Summary of 05LSO-0120.W10, Split estates, procedures for oil and gas operations

I.          Preliminary Considerations for Drafting of Bill

The Joint Executive-Legislative Committee on Split Estates met three (3) times. The first meeting was used to consider prior draft legislation and decide upon an approach to address issues related to oil and gas development on split estate lands. The second meeting was devoted to considering draft legislation and amendments thereto.  The first day of the final meeting was devoted to completing consideration of the draft legislation, with amendments from the previous meeting incorporated into the draft.  The Committee also adopted additional amendments to the draft bill at that meeting. The following day of the meeting, the Committee considered a revised draft incorporating all the amendments adopted on the first day of the meeting, made some additional amendments and voted unanimously to recommend the revised draft, as amended to the Joint Judiciary Interim Committee.

At the initial meeting, the Committee considered several bill drafts, including:

·        2004 House Bill 0070, Surface Owners' Accommodation Act;

·        The Model Surface Use and Mineral Development Accommodation Act, drafted by the National Conference of Commissioners on Uniform State Laws;

·        Surface Owners' Coordination Act, drafted by the Wyoming Split Estate Initiative.

After reviews of those bill drafts and public comment, the Committee determined that it would adopt a new approach to the issues identified at the initial meeting and other meetings that have considered the same issues.  The new approach included incorporating procedures used by the federal Bureau of Land Management in processing applications for a permit to drill (APD) on federally owned surface estates, informal dispute resolutions outlines in Article 6 of the Wyoming Eminent Domain Act and the definition of "tract of land" and the damages provisions of the Surface Owners' Coordination Act.

The rationale for incorporating the federal procedures for APD was that oil and gas operators were already familiar with those procedures and any state requirements should be as similar as possible to avoid unnecessary complications.  An additional concern was that while many states have codified some version of the "accommodation doctrine," Wyoming has not adopted the doctrine. Hill and Rippley, The Split Estate: Communication and Education Versus Legislation, 4 Wyoming Law Review 585, 593 (2004). Instead, the Wyoming Supreme Court has adopted the "reasonable necessity" limitation on the dominant mineral estate, Id., at p. 595.  The federal rules contain the elements of the accommodation doctrine in 43 C.F.R. 3814.1, and appear in modified form as W.S. 30-5-402(a) in the bill as recommended to the Joint Judiciary Interim Committee.

II.        Specific Provisions of Bill

W.S. 30-5-401. Definitions.

The bill originally contained definitions for "agricultural production" and "tract of land", both of which were removed from the bill when provisions containing those terms were amended to delete the terms, discussed later.

The definition for "commission" was added on the first day of the final meeting to allow for a uniform reference to the Wyoming Oil and Gas Conservation Commission (WOGCC).  Previously, the WOGCC was referenced in various ways throughout the bill. On the final day the Committee adopted an amendment to include "or its authorized employees" because the WOGCC only meets once a month and applications to drill under the act might need a more expeditious response.  The additional language would allow designated employees of the WOGCC to fulfill the WOGCC's duties required under the act.

The definition of '"compensate" and "compensation"' was added to the bill after the second meeting of the Committee at the request of the Wyoming Stock Growers Association to clarify that compensation could include in-kind compensation, as well as monetary compensation.

The definitions for "oil and gas", "oil and gas operations", and "oil and gas operator" were added to the bill before the second meeting to clarify the use of those terms.  The definitions were adapted from the Surface Owners' Coordination Act.

The definition for "reclamation" was added after the second meeting pursuant to a request from surface owners to ensure the costs of reclamation of surface disturbing activities could be compensated.  The definition was adapted from 04HB0070.

The definition of "surety bond or other guaranty" is adapted from W.S. 30-5-101(a) to allow the use of an existing, uniform process to assure payment of damages. The surety bond or other guaranty in Article 1 of Chapter 5 is used for reclamation of abandoned well sites.

The definition of "surface owner" was adapted from 04HB0070 to define who would be a surface owner and to exclude the state of Wyoming when the state owns the surface and underlying oil and gas estate.  The exclusion was in response to a request made last interim by Ms. Lynne Boomgaarden, Director of the Office of State Lands and Investments.  The definition was amended at the final meeting of the Committee in an attempt to expand the exclusion to all owners of unified estates, including the state and federal governments and private owners.

