[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]
H.R. 2952
=======================================================================
LEGISLATIVE HEARING
before the
SUBCOMMITTEE ON ENERGY AND
MINERAL RESOURCES
of the
COMMITTEE ON RESOURCES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
FIRST SESSION
__________
October 11, 2001
__________
Serial No. 107-66
__________
Printed for the use of the Committee on Resources
Available via the World Wide Web: http://www.access.gpo.gov/congress/
house
or
Committee address: http://resourcescommittee.house.gov
U. S. GOVERNMENT PRINTING OFFICE
75-639 WASHINGTON : 2002
____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512-1800
Fax: (202) 512-2250 Mail: Stop SSOP, Washington, DC 20402-0001
COMMITTEE ON RESOURCES
JAMES V. HANSEN, Utah, Chairman
NICK J. RAHALL II, West Virginia, Ranking Democrat Member
Don Young, Alaska, George Miller, California
Vice Chairman Edward J. Markey, Massachusetts
W.J. ``Billy'' Tauzin, Louisiana Dale E. Kildee, Michigan
Jim Saxton, New Jersey Peter A. DeFazio, Oregon
Elton Gallegly, California Eni F.H. Faleomavaega, American
John J. Duncan, Jr., Tennessee Samoa
Joel Hefley, Colorado Neil Abercrombie, Hawaii
Wayne T. Gilchrest, Maryland Solomon P. Ortiz, Texas
Ken Calvert, California Frank Pallone, Jr., New Jersey
Scott McInnis, Colorado Calvin M. Dooley, California
Richard W. Pombo, California Robert A. Underwood, Guam
Barbara Cubin, Wyoming Adam Smith, Washington
George Radanovich, California Donna M. Christensen, Virgin
Walter B. Jones, Jr., North Islands
Carolina Ron Kind, Wisconsin
Mac Thornberry, Texas Jay Inslee, Washington
Chris Cannon, Utah Grace F. Napolitano, California
John E. Peterson, Pennsylvania Tom Udall, New Mexico
Bob Schaffer, Colorado Mark Udall, Colorado
Jim Gibbons, Nevada Rush D. Holt, New Jersey
Mark E. Souder, Indiana James P. McGovern, Massachusetts
Greg Walden, Oregon Anibal Acevedo-Vila, Puerto Rico
Michael K. Simpson, Idaho Hilda L. Solis, California
Thomas G. Tancredo, Colorado Brad Carson, Oklahoma
J.D. Hayworth, Arizona Betty McCollum, Minnesota
C.L. ``Butch'' Otter, Idaho
Tom Osborne, Nebraska
Jeff Flake, Arizona
Dennis R. Rehberg, Montana
Allen D. Freemyer, Chief of Staff
Lisa Pittman, Chief Counsel
Michael S. Twinchek, Chief Clerk
James H. Zoia, Democrat Staff Director
Jeff Petrich, Democrat Chief Counsel
------
SUBCOMMITTEE ON ENERGY AND MINERAL RESOURCES
BARBARA CUBIN, Wyoming, Chairman
RON KIND, Wisconsin, Ranking Democrat Member
W.J. ``Billy'' Tauzin, Louisiana Nick J. Rahall II, West Virginia
Mac Thornberry, Texas Edward J. Markey, Massachusetts
Chris Cannon, Utah Solomon P. Ortiz, Texas
Jim Gibbons, Nevada, Calvin M. Dooley, California
Vice Chairman Jay Inslee, Washington
Thomas G. Tancredo, Colorado Grace F. Napolitano, California
C.L. ``Butch'' Otter, Idaho Brad Carson, Oklahoma
Jeff Flake, Arizona
Dennis R. Rehberg, Montana
------
C O N T E N T S
----------
Page
Hearing held on October 11, 2001................................. 1
Statement of Members:
Cubin, Hon. Barbara, a Representative in Congress from the
State of Wyoming........................................... 1
Prepared statement of.................................... 4
Otter, Hon. C.L. ``Butch'', a Representative in Congress from
the State of Idaho......................................... 5
Rahall, Hon, Nick J., a Representative in Congress from the
State of West Virginia, prepared statement of.............. 1
Statement of Witnesses:
Fulton, Tom, Deputy Assistant Secretary for Land and
Minerals, U.S. Department of the Interior.................. 6
Prepared statement of.................................... 7
Isaacs, V.I. (Bud), President, Rim Operating Companies....... 27
Prepared statement of.................................... 29
Sexton, Mark, President, Evergreen Resources, on behalf of:
Independent Petroleum Association of the Mountain States... 21
Prepared statement of.................................... 23
Taylor, Shawn, Program Manager, Energy Policy Development, on
behalf of The Governor of the State of Wyoming............. 10
Prepared statement of.................................... 11
Tew, Ryan, Senior Counsel, Peabody Energy Corporation, on
behalf of the National Mining Association.................. 15
Prepared statement of.................................... 17
Additional materials supplied:
Bingaman, Hon. Jeff, a United States Senator from the State
of New Mexico, prepared statement of....................... 39
LEGISLATIVE HEARING ON H.R. 2952, (CUBIN), TO ENSURE THE ORDERLY
DEVELOPMENT OF COAL, COALBED METHANE, NATURAL GAS, AND OIL WITHIN A
DESIGNATED DISPUTE RESOLUTION AREA IN THE POWER RIVER BASIN, WYOMING,
AND FOR OTHER PURPOSES.
