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By Franklin J. Falen and Abigail M. Jones, Budd-Falen Law Offices, LLC

This is the first in a two-part series describing what a surface or mineral owner should look for if they decide to lease their oil and gas to a developer. This part describes the considerations for the landowner before he signs a mineral lease so that his private property is protected and the second part describes what the development company will want in the lease and our recommendations for a response.

Leasing your mineral estate, whether it is oil, gas or other underground minerals, can result in either joy or heartache, depending on the lease terms. Ownership rights for the surface and the subsurface can vary depending upon how the land was first patented into private ownership. Under some federal homestead or patent acts, the landowner received the surface ownership and ownership of all subsurface oil, gas or minerals; under other homestead or patent acts, the surface owner only received certain minerals; and under still other homestead or patent acts, the surface owner received the surface only, and no subsurface oil and gas or minerals at all.

There are also those cases where the surface and minerals were originally patented into private hands, but later the minerals or oil and gas are split from the surface and are now under different private ownership than the surface. For those who own either the surface and/or minerals, the opportunity to lease the minerals can be a complicated, although profitable venture. However, profitability is only part of what the landowner should consider. Once the property owner decides to split and lease the oil, gas or mineral estates– a process called “severance” – the landowner needs to understand his assets and liabilities before he signs a lease.

Before you sign

Oil and gas developers are increasingly contacting landowners to lease their subsurface rights, many times making unsolicited offers that seem like amazing deals to the landowner. Yet, oftentimes, numerous developers are all vying for the market. By simply asking around, the landowner can find out if there are other developers that may be interested in leasing the minerals. Like any commodities market, soliciting bids or proposals from various developers is likely to net the landowner top dollar for the right to produce oil and gas from his estate.

Duration of the lease agreement

With regard to an oil or gas lease, the agreement should specifically define the amount of time allocated for the developer to inspect and study the land for its feasibility for production. This is normally between three and five years. If the developer fails to begin development and/or production of oil or gas within this amount of time, then the lease agreement should either terminate automatically, or the landowner should receive additional compensation for the time certain that the land is burdened by the lease. Otherwise, the developer may tie up the land indefinitely with little prospect of ever producing oil or gas. From the landowners’ perspective, a shorter lease term with no option to renew is better because it forces the developer to develop the lease faster. If an option to extend the lease is given, payment for that option should be up front.

Once development occurs or starts to occur, the development company will want the term of the lease to be held open by either “production” or “operations.” Extending the lease by “production” means the lease continues as long as oil or gas is produced. Importantly, the landowner should consider the amount of land covered by the lease once production occurs. This is called the “Pugh Clause.” For example, a landowner should not want to have his entire leased acreage held by one well. Therefore the landowner should carefully define the amount of land one well can hold.

A lease extended by “operations” is one that, although the company is not producing, the company is “seriously” trying to get production from the lease. Care should be taken to define “operations.” For example, a landowner should not agree that the lease remain open or be extended simply by the construction of a small section of road.

Finally most oil and gas developers will want the lease held open by paying a shut-in royalty. Shut-in royalties are paid when oil or gas is discovered but either the price is too low or there is not enough quantities to be profitable and the well is shut-in. The company will want to pay a small “royalty” to the landowner to argue that the lease is being held open by production. Landowners should try to either limit the circumstances a lease can be held open under a shut-in royalty, or negotiate a large enough royalty that it is worth the landowners’ while.

Bonus payment

Frequently an oil or gas developer uses a bonus payment to entice the landowner to sign a lease. While this is fairly standard, a landowner should ensure that no strings are attached to the bonus payment.

Royalty calculation

There are a number of methods to calculate the royalty to the landowner. The formula used to calculate the royalty should be defined in the lease. Importantly, the cost of production should not be subtracted before the royalty is calculated and paid.

Surface use agreements and damages. Many states have enacted “split estate” statutes to attempt to resolve issues that result when a mineral owner leases his oil, gas and minerals, and a developer seeks to trespass or enter the private surface land to access the leased minerals. Once the minerals are leased or split, the law has determined that the minerals are the “dominant estate” and the oil or gas developer has the right to enter onto the surface of the property for all purposes reasonably related to oil or gas production.

However, the developer must negotiate with the surface estate owner in good faith to reach what is known as a “surface use agreement.” This agreement provides for protection of the surface resources, surface reclamation requirements, and payment of damages caused by the oil and gas operations. Even if the oil and gas or other minerals are owned by the same landowner as the surface, a separate “surface use agreement” should be prepared from the mineral lease and, if possible, the surface use agreement should be negotiated at the same time as the mineral lease.