W.S. 30-5-402.

Subsection (a) was adapted from the Bureau of Land Management rules,43 C.F.R. 3814.1(b) & (c), and BLM Instruction Memorandum No. 2003-131.  The subsection codifies the federal accommodation doctrine. There was not too much dissension over the language of the subsection.  Amendments to the subsection were, for the most part, to simplify the language and to ensure that the terms "reasonable and necessary" were included in the doctrine with respect to activities conducted for exploration or oil and gas operations. Those reasonable and necessary activities would be conducted in a manner to accommodate existing surfaces uses, thus the accommodation doctrine as it expands the reasonable necessity doctrine.  The provision attempts to identify the rights of both the oil and gas operator and the surface owner.

Subsection (b) was adapted from the proposed Surface Owners' Coordination Act. During deliberations, the subsection was changed very little.  The only language revised was in the final sentence to clarify that for any subsequent entry for non-surface disturbing activities, if the activities were not previously agreed upon, notice to the surface owner of the subsequent entry would be required.  The Committee did discuss whether that subsequent entry notice should also have a prior notice time frame requirement, but decided it would not be necessary.

Subsection (c) was adapted from the BLM regulations, 43 C.F.R. 3814.1(b) & (c), and the BLM Instruction Memorandum No. 2003-131.  The changes were to clarify language in original paragraphs (i) and (ii), add a new paragraph (iii) to address the waiver authorized under W.S. 30-5-408, which, it was decided is different from (i.e., it is broader than) the waiver in paragraph (i) of this subsection.  The Committee discussed paragraph (iv) in terms of which paragraphs of the subsection would a good and sufficient surety bond serve in lieu of, deciding that it could serve in lieu of paragraphs (i) and (ii), since the waiver in paragraph (iii) could be used to waive the surety bond or other guaranty and any other provision of the act.

Subsection (d) was adapted from the proposed Surface Owners' Coordination Act.  The intent of the subsection was to require the oil and gas operator to give to all surface owners a written notice of its proposed oil and gas operations on the land.  Significant discussion was given to the scope of the notice, particularly when there are numerous persons who hold an interest in the surface estate, and what records would be used to determine who the surface owners are. The Committee heard testimony that oil and gas operators would probably rely upon records of either the county clerk or the county assessor who have the most complete records and mail the notice to the last known address of the surface owners. The Committee concluded that the existing language in the subsection should be sufficient to provide a process for notice to all surface owners.

Subsection (e) consists of provisions in the BLM Instruction Memorandum No. 2003-131 and existing Montana law.  Changes to the original language of the proposed subsection were to revise the time for providing notice of the proposed oil and gas operations from not more than 90 days or less that 20 days to not more than 120 days or less that 30 days. 

Paragraph (e)(iv) was revised to specify that the oil and gas operator is required to make an offer to negotiate in good faith  as part of the notice required under the subsection, if any changes to the original work plan are proposed. 

Paragraph (e)(v) was added in the second meeting to require the notice to the surface owner to include a copy of the act. After the first day of the last meeting, there was discussion to require that the surface owner also receive a copy of the controlling oil and gas lease, but the Committee decided that the requirement was unnecessary since the surface owner could find that in county records.

Subsection (f) was adapted from the BLM Instruction Memorandum No. 2003-131, proposed W.S. 30-5-404(a) in the Surface Owners' Coordination Act and the Committee's intent to require good faith negotiations. The language was subsequently clarified slightly, the most significant revisions were to specify that reclamation activities and the timely completion of those reclamation activities would be offered by the oil and gas operator as part of the effort to reach a surface use agreement.  The dispute resolution processes were discussed, specifically how the informal dispute resolution procedures in Article 6 of the Wyoming Eminent Domain Act, could be used. The question was whether Article 6 procedures could be used without filing an eminent domain action with the court.  Subsequent research by staff concluded court involvement may be required to fully implement that process.

Subsection (g) of this section was originally drafted as W.S. 30-5-403(d), but was moved to this section after the first day of the final meeting because the provision fit better in this section relating to notices from the oil and gas operator to the surface owner. Some minor changes were made to clarify the language in the subsection. It was originally adapted from the BLM requirement for sundry notices.