----------
Thursday, October 11, 2001
U.S. House of Representatives
Subcommittee on Energy and Mineral Resources
Committee on Resources
Washington, DC
----------
The Subcommittee met, pursuant to call, at 2 p.m., in Room
1334, Longworth House Office Building, Hon. Barbara Cubin
[Chairman of the Subcommittee] presiding.
STATEMENT OF HON. BARBARA CUBIN, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF WYOMING
Mrs. Cubin. The oversight hearing by the Committee on
Energy and Mineral Resources will come to order.
The Subcommittee is meeting today to hear testimony on H.R.
2952, to ensure the orderly development of coal, coalbed
methane, natural gas and oil within a designated dispute
resolution area in the Powder River Basin of Wyoming and for
other purposes.
Under Committee Rule 4(g), the Chairman and Ranking
Minority Member can make opening statements. If other Members
have statements, they can be included in the record. I ask
unanimous consent--since I am unanimous--all right, now I have
to really ask unanimous consent--to insert in the record the
opening remarks of Representative Rahall and any other Members
that would like to offer opening remarks.
Hearing no objection, so ordered.
[The prepared statement of Mr. Rahall follows:]
Remarks of U.S. Rep. Nick J. Rahall, II, a Representative in Congress
from the State of West Virginia
The legislation pending before the subcommittee purports to solve
disputes between holders of federal oil and gas leases, and holders of
federal coal leases, within the Powder River Basin of Wyoming.
I can certainly understand the types of conflict that arise in
these situations. Indeed, in 1992 Congress enacted legislation I
sponsored as part of the Energy Policy Act that established a dispute
resolution process for the development of coalbed methane in the
Eastern States. For years the coal industry in places like West
Virginia had effectively blocked the development of coalbed methane
resources. And due to the split estate ownership nature of much of the
land in the Appalachian Region, there were uncertainties over who
actually owned the methane. At the time I had originally offered this
proposal as applying nationwide. However, western interests balked
stating that the matter was well settled in the West.
History has proven them wrong. Litigation followed-relating to a
specific subset of federal lands-all the way to the Supreme Court and
legislation in this area was enacted by the Congress in 1998.
Yet, disputes within the Powder River Basin continue. And to be
clear, these disputes are not restricted to development rights; the
issue of primacy in developing coalbed methane versus the coal itself.
They also involve the impact a rapidly developed coalbed methane
industry is having on rangeland and water resources.
In light of the fact there are considerable federally owned
resources in the Powder River Basin, in my view it is appropriate for
the federal government to be involved in this matter. The question is,
to what extent. I would assume that federal coal lessees in the region
purchased the leases with their eyes open, knowledgeable of the fact
that mining the coal could not interfere with any senior rights
associated with oil and gas leases in the same area. Perhaps they did
not envision the advent of what was then a non-traditional type of gas
development, coalbed methane. But the fact remains that the lease
stipulations are what they are.
As I noted, dispute resolution in this area appears to be partially
a federal responsibility. The Bureau of Land Management has some
authority to address the issues being raised by the pending
legislation. The purpose of this hearing then is to determine whether
that authority is adequate, and whether the pending legislation offers
a more practical approach that ultimately is in the public interests
and provides for the proper stewardship of the lands in question.
______
Mrs. Cubin. The Subcommittee on Energy and Minerals meets
today to take testimony on H.R. 2952, the Powder River Basin
Resources Development Act, a bill I recently introduced to
further efforts to resolve conflicts occurring in my State
between coal miners and coalbed methane developers operating in
certain limited common areas along a trend of surface coal
mines.
