Apr 13, 2017, 4:43pm MDT

 

Two Democrats in the Colorado House of Representatives have introduced a bill to make it harder for oil and gas companies to force reluctant owners to lease mineral rights.

Under Colorado laws that date to 1951, if one owner in an area targeted for oil and gas development agrees to lease minerals under the owner’s land to an energy company, owners in that area who haven’t signed or refuse to sign a lease can be “force pooled” into the group.

It’s a controversial process that requires the company to file an application with the Colorado Oil and Gas Conservation Commission (COGCC). If the owner contests the application, the COGCC will hold a hearing to determine of the lease offer was reasonable, defined as whether or not it’s comparable to other lease offers in the area being force-pooled.

The maneuver is intended to prevent a single owner from blocking development of oil and gas resources.

It’s also a way to ensure that all the mineral owners — reluctant or not — get a share of the profit from the sale of the minerals that are produced from a defined development area.

But owners often fear being railroaded into a bad lease offer by the process, and lately the issue has split communities between those who want their minerals developed and others who don’t.

The issue has cropped up recently in Broomfield and other areas north of Denver which is seeing an uptick in activity.

House Bill 1336 in the Colorado Legislature, sponsored by state Reps. Mike Foote, D- Lafayette, and Dave Young, D-Greeley, focuses on changing the process in three main areas:

  • Raising the threshold for force pooling from 1 mineral rights owner in a defined area to 51 percent of the owners in a defined area.
  • Notification requirements would give mineral owners at least 90 days notice of the COGCC’s hearing on the force pooling application, and the operator would have to give the owner a clear, concise and neutral expiation of the law, options and consequences of those options.
  • Requiring the energy company to file a report with the COGCC on the number of non-consenting owners and the location of their minerals in the development area, in order to build a searchable database.

‘That’s not enough time’

The issue is further complicated by Colorado’s “split-estate” situation, in which the owner of the underground minerals may be different, and have different goals, than the person who owns the surface land. Oil and gas companies must have the agreement of the surface owner in order to move oil and gas rigs onto their property.

“There needs to be more guardrails on the forced pooling process,” Foote said. “If one mineral rights owner wants to sell and the other 99 percent don’t, they can be forced to sell because the one does — this bill would move the threshold to a majority rule, which seems fair.”

Foote also said he’s heard of forced pooling notices that “are not understandable” and owners who are only given 35 days “to make an important decision. That’s not enough time.”

As for the reporting requirements, that would shed light on how many mineral owners are swept up in the process, he said.

“The COGCC doesn’t even know how many mineral rights owners have been forced pooled,” Foote said.

Young said the issue is tricky and requires balance, but he’s heard from constituents who “feel like they didn’t have a choice.”

“I understand that the other side of the coin is that anyone can object and it stops the process, and that holds up the companies, too, but there has to be a fair process — all of us drive our cars and heat our houses,” Young said.

‘Unfortunate and irresponsible’

Tracee Bentley — executive director of the Colorado Petroleum Council, an arm of the national American Petroleum Institute — said the timing of the proposal — coming late in the session that’s scheduled to end in four weeks — was “irresponsible” given how much work has gone into the existing process over the years.

“Once again, it is unfortunate and irresponsible to introduce a last minute bill that would change a law that was carefully crafted in a transparent process with all stakeholders involved,” Bentley said.

Matt Sura, a Boulder attorney who’s worked with hundreds of landowners in Colorado, called the proposal “reasonable.”

“I think this is a reasonable bill that would make a huge difference as to how the oil and gas industry force pools mineral interest owners in Colorado,” Sura said.

“The threshold issue is important, currently the oil and gas industry has the ability to force pool 99 percent of the mineral owners in a proposed drilling unit. It’s a gun to the head in negotiations where operators can say you can sign this lease with us or we’re going to take you to force pooling,” he said.

The owners do get a working interest in — and royalty payments from — the project, but it’s the principal that rankles Sura.

“This is the taking of a property right. The ability to exclude people from your property is a basic right for a property owner,” Sura said.

Foote wasn’t enthusiastic about his proposal’s chances of making it through both the House and the Senate.

“Industry lobbyists were lobbying legislators to vote against it before I even had a draft bill,” Foote said.

“But hope springs eternal.”

Cathy Proctor covers energy, the environment and transportation for the Denver Business Journal and edits the weekly “Energy Inc.” email newsletter. Phone: 303-803-9233. Subscribe to the Energy Inc. newsletter

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