W.S. 30-5-403.

Subsection (a) was adapted from Oklahoma law.  At the first day of the last meeting, the Committee revised the subsection significantly, though not substantively, for purposes of clarity. The introductory paragraph of the subsection was divided into paragraphs and the existing paragraphs were deleted and the provisions therein simply cross-referenced in new paragraph (iii), since the similar provisions were already specified in W.S. 30-5-402(c).

Subsection (b) was adapted from the BLM Instruction Memorandum No. 2003-131, specifying that, if a surface use agreement was executed, the document did not have to be filed in an application for a permit to drill, and the terms of that document did not have to be disclosed to receive a permit to conduct oil and gas operations.  Minor changes were made to the subsection to conform with other language used in the bill.

W.S. 30-5-404.

Subsection (a) is adapted from the BLM regulations, 43 C.R.F. 3814.1(b) and (c), and the BLM Instruction Memorandum No. 2003-131 with respect to acceptable surety bonds or other guaranties.  The "other guaranty" language is adapted from existing provisions in the WOGCC's authority in W.S. 30-5-101 et seq. At the second meeting, the Committee deleted some of the language that was adapted from the BLM regulations because it appeared irrelevant in light of the WOGCC's existing authority, specifically deleted was a requirement that in some circumstances two competent individual sureties may execute a bond along with the oil and gas operator and that qualified corporate sureties may be accepted as the sole surety.

Subsection (b) is adapted from the BLM regulations, 43 C.R.F. 3814.1(c), and the BLM Instruction Memorandum No. 2003-131. The federal regulations set a minimum bond amount of $1,000 per well site. As originally drafted, this subsection set a minimum bond amount of $3,000 per well site, but that amount was decreased to $2,000 on the first day of the final meeting.  The subsection also provided that, in the alternative, the WOGCC could accept a blanket bond of $75,000 for all wells drilled in the state by an oil and gas operator. The latter provision was amended on the first day of the final meeting to specify that, pursuant to a request from the oil and gas operator, the WOGCC could establish a blanket bond or other guaranty for all oil and gas operations identified in the written notice to the surface owner required under W.S. 30-5-402(d).  To address concerns that the bond amount specified in the subsection may become a ceiling, rather than a floor, and that the bond amount might be interpreted as full compensation for damages, the Committee added a final sentence to the subsection stating that the minimum amount of the bond or other guaranty specified in the subsection is not intended to establish any amount for reasonable and foreseeable damages.

Subsection (c) is also adapted from the BLM regulations, 43 C.R.F. 3814.1(c), and the BLM Instruction Memorandum No. 2003-131. The subsection provides a mechanism for the bond or other guaranty amount to be submitted, challenged and resolved. At the first day of the final meeting, the Committee inserted language to specify that within seven days of receipt of the surety bond or other guaranty, the WOGCC will notify the surface owner of the receipt of the bond or other guaranty, describing the amount and type of bond or guaranty, and provide the surface owner with the statement required under W.S. 30-5-403(a), i.e., the statement accompanying the oil and gas operator's application for a permit to drill.  The latter provision was intended to permit the surface owner to review and challenge any assertion made in the oil and gas operator's statement that he complied with provisions of the act with respect to his dealings with the surface owner.  Appeals of the WOGCC's final decision would be appealable to the district court.

Subsection (d) was originally drafted as W.S. 30-4-403(b), as adapted from Oklahoma law, but moved to this section because it appears to fit more logically under the bonding provisions, specifying when the oil and gas operator may enter upon the land to conduct oil and gas operations if a bond or other guaranty is executed. Minor, nonsubstantive, changes were made to ensure clarity.

Subsection (e) was adapted from the BLM regulations, 43 C.R.F. 3814.1(c), and the BLM Instruction Memorandum No. 2003-131, regarding when a bond may be released.  After the first day of the final meeting, the provision was substantially rewritten to clarify the process for releasing a bond or other guaranty.  An issue arose with respect to how long an oil and gas operator may have to wait for release of the bond or other guaranty if the surface owner does not bring a timely action for damages.  The Committee's solution was to incorporate the last sentence in the subsection to allow the WOGCC to release a bond at its sole discretion upon a showing of just cause by the oil and gas operator.

