Legal

Wind farm trial opens with testimonies from both sides

TULSA, Okla. – There is much at stake in the legal battle between the Osage Nation and wind farm developer Wind Capital Group.

Day one of the wind farm trial wrapped in the U.S. District Court in downtown Tulsa, with testimony coming from both the Osage Nation and Wind Capital. Both testified their stakeholders stand to lose substantial amounts of money regarding the 94-turbine project being challenged by the Nation.

Attorneys representing the Osage Nation (which filed suit through the Osage Minerals Council) and Wind Capital Group questioned four plaintiff witnesses during the Dec. 14 trial, which continues today.

Two officials with Tulsa-based Orion Exploration L.L.C., which recently signed a three-year lease with the Osage Minerals Council to drill 18 horizontal oil and gas wells, testified along with Osage Minerals Council Chairman Galen Crum.

Orion plans to drill in the same area where the wind farm is proposed.

In its trial brief filed Dec. 12, the Minerals Council signed a lease acquisition and exploration agreement with Orion, which received approval from the Bureau of Indian Affairs on Sept. 23. According to the agreement, Orion has agreed to drill the first five wells (of 18) by Nov. 4, 2012. Once built, “each well will result in an average initial production of 200 barrels of oil a day.”

OMC Chairman Galen Crum was the first plaintiff witness called by Roger Wiley, the attorney representing the OMC in the case. Crum described the role of the OMC in handling the Minerals Estate business matters since the 2006 Osage government started. A copy of the 2006 Osage Constitution was submitted as a plaintiff exhibit.

In his testimony, Crum said the headright holders are the beneficiaries of the Minerals Estate, adding the quarterly headright payments are the sole income source for some Osages.

In its trial brief, Wind Capital Group argues Orion’s lease, which covers 19,680 acres, has only 2,500 of those acres within the wind farm project area. Wind Capital Group stated: “Under the Concession (lease), Orion is only obligated to drill five horizontal wells during 2012 to maintain its rights to the acreage, and none of those have to be within the Wind Farm project area. In fact, Orion has had this acreage under lease for several years but has not done any drilling in the Wind Farm project area.”

Daniel B. “Skip” Honeyman III, Orion’s vice president for new ventures, testified the company’s lease covers three areas, with one of them falling in the wind farm project area. He also said the company could incur extra drilling costs if the company has to relocate a well site. “It depends on how far you move it and it affects infrastructure,” he said.

Wiley asked Honeyman if the Minerals Estate would be harmed by lost drilling opportunities. He replied “yes” because there will be “lost revenue” for the minerals which could have been collected.

The Nation argues: “If wind farm construction forces Orion to move a single horizontal well 100 feet from its ideal location, it will incur an additional $100,000 to $200,000 in costs above the daily drilling expense of $45,000 to $50,000 a day. If moving horizontal well sites becomes too cost prohibitive, the wells will not be built.”

Craig Fitzgerald, the attorney representing Wind Capital Group, challenged whether any companies have brought complaints regarding the wind farm project. Fitzgerald referred to Orion’s lease and asked Honeyman if Orion has filed a lawsuit, to which Honeyman replied: “correct, we haven’t filed a lawsuit yet.”

In its trial brief Wind Capital Group also notes Orion has not completed seismic testing in the area where it plans to drill. “Currently, Orion says it has plans to drill only one well in the Wind Farm project area during 2012, but not until late in the year. And, the location of that well is uncertain and will not be determined until Orion conducts additional seismic studies.”

John Brown Jr., operations manager for Orion, testified he did not know when the seismic testing would start, but said it would start within six months.

U.S. District Court Judge Gregory Frizzell agreed to expedite and hear the case after Wind Capital Group raised concerns it needs to start the project by year’s end to be completed by the end of 2012 – the deadline for the project to qualify for a federal tax credit.

Tom Green, senior manager of project development for Wind Capital Group, testified, “the project is just about ready to go to construction.” He said the lawsuit is affecting the company from securing financing for the project to go forward and the company will incur millions in costs if the project is not completed.

In its brief, Wind Capital Group says “it will lose more than $40 million dollars it has already invested in the project to date (including deposits on equipment and the cost of professional services), and it will remain contractually obligated for more than $150 million in expenses. Moreover, Osage Wind (name of the proposed Osage County project) will lose its anticipated profits of more than $30 million. Also weighing in the calculation of harms is the fact that the landowners will lose the revenue they would have received under their leases with Osage Wind, which for some owners would amount to $250,000 per year.”

Day two of the trial is today (Dec. 15) with defense witnesses taking the stand. Day one adjourned after Green, the first witness for the defendant’s side, took the stand late in the afternoon.

The Nation filed suit against St. Louis-based Wind Capital Group in October to halt its construction plans for a 94-turbine wind farm in western Osage County near Burbank. In its opposition, the Nation is also seeking an injunction from the federal court to stop the project from being built on the proposed site, which is nearly 8,500 acres.

At issue is whether the wind farm project (during and after construction) will disrupt the oil and gas drilling efforts to develop the Osage Minerals Estate and whether the project would violate federal law, which guarantees access to the Minerals Estate.

Wind Capital Group is building the wind farm on privately owned ranch lands, but the Minerals Estate is held in trust by the federal government for the shareholders. Wind Capital Group is challenging the Nation’s arguments and is questioning whether Orion’s mineral exploration plans will be harmed by the wind farm project.