Bill to raise oil & gas ‘bond-on’ requirement survives introduction

by Dustin Bleizeffer
— February 12, 2014

One of the non-budget bills to survive introduction in the Senate today, SF 83, would raise the minimum “bond-on” requirement of oil and gas operators from $2,000 to $10,000. The vote was 25-5.

Dustin Bleizeffer, WyoFile editor-in-chief

Currently, if an oil and gas operator fails to strike a surface use agreement (essentially a schedule of payments in return for access) the operator can simply post a $2,000 surety bond, per well, with the state, then enter and occupy the private surface without the owner’s consent. Landowners — particularly those with no mineral ownership, and therefore no extra leverage to negotiate with — say that it’s too easy for an operator to avoid negotiating in good faith. An operator can simply post a $2,000 surety bond (which pales in comparison with the $10 million to $20 million they spend on a single shale oil well) with the state and enter the property against the property owner’s will.

Raising the minimum bond-on rate to $10,000, according to the bill’s sponsors and its proponents, would provide more incentive for operators to negotiate, in good faith, and strike a surface use agreement.

“It’s a really important bill to even the hand of landowners who are negotiating with oil and gas companies,” said Shannon Anderson, of the Sheridan-based landowner advocacy group Powder River Basin Resource Council. “Right now the bond amount is much too low. What happens is they threaten to bond-on as part of the negotiation. So we’d like to see the bond amount raised so we can see operators and landowners come to an agreement.”

A rig drills for oil in southern Campbell County. (Dustin Bleizeffer/WyoFile — click to enlarge)

An almost identical bill in 2011 fell hard under the opposition of the oil and gas industry, which claims its operators do negotiate in good faith to enter private surfaces. The Petroleum Association of Wyoming has been successful in arguing that a higher bond-on requirement might be abused by landowners to delay development. Back then, Sen. John Schiffer (R-Kaycee) chastised industry representatives for not putting more pressure on operators to adhere to the spirit of the good-faith negotiation implied by the minimum bond-on requirement.

“An industry that chooses to stick their heads in the sand — I’m shocked by that. Absolutely floored. But now you see what the problem is,” Schiffer said in 2011 when the measure was defeated.

But advocates of increasing the bond requirement seem to have gained more numbers in their ranks in recent years, as development moves to new areas of the state. Co-sponsor of SF 83, Sen. Jim Anderson (R-Glenrock), represents constituents in Converse and Platte counties where shale oil has attracted large industrial operations, and where some disputes have popped up between operators and landowners.

“Times have changed … It’s outgrown ourselves. It’s no longer about small coal-bed methane drilling rigs anymore,” Anderson said on the Senate floor today.

And the make-up of the minerals committee is much different than it was in 2011. Sen. Eli Bebout, a staunch energy industry proponent, was chairman back then. Today, the committee is chaired by Sen. John Hines (R-Gillette) — a staunch energy industry proponent himself, but also a Campbell County rancher who has had the experience of clashing with operators.

Bruce Hinchey, president of the Petroleum Association of Wyoming, counters that a landowner who objects to the minimum bond-on amount of $2,000 can ask the Wyoming Oil and Gas Conservation Commission to raise that bond, usually based on evidence that damage to agricultural production would exceed the minimum $2,000. “We just don’t think it’s necessary,” Hinchey said of the proposed legislation to raise the minimum bond requirement to $10,000.

But there’s an important distinction between an operator posting a bond with the WOGCC and signing a surface use contract with a landowner. The surface use agreement results in monetary payment to the landowner, whereas posting a bond involves no money exchange. The WOGCC holds the surety, and the agency may pull the bond to pay for reclamation in the event the operator doesn’t fulfill its state-required reclamation duties.

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Dustin Bleizeffer

Dustin Bleizeffer is a Report for America Corps member covering energy and climate at WyoFile. He has worked as a coal miner, an oilfield mechanic, and for 22 years as a statewide reporter and editor primarily...

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2 Comments

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  1. The interesting underlying issue with the current bond structure is the minimal amount at risk for an operator. Simply put, look at the number of abandoned coal bed methane wells in the north part of the state and who is left on the hook – the State. While a proponent of energy development in this state, I think there needs to be more skin in the game to make sure the operators have some incentive to do it right. While we have some good operators – EOG, Anadarko – we also have some less than good operators.

    With a $10 million dollar well project, $2,000 is insignificant at best. I am not sure $10,000 is much better.

    WOGCC is biased and heavily slanted towards the industry, so their ability to increase a bond does not hold much water with me.

  2. Bruce Hinchey, president of the Petroleum Association of Wyoming, returned my call after I posted this, and he brought up a key point. A landowner who objects to the minimum bond-on amount of $2,000 can ask the Wyoming Oil and Gas Conservation Commission to raise that bond, usually based on evidence that damage to crops & ag production would exceed the minimum $2,000.

    “We just don’t think it’s necessary,” Hinchey said of the proposed legislation to raise the minimum bond requirement to $10,000.

    But there’s an important distinction between an operator posting a bond with the WOGCC and signing a surface use contract with a landowner. The surface use agreement results in monetary payment to the landowner, whereas posting a bond involves no money exchange. The WOGCC holds the surety, and the agency may pull the bond to pay for reclamation in the event the operator doesn’t fulfill its state-required reclamation duties.
    — Dustin Bleizeffer, WyoFile editor-in-chief