Wyoming Oil and Gas Legislative Update: HB14

June 17, 2020 Wyoming’s oil and gas regulations were recently amended in an effort to attract energy development in the state. Among the new laws is House Bill 14, which changes the way operators force pool nonconsenting owners.

The Wyoming Oil and Gas Conservation Commission has authority to issue pooling orders to pool interests located within a drilling and spacing unit (“DSU”). WYO. STAT. § 30-5-109 currently provides that when two or more separately owned tracts of land are embraced in a DSU, and in the absence of voluntary pooling, any interested party may enter an order pooling all interests in the DSU. Nonconsenting working interest owners and nonconsenting unleased mineral owners are chargeable with their proportionate share of costs for (i) newly acquired surface equipment (e.g., stock tanks, separators, treaters, pumping equipment and piping) and (ii) drilling and operating the well commencing with first production. Such nonconsenting parties were also subject to a risk penalty of (i) up to 300% of the costs of drilling, reworking, deepening, plugging back, testing and completing and (ii) up to 200% of that portion of the cost of newly acquired equipment.

Beginning on July 1, 2020, House Bill 14 significantly amends WYO. STAT. § 30-5-109. Under the new compulsory pooling statute, an applicant-operator is given twelve months from the date an order is issued to commence operations. As in the previous version, the operator is entitled to recover its proportionate share of costs for equipment, drilling and operating from each carried nonconsenting owner.

For lessees, the risk penalty remains (i) up to 300% of the costs of drilling, reworking, deepening, plugging back, testing and completing and (ii) up to 200% of that portion of the cost of newly acquired equipment. With regard to unleased nonconsenting mineral owners, the risk penalty will now be (i) up to 200% for drilling and operating costs and up to 125% for newly acquired equipment for the first well, and (ii) up to 150% for drilling and operating costs and up to 125% for newly acquired equipment for each subsequent well.

During the time the operator is receiving the risk penalty from the unleased mineral owners, the mineral owners can receive the greater of 16 percent or the acreage weighted average royalty interest of the leased tracts within the DSU. Additionally, once the operator has received the full amount of the risk penalty, the unleased mineral owners have the option to change their minds and begin participating in the drilling unit as working interest owners, or they may simply continue receiving the royalty.

House Bill 14 imposes stiff risk penalties, but gives unleased mineral owners more options in the forced pooling context. It also incentivizes operators to have a tighter drilling schedule because pooling orders only last one year from establishment. Overall, House Bill 14 promotes production while also giving mineral owners additional choices when working with operators. As noted above, House Bill 14 will go into effect on July 1, 2020.

CONTACT

If you have any questions regarding this legislative update or suggestions for topics to be covered in future issues, please call our office at 713-229-0360 or contact:
Brad Gibbs, Partner

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