Within the last decade, petroleum interests have discovered
that the Wyodak seam of sub-bituminous coal in the Powder River
Basin, which is the situs of several large surface mines, is
also valuable for natural gas found in the fractures of the
coal, which is commonly known as coalbed methane, or CBM.
Previous encounters between owners of deep oil and gas
wells and coal mine operators were handled relatively easily
through compensation agreements when the oil or gas production
had to cease for a period while a mine moved through the common
tract, but, with CBM, mining of the coal vents the gas
resource, of course, unless it is extracted in advance.
In the best of all possible worlds, the CBM would be
developed, produced and sold before the coal extraction begins,
and there would be no conflict. Indeed, the CBM operator would
have performed a service for the miner by dewatering the coal
seam ahead of its dragline. However, conflicts in timing of
resource development do occur, and there is plenty of money at
stake in mine plans predicated upon timely receipt of permits
from Federal and State regulators. Inordinate delays mean shut-
down mines and lost wages, lost royalties, lost severance
taxes. No one wants that, so agreements to buy out impediments
to mining are negotiated so that their business can continue
uninterrupted.
The CBM operator is often holding an assignment from an oil
and gas lease which is senior to the coal lease. In other
words, the original lease has been held for many years by
production of deep oil or gas, but within the last few years
the shallow CBM has become the focus of interest. What should a
miner pay to the CBM owner if all or a portion of the shallow
gas is wasted because wells could not be permitted, drilled and
produced before the coal is stripped, blasted and hauled to
market?
A ton of Powder River Basin coal contains about 16 million
BTUs of energy versus a CBM content that may yield only 30- to
40,000 BTUs.
That is a factor of over 500 times more energy in the coal
to be sent to market than from the coalbed methane trapped
within the same volume, and this is for coal seams with
original pressures of CBM still high. As CBM is produced in the
area and the pressures fall, the energy ratio of the unmined
ton of coal versus the remaining CBM gets even more tilted in
coal's favor, of course. In other words, the CBM's energy value
is less than 1/2 of 1 percent of the coal's value. For a Nation
which needs to become for more self-sufficient in energy than
we are, this fact cannot be forgotten. Yes, the CBM ought to be
produced, but, no, the CBM operator ought not be able to
prevent the far more valuable coal resource to go unmined just
because there remains some gas in a seam that may take a few
more years to extract.
So how does the government juggle the responsibility to
maximize energy production from common areas? Should the
principle that the CBM operators rights emanate from the oil
and gas lease which predate the coal lease be the sole
criterion, or should we enact a process whereby in very limited
instances a Federal judge will condemn CBM operations which
threaten the ultimate mining of common--of the common block of
coal and order fair and just compensation for the terminated
oil and gas rights? Now, of course, what is fair and just
compensation is the problem, but I do think the latter
approach, if done correctly, has merit.
H.R. 2952 presents a deliberative process to make such
calculations, reach a settlement and direct payment. It is the
``lite'' version of last year's efforts which followed
negotiations between the Independent Petroleum Association of
America and the National Mining Association. H.R. 2952 shrinks
the size of the dispute resolution areas where the bill would
allow a coal royalty credit against the sums paid to the
condemned CBM operator, including limiting its application to
Wyoming alone. Furthermore, this version makes clear that such
credits may only be applied against payments to Federal oil and
gas leases, not private mineral interest owners, which
basinwide make up over half of the oil and gas ownership. I
fully understand that some CBM operators do not agree that the
bill will result in fair compensation for their rights should a
conflict occur. Two such folks are here today to testify.
Let me close my remarks by saying that my strong wish is
for both of these resources to be developed sequentially.
America needs the energy bound up in both the coalbed methane
and in the coal. I believe the regulators involved must get
moving on approving drilling permits and directing that CBM
wells be drilled and produced where drainage is likely to
occur. The BLM has begun to do so, and that is good. The entire
Wyoming delegation, all three of us, has pushed and cajoled the
administration to put resources into solving this problem with
as little opportunity for future conflict as possible. That
means we need to get the CBMs drilled--the CBM wells drilled
and connected to pipelines, and we need the North Jacobs Ranch
coal lease sale to go forward early next year to keep Powder
River Basin Coal development on track to meet the Nation's
electricity needs. This bill should advance both of those
agendas.
[The prepared statement of Mrs. Cubin follows:]
Statement of Hon. Barbara Cubin, a Representative in Congress from the
State of Wyoming
The Subcommittee on Energy and Minerals meets today to take
testimony on HR 2952, the Powder River Basin Resources Development Act,
a bill I recently introduced to further efforts to resolve conflicts
occurring in my State between coal miners and coalbed methane
developers operating in certain limited common areas along a trend of
surface coal mines.
