With bipartisan and Administration support, legislation craftedby the Wyoming Congressional delegation to give coalbed methaneleaseholders and production companies some relief from a recentappellate court decision won rapid and unanimous approval by theSenate Energy Committee last Wednesday. The bill, S.2500, isexpected to be taken up by the full Senate at any time, and thebill’s language also is expected to become part of a manager’samendment to the Interior Department’s appropriations bill, whichmust be approved before the end of the session next month.
The bill, which was drawn up by Sens. Craig Thomas (R-WY), MikeEnzi (R-WY) and Jeff Bingaman (D-NM), would grandfather existingcoalbed methane leases. Similar legislation introduced in the Houseby 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 10thU.S. Circuit Court of Appeals that changed 80 years of federalpolicy by concluding the gas within coal is part of the coal itselfand is owned by the coal owner – in this case the Southern UteIndian tribe – rather than the landowner (owner of the surfacerights). The decision reversed a 1994 ruling by a lower court thatwas in favor of key defendant Amoco and about 3,000 gas royaltyowners.
The defendants have taken their fight to the Supreme Court, butmeanwhile the circuit court’s decision has cast doubt over numerouscoalbed methane leases throughout the country, particularly in theRocky Mountain region where the federal government owns themajority of the coal resources.
Producers say without the legislation there could be asignificant downturn in coalbed methane production, particularly ingrowing areas such as the Powder River basin of Wyoming. “It reallyis going to cause some delays. It puts the whole atmosphere in thearea into confusion,” said Barrett Resources’ Frank Keller.Barrett’s Powder River drilling program this year has been reducedto 250 wells from 400 because of the court ruling and lower gasprices, 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 50states are affected by delays in the Wyoming-Montana Powder RiverBasin alone,” Thomas, Cubin and Enzi said in a joint statement.”Each owner could lose nearly $1,046 per month per well. The rippleeffect of this decision could also be felt by gas operators,drillers and the exploration companies who may be forced to lay offhundreds of employees,”
Drilling and servicing companies are “going to go belly up,”Enzi said in a separate statement. “Oil exploration has stalledbecause of low prices, so if they can’t drill for cheap gas, thereisn’t much business.” Enzi said investors are backing out of leaseagreements with producers. Royalty trusts are putting funds inescrow 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 lobbyingfirm assisting a coalition of royalty owners, producers anddrilling companies, believes the legislation has a good chance ofpassage despite the “distracting” events taking place in thenation’s capitol and the short time left in the currentcongressional session. “At this point I’m unaware of any objectionsto this legislation. [It’s] bipartisan. It has Administrationsupport. The Ute tribe’s counsel has signed off on it. If itcontinues this way and we can find the right mechanism for it to beattached to and moved on, we can bring some stability back tocoalbed methane production,” he said.
Even if the legislation passes, however, confusion will lingeramong royalty owners and producers. The legislation only affectsexisting leases. “The production company will still be able tolease federal lands because in most instances the feds own the landand the coal and there isn’t an issue of who owns the gas. Butyou’ll still have a lot of key leases there that you don’t know forsure what happens,” said Keller.
“Lets say a rancher owns 5,000 acres that he wants to lease toan exploration company like Barrett to come in and explore forcoalbed methane. Well the reality now is he doesn’t own the rightsto 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 theground. And because the rancher doesn’t get the royalties, he mightnot be willing to lease the land.”
Karen Kennedy, executive director of the Wyoming IndependentProducers Association and a member of the Coalbed Methane ad hocCommittee, noted many western landowners probably will loseownership of a large amount of coalbed methane, but southeasternlandowners may actually gain ownership because in many cases theyown the coal.
But western landowners shouldn’t fault the feds for taking theirgas, said Kennedy. “The federal government didn’t do it. Somejudges did it.
“The 10th Circuit’s decision excluded methane gas that hasmigrated. It only effects methane that’s in the coal. If itmigrated, then it’s gas. Don’t you think that’s kind of crazy. Lasttime we checked, gas was gas, and coal was coal.”
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