A rule change designed to stem an application-to-drill onslaught at the Oil and Gas Conservation Commission and allow more competition in the permitting process is now in effect.
Proponents hope the final version of the change, the product of a roughly eight-month process, will rebalance a process that saw 31,167 permits applications hit the commissioners’ desks in 2019 – more than four times the typical volume from 2010 to 2016.
Previously, permits could be renewed with no contest, but they will now be subject to a challenge period every two years, during which other working interest owners can vie for control of the drilling area. The change has the potential to spur more local drilling activity, given sufficient prices, as the process opens to more operators.
“Over the last few months, rig count nationally has been trending down,” Jarred Kubat, vice president of land, legal and regulatory for Wold Energy Partners, told the Bulletin last summer. Wold holds drilling interests in southeastern Johnson County. “In the (Powder River Basin), it’s had an inverse relationship – it’s been increasing. That should be exciting for everyone who has an investment or is a stakeholder in the Powder.”
In 2019, the number of applications filed in Johnson County nearly matched that of Campbell and Converse counties, a parity not seen for almost a decade. All but one of Johnson County’s 7,010 permit applications were for oil wells.
According to Pete Obermueller, president of the Petroleum Association of Wyoming, drilling interest in the county remains somewhat speculative. If oil prices continue to hover between $50 and $60 a barrel, the pay-off may not be high enough to flip permits to production.
“A permit doesn’t necessarily mean drilling, and it will probably never necessarily 100% mean drilling,” Obermueller said. “There’s just too many externalities in there.”
In Wyoming, the first company to file for, and be granted, a permit in a drilling spacing unit becomes the “operator” of that unit – a position that comes with significant benefits. Other interest owners within the DSU can still elect to be working partners in an operator’s drilling projects, but they will not have control over the costs and decisions associated with spudding, completing and extracting from the well. The ease of renewing permits added further weight to the importance of being first in line.
The system incentivized a permitting race that accelerated over the past three years, as speculators raced to scoop up as many permits as possible and regulators were bogged down under the increased volume.
For their part, mineral owners complained that companies locking up permits without drilling deprived owners of the opportunity to profit from their resources.
Under the revised rules, before a permit can be issued, other working interest owners in the spacing unit have a protest period during which they can file a challenge and attempt to take over as the operator.
Initial drafts of the rule change offered a 15-day challenge period, increased to 30 days in the adopted rule after enough of the 228 pages of written comments the commission received argued that the period was too short to gather necessary documentation.
The second major change in the adopted rule was the addition of a tiebreaker: If the commission finds all other evidence equal in a permit dispute between two operators, the operator with the greatest working interest in the DSU will receive the permit.
“Currently, the way to protect your investment is to file permits,” Obermueller said last summer, reflecting on the draft rule. “The new way to protect your investment would be to drill.”