Within the last decade petroleum interests have discovered that the
Wyodak seam of sub-bituminous coal in the Powder River Basin, which is
the situs of several large surface mines, is also valuable for natural
gas found in the fractures of the coal, which is known as coalbed
methane or CBM. Previous encounters between owners of deep oil & gas
wells and coal mine operators were handled relatively easily through
compensation agreements when the oil or gas production had to cease for
a period while a mine moved through the common tract. But, with CBM,
mining of the coal vents the gas resource, of course, unless it is
extracted in advance.
In the best of all possible worlds, all the CBM would be developed,
produced and sold before coal extraction begins - and there would be no
conflict. Indeed, the CBM operator would have performed a service for
the miner by dewatering the coal seam ahead of his dragline. However,
conflicts in timing of resource development do occur. And, there is
plenty of money at stake in mine plans predicated upon timely receipt
of permits from federal and state regulators. Inordinate delays can
mean shut down mines and lost wages, lost royalties and lost severance
taxes. No one wants that, so agreements to buy out impediments to
mining are negotiated so that their business can continue
uninterrupted.
The CBM operator is often holding an assignment from an oil & gas
lease which is senior to the coal lease. In other words, the original
lease has been held for many years by production of deep oil or gas,
but within the last few years the shallow CBM has become the focus of
interest. But, what should a miner pay to the CBM owner if all or a
portion of the shallow gas is to be wasted because wells could not be
permitted, drilled and produced before the coal is stripped, blasted
and hauled to market?
A ton of Powder River Basin coal contains about 16 million BTUs of
energy versus a CBM content that may yield only 30 to 40 thousand BTUs.
That is a factor of over 500 times more energy in the coal to be sent
to market than from the coalbed methane trapped within the same volume,
and this is for coal seams with original pressures of CBM still high.
As CBM is produced in the area, and gas pressures fall, the energy
ratio of the unmined ton of coal versus the remaining CBM gets even
more tilted in coal's favor, of course.
In other words, the CBM's energy value is less than one-half of one
percent of the coal's value. For a Nation which needs to become far
more energy self-sufficient than we are, this fact cannot be forgotten.
Yes, the CBM ought to be produced. But, no, the CBM operator ought not
to be able to prevent the far more valuable coal resource to go unmined
just because there remains some gas in the seam that may take a few
years more to extract.
So, how does the government juggle the responsibility to maximize
energy production from the common areas? Should the principle that the
CBM operators rights emanate from an oil and gas lease which predates
the coal lease be the sole criterion? Or, should we enact a process
whereby in very limited instances a federal judge will condemn CBM
operations which threaten the ultimate mining of the common block of
coal? And order fair and just compensation, of course, for the
terminated oil and gas rights. I think the later approach, if done
correctly, has merit.
H.R. 2952 presents a deliberative process to make such
calculations, reach a settlement and direct payment. It is the ``Lite''
version of last year's efforts which followed negotiations between the
Independent Petroleum Association of America and the National Mining
Association. H.R. 2952 shrinks the size of the ``dispute resolution
areas'' where the bill would allow a coal royalty credit against the
sums paid to the condemned CBM operator, including limiting its
application to Wyoming, alone. Furthermore, this version makes clear
that such credits may only be applied against payments to federal oil
and gas lessees, not private mineral interest owners, which basin-wide
make up over half of the oil and gas ownership. I fully understand that
some CBM operators do not agree that the bill will result in fair
compensation for their rights should a conflict occur. Two of such
folks are testifying today.
Let me close my remarks by saying that my strong wish is for both
these resources to be developed sequentially. America needs the energy
bound up in both the CBM and the coal. I believe the regulators
involved must get moving on approving drilling permits and directing
that CBM wells be drilled and produced where drainage is likely to
occur. The Bureau of Land Management has begun to do so and that's
good. The entire Wyoming delegation (all three of us) has pushed and
cajoled the Administration to put resources into solving this problem
with as little opportunity for future conflict as possible. That means
we need to get CBM wells drilled and connected to pipelines. And, we
need the North Jacobs Ranch coal lease sale to go forward early next
year to keep Powder River Basin coal development on track to meet the
Nation's electricity needs. This bill should advance both such agendas.
______
Mrs. Cubin. The Chair now recognizes Mr. Otter for an
opening statement.