Conclusion

These are but a few issues that will arise as mineral leases are negotiated. Others include reclamation, water rights, pooling, assignment, underground storage rights and more. General information on these other topics will be covered in part two of this article, to be published in an upcoming edition of the Roundup.

By Fremont County rancher Jim Hellyer

People like maps. Bureaucracies produce lots of maps. Public policy has become a map, and the data upon which maps are built is highly subjective.

Today, agencies make decisions not on what is truly on the ground, but rather on what bureaucrats and/or advocates want to be on the ground. This is poor policy and is the result of a bureaucratic culture that has lost contact with the physical parts of geography and has substituted office analysis and easy reference material for the basics of map reading.

Consider, when in the outdoors it is common for people to make use of a topographical map. The purpose of this is to guide the reader across the terrain. The map provides the basic data and the reader makes a decision. The decision is then applied, correctly or incorrectly, and if the decision is arrived at through an incorrect reading of the map, then a poor decision is made and a difficult route chosen.  

Applied to the bureaucratic world, the map analogy is the same. When an agency produces a viewshed map that only shows what the agency “interprets” as the viewshed, and ignores the occurrence of private property upon the land, the agency makes the same mistake as the lost outdoorsman.

A viewshed takes in much more than a simple shading and outline of some special place on a map. For example, when the BLM produces an ACEC map it draws boundaries around and up to the various property lines. When the same agency produces a Visual Inventory map it paints a broad swath and the reader is left with the impression that the viewshed is all encompassing. A planning failure will occur when the experience does not match the expectation. In other words, when an individual makes a decision to visit a “public” place, and arrives to find it anything less than pristine, the experience is a letdown compared to the expectation of serenity.

Consequently, policy to guide viewshed management treats all property as public and ignores the reality of actual ownership. The agency presents to the public the impression that all in the viewshed is public, when in fact most viewsheds involve someone else’s property. This is a fundamental failure of adequate analysis and certainly sets the public up for disappointment, as a closer examination of the scenario reveals a whole host of opportunities for change – change that will be independent from and with general disregard for agency wishes by private actors on a mixed stage. It will be a general state of disregard due to the hostility most private project proponents receive from the agency and NGOs alike.  

Critics of this position will argue that in these mixed ownership settings the public enjoys such a high degree of ownership that this type of analysis is the only kind that will produce any type of basic and consistent document. However, the high percentage argument fails the basic test of governmental consistency in the first place. Consider for a moment the Securities and Exchange Commission rules of reporting. Individuals operating in the marketplace are required to report to the SEC when positions (amounts of shares, i.e. ownership of something) reach certain levels. The rationale for such reporting is that smaller percentages can affect the marketplace of the whole in question. In other words, five percent of a larger object is significant.

This is a property rights reporting requirement that, if the BLM applied to viewshed analysis, would produce a viewshed that recognized the private property within the viewshed as being significant enough to, at a minimum, be recognized as existent, and should certainly be treated as a potential contributor to or from the viewshed.

Expressed as an economic model, this suggestion reads that the viewshed is the marketplace and the commodity is space. This space is public and private: identifiable, tradable and insurable.
Therefore, with the bureaucratic tendency to manage viewsheds for what ought to be, as opposed to what is, the public would be best served by a discontinuation of viewshed analysis, as its present form is not likely to produce an accurate map – a map from which the decision makers make policy and the public makes judgments.

Alternatively, the bureaucracy could do two things: first, insert into present GIS databases the occurrence of various property ownerships and publish the shortcomings and assets of the viewshed and let managers make an informed decision. Second, an additional viewshed matrix column is needed within the current analysis whereby the BLM can add, for broad area analysis, the proximity to private property to produce degrees of sensitivity to private influence ranging from high, or close proximity to private property, to low, or distant from private property.

For example, just as the BLM can readily insert into any map a circle representing a sage grouse lek, so, too, could the BLM insert a circle around the private property. This visual enhancement of the land status would alert the viewer that visual classifications, habitat content, and the associated expectations of experience, are subject to private influence.

To continue this example: draw a circle one mile in diameter, place a 40-acre private tract in the middle, do this to all private property in the viewshed and then analyze the relationship and impact of all the circles to the visual classification at hand.

