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Wyoming to Limit Coalbed Methane Lease Extensions

Wyoming's Office of State Lands and Investments has tightened the limits to extend coalbed methane (CBM) leases that aren't held by production in the midst of growing requests because of sagging natural gas prices.

Applications to continue to suspend operations are not to be granted after June 1, 2013 unless there is "a compelling showing that such action is warranted," the five-member State Board of Land Commissioners (SBLC) stated. "Further, any such applicant will be advised that the grant of any additional suspension requests will be contingent on adequate bonding, and supplemental consideration deemed necessary by the board to justify the significant accommodation made through additional suspensions."

The SBLC addressed the issue, which mostly affects operators in the CBM-rich Powder River Basin, earlier this month to establish a process by which CBM operators would be required to justify why they would need to continue to need CBM suspensions. On a case-by-case basis, the SBLC, composed of Gov. Matt Mead, secretary of state, state auditor, state treasurer and state schools superintendent, would decide if the extension was warranted, and if it was, whether large reclamation bond and royalty fees should be imposed.

Office of State Lands and Investments Director Ryan Lance characterized the new approach as a "heads up" to CBM operators. "Lessees requiring suspensions beyond five years of the primary term (entering the 11th year of the lease life) recognize that the grant of suspensions from the SBLC is a significant accommodation."

Officials from the lands and investments office met with the Petroleum Association of Wyoming (PAW) to reiterate that any future requests for suspension beyond a fifth year would be better supported before the board. Industry and state representatives agreed that they don't expect CBM activity to pick up anytime soon, or until gas prices climb back to the $5.00/Mcf level. Earlier this month Wyoming officials noted that the gas price at Opal Hub was slightly more than $2/Mcf.

"At these prices, Powder River Basin producers are not making any money because of the cost of water pumping, PAW Executive Director Bruce Hinchey said. The water is to be pumped out before the gas. Hinchey added that CBM wells don't generally produce large gas quantities like other, deeper wells.

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