STATEMENT OF HON. C.L. ``BUTCH'' OTTER, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF IDAHO
Mr. Otter. Thank you very much, Madam Chairman. I do not
have an opening statement, but I would like to commend the
Chairwoman for drawing attention to a problem that has existed
for quite some time, but more importantly providing a solution
which includes an abundance of input from the stakeholders from
the State and also the Federal agencies. I hope that this will
be a prototype to solve many other problems that we have in the
West, particularly between Federal agencies and State
stakeholders, because we have many of the same problems in
Idaho, not affecting coal obviously, but we do have many of the
same problems.
And I am very excited about this going through and
providing for us an example of how we can work together and how
the agencies can work together and still get the State
stakeholders both from the private sector and the State as well
in providing a solution to what could otherwise be a continuing
problem.
Thank you very much, Madam Chairman.
Mrs. Cubin. Thank you, Mr. Otter.
Now I would like to recognize the panel of witnesses. Panel
number one is Mr. Tom Fulton, Deputy Assistant Secretary for
Land and Minerals with the Department of Interior; and Mr.
Shawn Taylor, Program Manager, Energy Policy Development, on
behalf of the Governor of the State of Wyoming. Welcome to both
of you.
The Chairwoman now recognizes Mr. Fulton to testify for 5
minutes. The timing lights on the table will indicate when your
time has concluded. While we limit--while the Committee rules
limit the oral testimony to 5 minutes, your entire statement
will be entered into the record.
STATEMENT OF TOM FULTON, DEPUTY ASSISTANT SECRETARY FOR LAND
AND MINERALS, U.S. DEPARTMENT OF THE INTERIOR, ACCOMPANIED BY
ERICK KAARLELA, SENIOR PETROLEUM ENGINEER, BUREAU OF LAND
MANAGEMENT
Mr. Fulton. Thank you, Madam Chairman.
Members of the Subcommittee, thank you for the opportunity
to appear here today to discuss H.R. 2952, the Powder River
Basin Development Act of 2001. I am accompanied by Erick
Kaarlela, Senior Petroleum Engineer of the Bureau of Land
Management.
The Department of the Interior appreciates the
Subcommittee's desire and its hard work in an effort to resolve
the conflicts between oil and gas, coal, and coalbed methane
interests through H.R. 2952. The Department supports the intent
of this legislation; however, we are concerned about certain
provisions of the bill for reasons we will discuss later.
The President's national energy policy specifically calls
for the Department to remove or reduce impediments to domestic
energy production and to provide for reliable energy supply.
H.R. 2952 does provide a timely conflict resolution mechanism
where the inability to reach a settlement agreement could
result in bypassing vast amounts of valuable coal or even the
premature closing of major mining operations. Together with the
administrative measures the BLM has initiated already, H.R.
2952 will optimize the recovery of both the coalbed methane and
the coal resources in the Powder River Basin.
Escalating interest in coalbed methane exploration and
development as a result of new technology, a better
understanding of the resource, and increasing energy demand has
created a unique mineral conflict situation for the BLM. CBM
development adjacent to active coal mines raises a number of
questions about the simultaneous development of both the
methane resource and the coal.
BLM leases provide that the BLM may lease the same tract
for the development of more than one mineral resource provided
that it does not unreasonably interfere with the operations of
the senior lessee and is subject to the departmental
regulations regarding conservation. Consistent with the
principles embodied in the Minerals Leasing Act to conserve the
natural resources and with the Federal Land Policy and
Management Acts multiple use mandate, the BLM supports multiple
mineral development and optimization of the recovery of both
resources and has worked to encourage settlement agreements
between developers.
In dealing with disputes, the Bureau has three goals in
mind. The first is to protect the rights of the lessee under
the terms of its lease and the Mineral Leasing Act, including
implementing regulations and those concerning conservation of
natural resources; secondly, to optimize the recovery of both
resources, maximizing the return to the public; and third, to
protect public safety and the environment while minimizing
impacts on local communities.
The BLM policy provides that the initial course of action
is to attempt to facilitate an agreement between the lessees.
However, absent a settlement, the BLM can utilize existing law
and regulations in conjunction with the lease provisions to
optimize the recovery of resources.
BLM is in the process of clarifying and strengthening its
existing conflict resolution policy which will work in concert
with the conflict resolution provisions of H.R. 2952 to
facilitate a more timely resolution and greater degree of
certainty to industry.
Many of the provisions of H.R. 2952 help facilitate the
orderly resolution of the resource development conflicts in the
Powder River Basin. The legislation will provide procedures for
timely resolution of the conflict in circumstances where the
BLM has little or no authority to regulate non-Federal oil and
gas operation, which constitute 55 percent of the oil and gas
estate in the dispute resolution area.
