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June 24, 2020 WOGCC WORK SESSION ON NEW FORCE POOLING AMENDMENT

The working session held on June 24, 2020, hosted by the Wyoming Oil and Gas Conservation Commission Attorney General, provided an analysis of the new amendments made to the Wyoming Force Pooling Statute § 30-5-109 enacted by HB 0014. During this working session the Assistant Attorney General discussed the amendments made to the Pooling Statute; identified additional evidence operators will be required to provide to the Examiners (or Commission if contested) at the hearing; and provided guidance for pooling orders, effective dates and ongoing requirements for producing wells. 

It is important to note that any Pooling Order that had been approved prior to the July 1, 2020 effective date will remain in effect under the current Pooling Statute. The new requirements under the Pooling Statute, effective July 1, 2020, are not retroactive and will not apply to any Pooling Order approved before July 1, 2020. 

New Pooling Statute

The amendments approved under HB 0014 provide amendments to Section (f) and (g) of Wyo. Stat. § 30-5-109 but also added two new sections, (h) and (j) to Wyo. Stat. § 30-5-109. The discussion regarding the new amendments were broken down into five (5) categories listed and explained below:

1.       Expiration Date of Pooling Order

Pooling Orders will expire (become non-effective) 12 months after the Commission approves the Order if the well is not drilled within the 12 months following the Order approval. The Commission typically approves the Examiner’s recommendation for approval one (1) month after the Examiner Hearing for an Application is held. 

For example, if a pooling Application is heard and recommended for approval by an Examiner at the July 13, 2020 hearing, the Commission would typically then approve the Order at the August 11, 2020 hearing. This happens at the beginning of the Hearing when the Commission Supervisor requests the Commission vote to approve all Examiner recommendations of approval from the previous month (July 13, 2020). Once the Commission votes and approves the Examiner’s recommendation, under the new amendment, the Pooling Order 12-month clock begins. For the example given, the Pooling Order would therefore expire on August 10, 2021 if the well is not drilled before then.

2.       Differentiating Between “leased” and “unleased” Nonconsenting Owners.

Under the current Pooling Statute, there is no differentiation between leased and unleased nonconsenting owners. Therefore, any payment penalty applies to both a leased and unleased nonconsenting owner.

The new amendments under, Wyo. Stat. § 30-5-109(g) differentiates between “leased” and “unleased” nonconsenting owners and provide different payment penalties for each owner class as provided below. These amendments change the percentages as they were previously applied under the current statute and provide different penalties for leased and unleased non-consenting owners, as well as different penalties for the first well and subsequent wells in a DSU. 

• g)(i): 100% of each such nonconsenting owner’s share of the cost of any newly acquired surface equipment (applies to ALL nonconsenting owners).
• (g)(ii)(A): 300% of that portion of costs and expenses drilling, reworking, etc. 200% of that portion of costs of newly acquired equipment in the well, “if the nonconsenting owner’s tract or interest is subject to a lease or other contract of oil and gas development.” (applies only to nonconsenting owners who hold a lease).
• (g)(ii)(B): For the first well, 200% of that portion of costs and expenses drilling, reworking, etc. 125% of that portion of costs of newly acquired equipment in the well, “if the nonconsenting owner’s tract or interest is not subject to a lease or other contract for oil and gas development” (applies to unleased mineral owners).
• (g)(ii)(C): For each subsequent well, 150% of that portion of costs and expenses drilling, reworking, etc. 125% of that portion of costs of newly acquired equipment in the well, “if the nonconsenting owner’s tract or interest is not subject to a lease or other contract for oil and gas development” (applies to unleased mineral owners).

These amendments change the percentages as they were previously applied under the current statute and provide different penalties for leased and unleased non-consenting owners, as well as different penalties for the first well and subsequent wells in a DSU.  

3.       Royalty Rate During Payment of Risk Penalty

One of the two completely new sections adopted under HB 0014 is Wyo. Stat. § 30-5-109(h). This section provides that a nonconsenting owner of a tract or interest in a drilling unit “that is not subject to a lease or other contracts for oil and gas development” is entitled to a cost-free royalty interest equal to the greater of: 

• Sixteen percent (16%); or
• The acreage weighted average royalty interest of the leased tracts within the drilling unit. 

Therefore, if the acreage weighted average is 10%, the 16% applies. If the acreage weighted average is 20%, the 20% applies.

4.       Second Chance to Elect to Participate in the Well

The second of the two completely new sections adopted under HB 0014 is Wyo. Stat. § 30-5-109(j). Under subsection (j) the Operator is now required to give an unleased nonconsenting working interest owner(s) who is entitled to a royalty interest payment provided in subsection (h), a second chance to elect to either participate in the well OR to continue receiving royalty payments. This subsection, lays out the timeline for which an Operator must mail out notice to the nonconsenting owner, the timeline for which the nonconsenting owner has to reply to the second election and the timeline for which the Operator must notify the Commission regarding the nonconsenting owners response (or lack thereof). Wyo. Stat. § 30-5-109(j) specifically provides the following:

• i. Within thirty (30) days after the producer has fully recovered his costs under subjection (g) of this section, the producer shall send notice to the nonconsenting owner to offer the nonconsenting owner the opportunity to participate under the pooling order as a working interest owner. The notice shall state that the nonconsenting owner may elect to participate in the pooling order or may elect to continue receiving the royalty specified in subjection (h)

• ii. Within sixty (60) days after receiving notice, the nonconsenting owner shall inform the producer whether he wishes to make an election to participate under the pooling order as a working interest owner or continue receiving the royalty specified in subsection (h) of this section;

• iii. If the nonconsenting owner fails to respond to the notice within the time specified in paragraph (ii) of this subsection, the nonconsenting owner shall be deemed to elect to continue receiving the royalty specified in subsection (h) of this section;

• iv. Within five (5) business days after receiving notice of election from a nonconsenting owner or upon expiration of the time specified in paragraph (ii) of this subsection, the producer shall notify the commission regarding the nonconsenting owner’s election or lack thereof.

Although WOGCC has generally not dealt with royalty payments, under this new Statute, WOGCC is required to maintain this information. Therefore, when all penalties have been paid on a well and an Operator has sent out second elections to those unleased nonconsenting working interest owners, the Operator must submit a Sundry Well form which states that the Operator had sent notice and an election to the nonconsenting working interest owner and the response (or lack thereof) of the nonconsenting owner.

5.       Effective Date July 1, 2020

Under HB 0014, Section 2 provides that the effective date of the amendments to Wyo. Stat. § 30-5-109 above as July 1, 2020. 

Additional Evidence Required for Pooling Applications/Hearing/Orders

To address the new requirements under the Pooling Statute amendments, WOGCC will require additional information that must be provided for all Pooling hearings starting with the July 13, 2020 hearing. 

Operators will be required to provide:

• Two separate lists of nonconsenting owners:
  • Unleased; and 
  • Leased
• The weighted acreage average royalty interest; and
• The number of wells (if any) have been drilled in the DSU for the Target Formation.

For Pooling Applications that have already been submitted to the Commission, there is no need to amend or resubmit that Application. However, Operators must provide the additional information listed above at the Examiner Hearing. It is important to note that this information will need to be gathered and provided well before the Examiner Hearing as the draft Order must be finished and ready for submission at the time of the Examiner Hearing. 

Following the presentation, there were several questions regarding information that is needed for the weighted average royalty rate. The Assistant Attorney General indicated that as there were several questions, he was unable to provide definite answers but will look into those questions further with hopes to provide an FAQ to address those questions. Many of the questions seem to be Application/DSU specific and will likely require the Operator and their attorney to work through those with WOGCC.