TULSA, Okla. – Tulsa Federal District Judge Gregory Frizzell granted an injunction on the new rules that would change the regulations for oil and gas drilling in the Osage.
Cheers and congratulatory yells followed Frizzell’s ruling as the nearly 200 attendees of the Aug. 10 hearing celebrated. Frizzell set a deadline for the plaintiff’s brief filing for Feb. 16, 2016.
The Osage Minerals Council and Osage Producers Association filed the case against the U.S. Department of Interior and the Bureau of Indian Affairs in July, alleging the federal government’s new rules would cause irreparable harm to the Osage Mineral Estate and Osage County oil producers.
“The purpose of the final rule is to strengthen the final management of the Osage Mineral Estate for the benefit of the Osage and to protect the best interest of the Osage Mineral Estate,” Frizzell said.
According to the Tulsa World, the BIA has spent roughly $3 million preparing for the new rules and adding staff.
With the injunction in place oil and gas drilling will continue under the former rules.
Frizzell said the new rules also removed the statutory authority from the Minerals Council, waived the OMC’s authority to waive late charges, encroached on sovereignty, and imposed regulatory requirements that would increase royalty payments. The escalating costs would make producers shut down and reduce millions to Osage shareholders and would have a detrimental economic impact on Osage County.
“There is no compelling evidence to not grant the injunction,” Frizzell said.
The negotiated rulemaking process was a stipulation of the 2011 settlement with the BIA for mismanagement of the Osage Minerals Estate. The rulemaking process began in 2012 with the first draft of the rules published in 2013. The final rules were entered into the federal register in May and they would have gone into effect at 5 p.m. on Aug. 10.
Representatives from the OMC and Congressional Speaker Maria Whitehorn attended the hearing. Representatives from Chief Geoffrey Standing Bear’s office were not present. Standing Bear later commented on Facebook that he and his staff were busy in prescheduled self-governance meetings with the BIA all day and that the OMC’s court case “was a mystery” because the OMC doesn’t communicate with his office.
Testifying for the plaintiffs were oil producer and Osage shareholder Paul Revard and economic impact expert Dr. Russell Evans.
Revard, who has been drilling in Osage County for 38 years, said he currently has five producing leases and operates 36 wells. He said the oil fields in the county are depleted and he produces a barrel of oil a day on average. He said the new rules would put him out of business.
“For one thing, the necessary capital to come up to speed on the new requirements, the implementation, the different upgrades of electrical systems and several other issues,” he said. “The bonding requirement, it will take so much capital that I don’t have, even if I did have it I wouldn’t be able to implement all the changes by midnight tonight.”
The most notable changes include increased filing fees, bonding requirements per well, commencement fees, tank fees, penalty fees, a new accounting system, and other compliance costs and requirements.
For example, the new rules would require him to adhere to the federal electric code. He would have to replace all his electric lines with new cables, which are typically a thousand feet long. He has 19 active wells that use electric.
Given the price of the cable, the cost of an electrician and a roustabout crew to dig up and replace his existing cable, he estimates it will cost him $8,600 a foot per well. For 19 wells, he estimates it would be $160,000 to replace the cable lines. He said most of the producers in Osage County are in the same situation.
There are more than 14,000 wells in Osage County and more than 100 oil producers, according to the OPA.
As for the required NYMEX pricing in the new rules, which would require all producers to sell their oil at the Chicago Mercantile Exchange price of a barrel of oil, he said he’s never received payment based on the NYMEX price and never will. Revard said he always sells his oil for the best price he can find. He often sells locally.
“[Selling locally] they’re able to give you a better price than someone who has to truck oil a long distance,” he said. “Sometimes [a company will] offer a bonus above and beyond another [company].”
When asked if producers were packing up and plugging their wells, Revard said no because “you can’t get a plugging permit,” which made most in the courtroom laugh. To acquire an “intent to plug” permit the producer has to conduct an Environmental Impact Study on each well, as well as a study on the endangered American Burrowing Beetle.
“If the wind blows more than 10 miles per hour, on the day you did your study, you have to redo it … the problem is that there’s a hibernation period for these certain beetles and I think you can only do these studies during the months of May through September,” Revard said, as people laughed in the courtroom. “So, if we don’t do a beetle bug survey on say one of these wells we need to plug, by the end of next month, we have to wait till May to do our inspection again to count the beetles, and I’ve never seen one. I think the horses have stomped most of them to death already.”
Shannon Shaw Duty
Original Publish Date: 2015-08-11 00:00:00