Subsection (g) was adapted from the BLM regulations, 43 C.R.F. 3814.1, to reflect that a surety bond or other guaranty under this act is distinct from the performance bond for reclamation required by the WOGCC under its general authority in W.S. 30-5-104(d).  At the last day of the final meeting, the Committee added the clause "…for reclamation and compliance with rules and orders of the commission" to clarify the purpose of the bond that is cross-referenced in the subsection.

W.S. 30-5-405.

This section was derived from Montana law, MCA 82-10-504, relating to surface damages and payments. 

After discussion at the second meeting, the Committee deleted the word "agricultural" before "production" in paragraph (a)(i) to address concerns that the damages provision was too limiting with respect to the types of production that may occur on land that is affected by oil and gas operations.  There was significant discussion about what constitutes "lost land value" for similar reasons (e.g., loss of residential or commercial value of the property), but the Committee's decision was that the term will be adequately addressed by courts if there is ever a challenge by a surface owner.  It was reported that a representative of the Montana counterpart to the WOGCC advised that the Montana law did not have any case law indicating a problem with the language of that law.

Paragraph (a)(ii) was amended at the second meeting by specifying that the method of damages may be determined in any manner mutually agreeable to the parties.

The original paragraph (a)(iii) was deleted from the subsection at the second meeting.  That paragraph provided that a surface owner may elect to receive annual damage payments over a period of time, except that damages caused by non-surface disturbing activities would be compensated by a single sum payment.

Current paragraph (a)(iii) of the subsection was not revised during consideration of the provision.  There was discussion of inserting "actual" before "damages", but that suggestion was not adopted.

Subsection (b) also was not amended and did not generate discussion.

W.S. 30-5-406.

Except as otherwise identified, this section relates to surface damage negotiations, notice and right to bring action.

Subsection (a), adapted from Montana law, MCA 82-10-506, was amended at the second meeting to include a requirement that the surface owner notify the WOGCC, as well as the oil and gas operator, of any damages sustained as a result of the oil and gas operations.

Subsection (b) was adapted from Montana law, MCA 82-10-507. It was unamended during Committee deliberations, but there was a suggestion that it, too, should be amended to include reference to receipt of the notice of damages by the WOGCC, but that suggestion was withdrawn because the effect of the 60 day timeframe from the date of receipt of the notice was a matter of concern only to the oil and gas operator and the surface owner and requiring receipt by the WOGCC under this subsection could cause unnecessary confusion with respect to when the time period begins to run.

Subsection (c), adapted from Montana law, MCA 82-10-508, was also unamended during Committee deliberations. The provision, like most of W.S 30-5-405 and 30-5-406, did not generate much discussion for change since the provisions are based upon a Montana law that has not resulted in any reported case law.

W.S. 30-5-407.

This section was adapted, unamended, from proposed W.S. 30-5-408 in 04HB0070 and did not generate any discussion after it was presented.

W.S. 30-5-408.

This section was adapted from both 04HB0070 and the proposed Surface Owners' Coordination Act and did not generate any discussion after it was presented.

W.S. 30-5-409.

This section was adapted from 04HB0070. The last sentence of the section, relating to a tolling of the statute of limitations for up to four months, was added after the second meeting to account for the addition of W.S. 30-5-406, surface damage negotiations.  Otherwise, the section generated little additional discussion.

W.S. 30-5-410.

This section, relating to exempting certain public utility or gas pipelines from the act, was added during the deliberations on first day of the final meeting, at the request of a representative for Questar Corporation. 

Section 2.  Applicability of Act to Prior Actions.

Section 2 of the act was adapted from both 04HB0070 and the proposed Surface Owners' Coordination Act. The language was expanded on the first day of the final meeting to specify that any regulatory approval or judicial order or decree that was in effect prior to the effective date of the act would not be subject to the act.  Otherwise, the provision did not appear controversial.

Section 3.  Effective Date.

The effective date of the act, July 1, 2005, did not generate any discussion after it was presented to the Committee.