The bill mandates a specific schedule for the Secretary of
Interior and the courts to resolve any development conflicts
between the two resources and provides for the appointment of
experts to appraise the value of potential resource losses.
These steps will ensure a timely and firm resolution to the
conflicts between coal and CBM development.
In resolving these conflicts, time is of the essence. The
potential that coal operations could be suspended while the
conflicting development plans are resolved through traditional
administrative and judicial proceedings has created uneven
bargaining power among the parties in such disputes. The bill
provides for expedited judicial review of orders to suspend
operations and production or the Secretary's decision not to
order such suspension.
H.R. 2952 provides not only for compensation of the oil and
gas lessees for its losses, but also assures that the bill's
compensation provisions are the exclusive remedy.
We are concerned that the bill allows certain credits
against future royalties to compensate for payments made to
Federal CBM developers. The Department is concerned that the
burden of resolving disputes between private oil and gas and
coal companies may result in a reduction of proceeds received
by the taxpayer. Nevertheless, we recognize that there are
financial burdens associated with resolving disputes. H.R. 2952
provides a judicial process for resolving these resource
development conflicts.
Finally, the Department does oppose section 16(b) of the
bill, which would require the Secretary make payments to States
for coal royalties that would have paid were it not for the
royalty credits created by the legislation. This would require
the Secretary to disburse funds received from other leases to
replace royalties not collected. The Department believes it is
reasonable to ask the States which benefit from the production
of the more valuable coal resource through other tax
collections to share in the financial implications associated
with conflict resolution. The Department is very interested in
working with the Committee and others to address the provisions
of the bill.
Thank you for the opportunity to testify, and I look
forward to answering any questions the Committee might have.
Mr. Otter. [Presiding.] Thank you very much, Mr. Fulton.
[The prepared statement of Mr. Fulton follows:]
Statement of Tom Fulton, Deputy Assistant Secretary, Land and Minerals
Management, U.S. Department of the Interior
Madame Chairman and Members of the Subcommittee, thank you for the
opportunity to appear here today to discuss HR 2952, the Powder River
Basin Development Act of 2001, which would establish a process for
resolving disputes between developers of coal and developers of coalbed
methane (CBM) in certain areas of the Wyoming portion of the Powder
River Basin. I am accompanied by Erick Kaarlela, Senior Petroleum
Engineer with the Bureau of Land Management (BLM).
The Department of the Interior (Department) appreciates the
Subcommittee's interest and efforts in attempting to resolve the
conflicts between oil and gas, coal, and coalbed methane interests
through HR 2952. The Department supports the intent of this
legislation. However, we are concerned about certain provisions of the
bill for reasons discussed below.
The environmentally-responsible development of all these resources
in the energy-rich Powder River Basin is an important element in
meeting our national energy needs. The President's National Energy
Policy specifically calls for the Department to remove or reduce
impediments to domestic energy production, and to provide for a
reliable energy supply. The bill provides for timely conflict
resolution where the inability to reach a settlement agreement could
result in bypassing vast amounts of valuable coal or possibly even the
premature closing of major mining operations. Together with the
administrative measures the BLM has initiated under existing law, HR
2952 will optimize the recovery of both the CBM and coal resources in
the Basin.
CBM Development in the Powder River Basin in Wyoming
The Powder River Basin has experienced a particularly dramatic
increase in coalbed methane exploration and development. It contains
the largest coal reserves of any basin in the United States. Over 90%
of the Basin's coal estate is in Federal ownership and accounts for
one-third of all U.S. coal production. About 45% of the oil and gas
estate (including coalbed methane) in the ``dispute resolution area''
identified by the bill is under Federal ownership. The remainder of the
oil and gas estate in that area under state or private ownership.
Conflicts Between Developers
Extensive CBM development activity was not anticipated at the time
most of the overlapping Federal coal leases were issued on these lands.
In the past, traditional oil and gas and coal conflicts generally
involved oil and gas resources contained in reservoirs much deeper than
the coal, thereby allowing for development of coal without loss of the
oil and gas. Since CBM is trapped within the coal seams and was
considered a valueless gas which escaped from coal, rather than part of
the valuable coal fuel itself, coal companies routinely vented the gas
to the atmosphere. However, escalating interest in CBM exploration and
development as a result of new technology, a better understanding of
the resource, and increasing energy demand has created a unique mineral
conflict situation for the BLM. CBM development adjacent to active coal
mines raises a number of questions about the simultaneous development
of both the methane and coal resources. Coal mining will eliminate the
methane resource, yet waiting for methane development may delay coal
mining operations such that production of the coal may no longer be
economical.
