amoco and about 3,000 gas royalty owners.

The defendants have taken their fight to the Supreme Court, but meanwhile the circuit court's decision has cast doubt over numerous coalbed methane leases throughout the country, particularly in the Rocky Mountain region where the federal government owns the majority of the coal resources.

Producers say without the legislation there could be a significant downturn in coalbed methane production, particularly in growing areas such as the Powder River basin of Wyoming. "It really is going to cause some delays. It puts the whole atmosphere in the area into confusion," said Barrett Resources' Frank Keller. Barrett's Powder River drilling program this year has been reduced to 250 wells from 400 because of the court ruling and lower gas prices, according to Keller. If the legislation passes, however, Barrett intends to accelerate drilling in the basin.

"An estimated 11,900 individual royalty owners from all 50 states are affected by delays in the Wyoming-Montana Powder River Basin alone," Thomas, Cubin and Enzi said in a joint statement. "Each owner could lose nearly $1,046 per month per well. The ripple effect of this decision could also be felt by gas operators, drillers and the exploration companies who may be forced to lay off hundreds of employees,"

Drilling and servicing companies are "going to go belly up," Enzi said in a separate statement. "Oil exploration has stalled because of low prices, so if they can't drill for cheap gas, there isn't much business." Enzi said investors are backing out of lease agreements with producers. Royalty trusts are putting funds in escrow until the situation is resolved. It is threatening the "livelihood of entire regions in the states like Wyoming, Colorado, Utah and New Mexico," said Enzi.

Steve Griles of National Environmental Strategies, a lobbying firm assisting a coalition of royalty owners, producers and drilling companies, believes the legislation has a good chance of passage despite the "distracting" events taking place in the nation's capitol and the short time left in the current congressional session. "At this point I'm unaware of any objections to this legislation. [It's] bipartisan. It has Administration support. The Ute tribe's counsel has signed off on it. If it continues this way and we can find the right mechanism for it to be attached to and moved on, we can bring some stability back to coalbed methane production," he said.

Even if the legislation passes, however, confusion will linger among royalty owners and producers. The legislation only affects existing leases. "The production company will still be able to lease federal lands because in most instances the feds own the land and the coal and there isn't an issue of who owns the gas. But you'll still have a lot of key leases there that you don't know for sure what happens," said Keller.

"Lets say a rancher owns 5,000 acres that he wants to lease to an exploration company like Barrett to come in and explore for coalbed methane. Well the reality now is he doesn't own the rights to the gas associated with the coal. So who do you lease that from. Do you go to the federal government? Well they don't own the ground. And because the rancher doesn't get the royalties, he might not be willing to lease the land."

Karen Kennedy, executive director of the Wyoming Independent Producers Association and a member of the Coalbed Methane ad hoc Committee, noted many western landowners probably will lose ownership of a large amount of coalbed methane, but southeastern landowners may actually gain ownership because in many cases they own the coal.

But western landowners shouldn't fault the feds for taking their gas, said Kennedy. "The federal government didn't do it. Some judges did it.

"The 10th Circuit's decision excluded methane gas that has migrated. It only effects methane that's in the coal. If it migrated, then it's gas. Don't you think that's kind of crazy. Last time we checked, gas was gas, and coal was coal."

Rocco Canonica

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