Congress Rescues Coalbed Methane Leases
Coalbed methane leaseholders in Wyoming and across the nation
have been saved from "suffering extensive economic trauma," Sens.
Craig Thomas (R-WY) and Mike Enzi (R-WY) and Rep. Barbara Cubin
(R-WY) said in a joint statement last week.
The Wyoming lawmakers succeeded in passing legislation (S. 2500)
that will grandfather coalbed methane lease contracts and block the
potential negative impact of a July appellate court order in the
case of the Southern Ute Indian tribe in Colorado v. Amoco
Production Co. The coalbed methane legislation was cleared by the
Department of the Interior and is expected to be signed by the
President early this week.
"This legislative fix is going to keep the gas flowing and
facilitate a chance for the coal bed methane leaseholders to
continue their work under the law that they began with," said
"A lot if people worked very hard to move this bill through
Congress in a relatively shore time frame and every time we ran
into a road block we just directionally drilled around it, as the
natural gas industry would say," said Cubin. "The bill we have now
sent to the President is a pragmatic solution to the 10th Circuit
Court's recent opinion and the ensuing coalbed methane 'gridlock,'
and I have every confidence the president will sign it into law."
The legislation was crafted to soften the impact of a court
decision 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 the case in question, it was the federal government
directly and the Southern Ute Indian tribe indirectly - rather than
the landowner. 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 the circuit court's decision 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 said without the legislation there would have been a
significant downturn in coalbed methane production, particularly in
growing areas such as the Powder River basin of Wyoming. Barrett
Resources, one of the largest leaseholders in the basin reduced its
drilling program to 250 wells from 400 wells this year because of
the court ruling and lower gas prices.
The Wyoming delegation estimated 11,900 individual royalty
owners from all 50 states would be affected by drilling delays in
the Powder River alone, with each owner losing nearly $1,046 per
month per well. But the legislation holds valid all leases signed
prior to its passage.
Some uncertainty remains, however, for property owners and
production companies. The court decision still transfers coalbed
gas ownership to the coal owner going forward and that could change
the plans of many drillers. Private landowners probably will be
less willing to let a gas company drill on their land now that they
no longer own the rights to the gas.
Enzi's Chief of Staff Flip McConnaughey said the senators will
take a hard look at crafting legislation next year that would deal
with the impact of the court decision going forward. "They have
discussed that issue and will be making a final decision on how to
proceed after visiting with people during the work period between
now and the start of the next Congress.
"We first said we had to address the immediate issue. There may
be some concerns from other places with going forward and we didn't
want to get those two tied up... I mean if you're going to go
forward, there's going to be a need for hearings and that kind of
thing," said McConnaughey. "There are conflicting groups. There are
issues relative to potential future revenue loss. I'm sure you'll
have groups that feel it's more appropriate it be treated as a
federal mineral. The senators feel that should be addressed in
hearings with a full review."
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