BLM leases provide that the BLM may lease the same tract for the
development of more than one mineral resource, provided that it does
not unreasonably interfere with the operations of the senior lessee and
subject to Departmental regulations regarding conservation. Most of the
oil and gas leases in the coal/CBM dispute resolution area are senior
in time to the coal leases. The coal lessees were aware of the existing
senior leases at the time of the issuance of the coal lease, and the
leases specifically provide that coal mining cannot unreasonably
interfere with oil and gas development under the senior leases. It was
thought that deep oil and gas wells could be shut in, then reopened
following the completion of the surface mining operations. However, it
was not envisioned at the time most of the leases were issued that CBM
would become economically valuable or that the resulting conflict would
occur. Consistent with the principles embodied in the Mineral Leasing
Act to conserve the natural resources and with the Federal Land Policy
and Management Act's multiple-use mandate, the BLM supports multiple
mineral development and optimization of the recovery of both resources,
and has worked to encourage settlement agreements between developers.
Conflicts & Agreements in Powder River Basin in Wyoming
The sale of the Thundercloud coal tract in 1998 was the catalyst of
the coal/CBM conflict issue in the Powder River Basin in Wyoming. Four
distinct conflicts arose concerning this coal lease. To address some of
these conflicts, the BLM sponsored Federal mediation among Arch
Minerals Inc., Jacobs Ranch Coal Co. (Kennecott Energy Co.), M&K Oil
Co., and RIM Operating Co. A number of other conflicts still exist
between operators and others are anticipated to develop in the future.
BLM Policy
The BLM has some existing authority under the Mineral Leasing Act,
Federal regulations, and lease provisions to address conflicting
development schemes when the rights to develop both resources are held
by Federal lessees. In dealing with these disputes, the Bureau has
three goals in mind--1) to protect the rights of the lessee under the
terms of its lease and the Mineral Leasing Act, including implementing
regulations and those concerning conservation of natural resources; 2)
to optimize the recovery of both resources (thereby maximizing the
return to the public); and 3) to protect public safety and the
environment and minimizing impacts on local communities. The BLM policy
provides that the initial course of action is to attempt to facilitate
an agreement between the lessees. However, absent a settlement, the BLM
can utilize existing law and regulations, in conjunction with the lease
provisions, to optimize the recovery of both resources.
The BLM is in the process of clarifying and strengthening its
existing conflict resolution policy--which would work in concert with
the conflict resolution provisions of HR 2952--in order to facilitate
more timely resolution and a greater degree of certainty to industry.
Where it is economical to drill to produce methane that might otherwise
be vented during mining, the BLM is prepared to order such drilling
sooner to avoid the waste of this resource. This approach would
encourage conservation of the CBM and coal resources and facilitate
conflict resolution.
The BLM policy will take into consideration the conservation of the
coal resources, while still optimizing CBM recovery, and provide for
high priority processing of CBM applications for permit to drill (or
APDs) in certain conflict zones.
HR 2952
Many of the provisions of HR 2952 will help facilitate the orderly
resolution of the resource development conflicts in the Powder River
Basin in Wyoming. The conflict resolution procedures set forth in the
bill will work in conjunction with the BLM conflict resolution policies
outlined above. Furthermore, the legislation will provide procedures
for timely resolution of conflicts between oil and gas and coal lessees
in those circumstances where the BLM has little or no authority to
regulate non-Federal oil and gas operations (constituting 55% of the
oil and gas estate in the dispute resolution area). H.R. 2952
encourages the conservation of the CBM and the coal resource. The
Department supports the objective of conserving both resources.
The bill mandates a specific schedule for the Secretary of the
Interior and the courts to resolve any development conflicts between
the two resources and provides for the appointment of experts to
appraise the value of potential resource losses. These steps will
ensure a timely and firm resolution of the conflicts between coal and
CBM development. HR 2952 permits the suspension of CBM operations in
order to allow coal production to continue while providing a means for
the oil and gas lessee to be paid equitable compensation. The bill also
provides a means for the termination of producible oil and gas leases,
with compensation for the opportunities foregone, when continued
operation could lead to the bypass of the coal resource.
In resolving these conflicts, time is of the essence. The potential
that coal operations could be suspended while the conflicting
development plans are resolved through traditional administrative and
judicial proceedings has created uneven bargaining power among the
parties in such disputes. The bill provides for expedited judicial
review of orders to suspend operations and production or the
Secretary's decision not to order such suspension. HR 2952 provides not
only for compensation of the oil and gas lessee for its losses, but
also assures that the bill's compensation provisions are the exclusive
remedy.