Presently, BLM staff has suggested that putting the land status on other layers of data would create a map that was too “busy.” Perhaps that is the problem. The BLM draws a very simple map to avoid the unpleasant realities of a “busy” map because a busy map is less inclined to lead to further regulation. Hopefully a busy map would produce a conclusion that private property can affect the landscape and that private property owners should be recognized for their contributions to an area. Furthermore, a busy map would show the public at large that much of what they take for granted is there for their viewing experience, provided the private land remains undeveloped.
For example, southwest Wyoming is well known for its resources. It is also a land pattern of the checkerboard nature, which results in a viewshed having a potential one-mile experience, at most. Anything greater than this one mile is, by land status alone, private property and should not be analyzed with any expectation of experience.

The checkerboard pattern of land status is unique in that the lands were privatized not as a result of individuals choosing the most productive lands first, as happened with Homestead Act lands, but rather as a side result of an engineered route choice. This difference is important, because as we have discussed above, with the bureaucratic tendency to portray things in simple shades, that simplicity ignores one of the central themes of Western land status. That theme is that the best was settled first, and therefore when agencies analyze on viewshed levels it should be apparent that the prime land is not public because the prime land is generally more productive, and generally private. It is not accurate analysis to analyze the privatized lands the same as the public.  

With the many ongoing resource management plan (RMP) projects around the state, it is time the BLM gave property owners the basic acknowledgement that private property deserves. Federal planning continually goes to great lengths to plan for everything and analyze everything in greater detail to make a sound decision that will withstand legal scrutiny. Asking the agencies to plan around the fact they don’t own everything is not too great of a burden.

Let’s be clear: this is not a planning alternative. This is not a citizens’ property alternative for the bureaucracy to digest. This is a call for the bureaucracy to take the data it already has and analyze it completely. The property is where it is, and it is where it has always been. The ability of the agencies to analyze the situation has improved with technology, and this should be reflected in the planning process. Using an improved Visual Model will correct the deficiencies of prior designations and lead to a regulatory system that treats landowners and the rights associated with property fairly.

