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House Bill 232

House Bill 232

Phil Haunschild
March 8, 2017

Bill Description: This bill would change oil and gas regulations for producers, landowners, and distributors.

Rating: -3

Does it give government any new, additional, or expanded power to prohibit, restrict, or regulate activities in the free market? Conversely, does it eliminate or reduce government intervention in the market? 

This bill would remove the regulation that all spacing units must be of a uniform size and shape, unless this is impossible due to natural or geological features. “Permanent spacing units,” according to the bill, “do not need to be uniform in size or shape, but must result in the efficient and economic development of the pool as a whole (Page 13, Line 22).” Abolishing the uniform size regulation would allow each producer to decide what is most effective. (+1)

Section 47-332 of this bill requires a gas or oil producer to provide 13 pieces of information in a specific format with every payment to anyone holding a royalty interest in production. The legislation sets specific measures for calculating royalty payments, to the eighth decimal, measured by specific meters, and including only certain expenses and revenues. (-1)

This bill would further specify what can and cannot be included in the contracts between producers and those who hold royalties. Within this section is the requirement that “costs of marketing, transporting, and processing oil or gas or natural gas plant liquids, or all of them, produced shall be borne entirely by the lessee, and such cost shall not reduce the lessor’s royalty directly or indirectly (Idaho Code 47-331(4)).” This regulation would force producers to pay prices not relevant to what they are paid.

Similar restrictions for the purpose of calculating severance taxes can be found in Section 47-330. It says, “when tax and royalty payments are not reflective of the daily market prices, the commission shall have the authority and discretion to review and set the final sales price for the purposes of royalties and taxes based on the S&P global platts rockies/northwest monthly average posted price for gas, and WTI (West Texas Intermediate) for oil.” Oil and gas produced in Idaho does not sell at the same price as elsewhere. Costs associated with the transportation and marketing of these products would be ignored. (-1)

This bill would expand the requirements for reporting on meters measuring the flow of gas or oil. Section 47-322(3) requires producers to register all meters on or before the first day of each year with the Commission. Specific information would include the name, make and model, the size, number and location of the meter and the well. Producers are forbidden to combine production from two wells prior to metering (Section 47-323), in order to insure accurate reporting. (-1)

Also, under this legislation, “operators shall file reports and logs with the department of lands” to include a monthly oil and gas production report, a monthly sales report, a monthly oil and gas disposition report, reports of transferred oil, a monthly summary report of gas processing plant operations, a monthly report of gas processing plant product allocations, well tests and well logs (Idaho Code 47-324). All this reporting will cause undue strain upon these companies and, if they fail to comply, their wells and facilities could be shut-in or shut-down. (-1)

Does it violate the principle of equal protection under the law? Examples include laws which discriminate or differentiate based on age, gender, or religion or which apply laws, regulations, rules, or penalties differently based on such characteristics. Conversely, does it restore or protect the principle of equal protection under the law? 

The bill protects landowners and other private citizens. “Oil and gas wells, tank batteries and gas processing facilities shall not be constructed within three hundred (300) feet of an existing occupied structure, domestic water well, canal, ditch or the natural or ordinary high-water mark of surface waters” unless they have written permission from their owners (Page 16, Line 10-18). The bill would prevent oil producers from strong-arming private citizens and landowners. (+1)

Currently, a producer and those with interest in the production must require proof that they have leased 55 percent of the land. This bill would raise the minimum to 67 percent, raising the threshold for a producer to obtain an integration order from an owner of the mineral interests. This would help protect owners with smaller land tracts who do not wish to be involved in production. (+1)

A new Section 47-334 would protect landowners from whose land oil and gas are produced. Subsection (3) would have an owner or operator “mitigate the effects of accessing the surface landowner’s surface land; minimize the interference with the surface landowner’s use of the surface landowner’s property; and compensate a surface landowner for unreasonable; loss of a surface landowner’s crops on the surface land; loss of value to existing improvements owned by a surface landowner on the surface land; and permanent damage to the surface land.” This would protect landowners, still allowing producers to use land “to the extent reasonably necessary to conduct oil or gas operations.” (+1)

Does it directly or indirectly create or increase any taxes, fees, or other assessments? Conversely, does it eliminate or reduce any taxes, fees, or other assessments? 

The state would assess taxes on these oil producers monthly rather than quarterly, as is currently done. This would be to better line up the tax assessments with the new reporting requirements which fall monthly. (-1)

Does it increase barriers to entry into the market? Examples include occupational licensure, the minimum wage, and restrictions on home businesses. Conversely, does it remove barriers to entry into the market?

The state would require registration for “all persons engaged in meter proving and testing of oil and gas meters (Idaho Code 47-322(5))” in order for these businesses to operate. In the same section, “any meter tests performed by a person not registered with the commission will not be accepted as a valid test.” This erects a barrier to anyone who wants to provide this service and is not already registered. (-1)

Does it in any way restrict public access to information related to government activity or otherwise compromise government transparency or accountability? Conversely, does it increase public access to information related to government activity or increase government transparency or accountability? 

This bill would define what information is subject to public records law and set specific guidelines for information that is not. Insuring the public has access to this information holds the commission and the department accountable. (+1)

However, this bill leaves little room for the industry to define what is a trade secret, making available online all production reports, well test reports, well plats, permits, gas analysis and perforated zones. Test results, completion reports, affidavits of test, well schematics and logs, work-over reports, drilling reports, potential tests of one days’ production every 6 months, logs run for any reason, and meter calibration results would also be made available to the public online. Only tests from tight hole wells, more than 4 miles from any other well, and preceding reports could remain confidential. (-1)

The bill also remakes the Oil and Gas Conservation Commission. The commission currently consists of five governor’s appointees; a gas and oil expert, a geological expert, a water expert, a private landowner with mineral rights and a private landowner without mineral rights. The new commission would consist of the director of the Department of Lands, the governor, a county commissioner from a producing county, and two technical experts.

The commissioner would be elected from among the commissioners who have oil production in their counties, increasing accountability for the state government. (+1)

Accountability would be lost by a change allowing “any member of the commission, or the secretary thereof… to summon witnesses, to administer oaths, and to require the production of records, books, and documents for examination at any hearing or investigation conducted by the commission (Idaho Code 47-329).” Currently, the entire commission must require this. Now a unilateral action by any member or the administrator of the new Oil and Gas division, could force producers to supply this information. This individual action not subject to a vote of the other members significantly weakens the accountability of the commission. (-1)

Does it directly or indirectly create or increase penalties for victimless crimes or non-restorative penalties for non- violent crimes? Conversely, does it eliminate or decrease penalties for victimless crimes or non-restorative penalties for non-violent crimes?

Anyone failing to follow Section 47-332, defining what information must be provided to royalty holders with their payment, could face a misdemeanor charge and/or a penalty of up to $5,000.(-1)

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