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Congress Rescues Coalbed Methane Leases

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 Thomas.

"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."

Rocco Canonica

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