Moorcroft — World War II was over. It was the time between the “Dirty 30s” and the post-war recovery period in our country. The people of Crook County, like folks all across America, were looking forward to a fresh new economy while trying to forget the losses and atrocities of the long war.
    Popular new country and western musicians — the likes of Gene Autry, Hank Williams and Bob Wills were hitting the charts. The big band sounds of Count Basie, Duke Ellington and Glen Miller were favorites. At the cinemas, folks were standing in line for the latest movie, “Song of Old Wyoming,” starring Lash LaRue as the Cheyenne Kid.
    In far northeast Wyoming, horse racing had become a popular sport in Crook County. Horses were plentiful and inexpensive. Besides traditional horse races, endurance racing had grabbed the fancy of horsemen and enthusiasts throughout the area. Summer 1947 several long endurance races took place — one from Gillette to Douglas and another from Wyoming into Montana. The Brislawns of Crook County, with their Cayuse horses, had participated in the two-state race.
    Chuck Williams and his dad Charley Williams, also known as “Wild Horse Charley,” did not overlook the interest in horses and horse racing. Chuck Williams and his wife Minnie continue to ranch in Crook County as do Chuck’s younger brothers Donny and Dennis.
    Charley first spied the half-Shetland mare during the roundup for Tom Zimmerschied’s horse sale. The little brown horse was owned and ridden by Harold Castor, who in 1947 was riding for the John Berger brand. Word got around that Harold had purchased the horse from Berger.
    The little horse probably wouldn’t have been so conspicuous to Charley were it not for the size of her rider. Castor was a big, long-legged man. The little horse, big man combination became increasingly obvious as Charley saw how well the small mare, which probably didn’t weigh more than 900 pounds, performed beneath the weight of the big cowboy. Charley’s interest grew with each passing day as he became more and more fascinated with the stamina of the horse. At the end of each day’s hard chase of the roundup, it was amazing to Charley how much energy she had left. That fact was even more astonishing when he thought of the load she had been packing around all day!
    It was inevitable — before long, Charley talked Harold into a horse trade.
    Shortly after Charley acquired the little brown mare, word was received of an upcoming endurance race. The race would be sponsored by the Upton Commercial Club and interested parties from the area. The racecourse would be 86 miles long spanning from Spotted Horse to Upton. The date was set for Aug. 7. Upon hearing of the event, Charley knew he had just the right entries — the half-Shetland mare ridden by his then 16-year-old son Chuck.
    Chuck was working for Elb Zimmerschied that summer, helping with the haying. Chuck began training for the race. Every chance he had he rode the little mare back and forth from Elb’s place to Moorcroft, a round-trip of about 40 miles. Generous amounts of oats added to the horse’s conditioning and the long sprints began to get the little mare legged-up for the race.
    Charley’s entries were made by the July 31 deadline. A $600 purse, funded by entry fees of $50, was guaranteed. Prizes would be awarded in percentages with first place paying 50 percent, second 25 percent, third 15 percent, fourth 10 percent.
    A number of rules and regulations, including recording the weights of each horse and rider, were drawn up and published in the Moorcroft Leader. A state veterinarian would inspect horses at any time during the race. A two-hour rest period would be taken at Rozet, the approximate halfway point. Horse owners were to furnish their own horse feed at Rozet and race sponsors would furnish it at Upton.
    The race had received a fair amount of attention throughout Crook County. As early as July 4 the residents of Moorcroft were guessing what time the contestants would pass through town.
    On Aug. 6, 1947 Charley and Chuck loaded the little mare and headed for Spotted Horse pulling an old horse trailer behind their Chevy car. As for Charley and Chuck, one can only guess that Chuck was keyed up in anticipation as to how his mount would stack up against the larger horses and how he would fare against the older, more experienced race participants. Charley, on the other hand, was most likely confident in his entries, having first hand knowledge of the stamina of the half-Shetland and the abilities of his son.
    At 5 a.m. the day of the race 19 riders left the starting line in a high gallop. It wasn’t long before Chuck and his stout little mare were among the leaders. Chuck began to pace his horse, stretching her to the lead and then slowing down to a canter, keeping up with the others.
    Hour-by-hour the miles slipped beneath the riders and their horses. The hard pavement on Highway 16 took its toll on the horses’ shoes and the pace was grueling. Chuck kept his mind tuned to the ever-changing situation. He had prepared the little mare well and knew just how to pace her to conserve her energy. Still, it was his first long race and he knew it would not be easy. There were other riders with lots of experience in the race; some with big, tough looking horses.
    All along the way, spectators stood alongside the road offering drinks, candy and encouragement to the riders. The first rider reached Gillette at 7:59 a.m. Several entrants had already dropped out near the Gillette airport. Horses and their riders were being pulled out of the race at various places along the highway.
    The first rider, Jack Moore riding a Matheson horse, arrived in Moorcroft about 1 p.m. After a brief rest, he proceeded towards Upton. Approximately seven minutes later, two other riders (Jimmy Materi riding a John Read horse and an unnamed rider riding a horse owned by Walter Brown) arrived in Moorcroft. One of these horses dropped out shortly after leaving Moorcroft. Riders still in the race arrived in Moorcroft in the minutes following, but most pulled out of the race shortly after leaving town. A couple of those horses succumbed to exhaustion and died just outside of Moorcroft. One of the riders by the name of Antelope (or Coyote) Brown tried unsuccessfully to revive his horse with whiskey.
    The long, hard race wore on. By mid-afternoon a large excited crowd gathered at Upton to see if anyone would finish the race. Folks, having already heard of the fatalities along the way, began to think the race was too long and that perhaps none of the horses would make it.
    At 3 p.m. two horses, wobbly and weak legged, staggered across the finish line. Jack Moore on the Matheson horse took first place and Jimmie Materi on the Read horse placed second. A Junior Woods horse came in third, but was barely able to wobble across the finish line. In fourth place was Chuck aboard the little brown mare and traveling at a gallop. His mount had energy to spare. Of the 19 horses that started, only four completed the race.
    The entire Williams family was present to greet Chuck. Everyone in the crowd was amazed to see how much stamina the little mare had, that is everyone except Charley. All along, he had the inside scoop. He knew his race entrants — the half-Shetland pony and the savvy 140-pound 16-year-old, well.
    After some of the excitement settled down, Chuck enjoyed a complimentary steak dinner in Upton from Wilbur and Edna Zimmerschied.
    The years have stolen from Chuck the names of most of the race participants. Besides those already mentioned, one of the other riders was Cheryl Slagle, a rancher from Upton. Chuck remembers him in particular because he was riding a bronc, one of the horses that did not endure the strain of the race and died near Rozet.
    The Williams’ eventually gave the little mare to Brislawns and they raised a colt out of her. As for Chuck, the race was an experience he will never forget.
    Barb Zimmerschied Crowl is a native of Crook County, raised on a ranch near Carlile. She’s written a book on the history of ranches in that area and the stories told by her father.
    I thought I’d take this opportunity to approach agriculture and ranching from a perspective that might be a bit different.
    In my travels around the state, and especially talking with ranchers, I have been struck by the similarity of their concerns to many of the concerns I have had during the course of my career.
    No, I’m not a rancher or land manager. I am a businessman. I start and manage new companies in different industries (mainly here in Wyoming), helping them grow into successful small businesses.
    As I’ve gone to ranchers’ doors and met with livestock producers at various forums, it’s become clear that, like me, you too are small businessmen and women grappling with many of the same issues that impact the companies I have run. I’d like to take this time to touch on a few of these issues and provide my views on how government should, and should not, be involved.
    Surprisingly, the issue I hear about most when talking to ranchers is not agriculture specific – it’s not drought, eminent domain, wolves or foreign competition. What I hear about is the lack of access to affordable healthcare and insurance. Like many of you I don’t have the time or patience for political pandering. So here is some straight talk on healthcare in this country that you won’t hear politicians say. We already have a “national” healthcare system; we just don’t admit it or manage it properly. Because there is no free lunch. Those of us with coverage pay higher premiums to cover those who don’t, and we all pay higher medical bills and higher prices on everything else to cover those who can’t pay when they are sick.
    Some people want the “free market” to solve the healthcare crisis. Well, having been a businessman all my life, I know something about the free market. It runs on competition and information so we consumers can make rational choices - like when we compare two cuts of beef or two pieces of machinery. That doesn’t exist in America’s healthcare system – when is the last time you took someone to the ER, then asked the doctor how much it was going to cost to make them better?
    We have listened for years to folks in D.C. who tell us why we can’t have the healthcare they have because somehow it would be a bad thing. Well, I don’t care about labels or cheap slogans – I only care about solutions. We need a system that provides for basic, quality, affordable healthcare for all Americans. Period. This is both the morally and the economically right thing to do.
    Government can play a role – not by providing health insurance – but by setting the rules for insurance pools, providing a level playing field so insurers have to truly compete for our business, and making sure all Americans have access to the same coverage our members of Congress receive by making the Federal Employee Health Benefits Program available to all.
    Another issue is that of government regulation and interference. As a small businessman, I know the amount of time, effort and money it takes to comply with sometimes useless government regulation. It’s frustrating. As a rule, I want less government rather than more, and we Westerners don’t stand for government telling us how to live our lives.
    But there are times here in Wyoming where a properly run federal government can do good. For example, the latest Farm Bill’s Permanent Disaster Relief Fund, Country of Origin Labeling and federal regulators taking on meatpacker concentration. Also, there is spirited discussion right now about Radio ID and testing for BSE. All issues that either already have or somehow will see direct government involvement.
         On the flip side, the mortgage crisis and our spiraling national debt are prime examples of the incredible costs we all pay when government does not do its job responsibly. Most ranchers I talk with want to provide a legacy for their children and their children’s children; they also provide immeasurable benefits to the rest of us by their responsible management of the land, maintenance of open spaces and provision of habitat for wildlife. Irresponsible government that results in a deteriorating economy hurts the ability of ranchers to pass those benefits on to future generations, which is why we don’t need more career politicians up in D.C.
    Finally, I would like to talk about energy. We are all plagued by the exploding price of gas and groceries. Ranchers are feeling the pinch with the rising cost of feed and fuel for their machinery. The search for energy independence is the issue of our time; it affects our national security, our economy and our environment.
    However, letting oil companies and foreign countries decide which sources of energy we develop is like letting the cattle run the ranch. Nearly every form of energy in use today has had involvement from our government in its early stages of development. It’s time we stop having our national priorities set by other nations and OPEC. It’s time our government let America do what America does best - innovate and create. Government is not the answer, but a government that let’s our greatest natural resource – the American spirit – get stifled, is not holding up its end of the bargain.
    We need a well run and effective Government. Smaller? You bet. More efficient? Absolutely. However, the truth is we cannot solve issues such as healthcare, market oversight and energy independence without all of us working together and making sure we have representatives who look for solutions, not someone to blame. My wife and I have provided for our two sons by successfully working with others, no matter their views, to build successful businesses. I’ll do the same for our state in Congress.
    The founding fathers of this great country were skeptical of government power, yet they clearly believed the federal government had a role to play. What we simply cannot afford today is a country run by people who are determined to see government fail, who do not understand the role government should and should not play, and who express disdain for the very institutions our founding fathers put in place to serve and protect the citizens of the United States of America.
    Gary Trauner is the Democratic candidate for Wyoming’s lone seat in the U.S. House of Representatives. His campaign can be found online at www.traunerforcongress.com.