We are concerned that the bill allows certain credits against
future royalties to compensate for payments made to Federal CBM
developers. The Department is concerned that the burden of resolving
disputes between private oil and gas and coal companies may result in a
reduction of proceeds being received by the American taxpayer.
Nevertheless, we recognize that there are financial burdens associated
with resolving these disputes. HR 2952 provides a judicial process for
resolving these resource development conflicts. In addition, the
Department is considering alternative dispute resolution or other means
to constructively allow the lessees to move forward, while keeping any
adverse impacts to the American taxpayer at a minimum. Overall, we
believe that long term benefits will result by facilitating the planned
development of these resources in the future.
The Department also opposes Section 16(b) of the bill, which would
require that the Secretary make payments to States for coal royalties
that would have been paid, were it not for the royalty credits created
by the legislation. This would require the Secretary to disburse funds
received from other leases to replace the royalties not collected on
these leases. The Department believes it is reasonable to ask the
States, which benefit from the production of the more valuable Federal
coal resource through other tax collections as well as through coal
royalties, to share in the financial implications associated with
conflict resolution. The Department is interested in working with the
Committee to address our concerns with this provision of the bill.
Conclusion
The Department is firmly committed to optimizing timely,
environmentally-sound development of coal, CBM, and conventional oil
and gas in the Powder River Basin. If amended to address the concerns
raised above, HR 2952, coupled with the aggressive use of
administrative measures, can promote timely and equitable production of
these valuable resources. In so doing, it will contribute positively in
our efforts to strengthen our Nation's domestic energy security.
Thank you for the opportunity to testify before you today. I
welcome any questions the Subcommittee may have.
______
Mr. Otter. Mr. Taylor.
STATEMENT OF SHAWN TAYLOR, PROGRAM MANAGER, ENERGY POLICY
DEVELOPMENT, ON BEHALF OF THE GOVERNOR OF THE STATE OF WYOMING
Mr. Taylor. Thank you, Congressman. I appreciate the time
to be here today. It is a privilege for me to be here today on
behalf of Governor Geringer and the State of Wyoming to discuss
legislation that addresses a problem that is very significant
not only to the West, but more specifically to Wyoming and the
Powder River Basin.
The coal and coalbed methane industries have created
thousands of jobs in the State of Wyoming. They provide
millions of dollars to our State's school structure and were
major factors in our State's budget going from a projected $200
million shortfall to almost a $700 million surplus in the past
fiscal year. So I think we are rather fortunate as a State to
be here today to talk about how we can resolve conflicts
between these two industries to continue to develop these
resources that will not only bring continued resources and
revenue into this State, but also contribute to our Nation's
energy security.
As you know, coal currently is used to produce over half
the Nation's electricity. Seventeen percent of that comes from
Wyoming, and more specifically from the Powder River Basin.
However, the national trend is moving toward using natural gas
to produce your electricity. Wyoming and the Powder River Basin
has an abundance of both of these resources, and that is one of
the reasons Governor Geringer and the State legislature created
the Wyoming Energy Commission earlier this year in order to
find ways to capitalize or take advantage of the fact that
Wyoming has these resources, an abundance of these resources,
and the Nation's demand for these.
In Wyoming, where nearly all of the coal and nearly half of
the oil is owned by the Federal Government and managed by the
Bureau of Land Management, I think it is imperative that we
have a Director in place to provide management and to enforce
the BLM's policy on conflicts between coalbed methane and coal
development which was issued in February of last year.
I understand Mr. Fulton and Chad Calvert has promised that
Mrs. Clark's name is going to go to the Hill next week, so I
urge our Senators in the other Chamber to do what they can to
make sure that her confirmation process is expedited.
In closing, in an age where people are all too eager to
head to the courtroom to settle disputes, it is encouraging to
have legislation such as H.R. 2952 that will establish rules,
timelines and procedures to resolve conflicts between two very
critical industries in our State. This legislation is a good
start. I realize it doesn't include the entire Powder River
Basin, and there has been legislation in the past that has
included the Montana portion of the basin. However, once we
prove that we can do it right in Wyoming, I think other States
will follow suit.
The State and Governor Geringer supports this legislation,
and we thank you, Madam Chairman and our Senators Mr. Enzi and
Mr. Thomas for giving this issue the proper attention that it
deserves. Thank you.
Mrs. Cubin. Thank you.
[The prepared statement of Mr. Taylor follows:]
Shawn West Taylor, Energy Policy Development Program Manager, Wyoming
Energy Commission, on behalf of Governor Jim Geringer and the State of
Wyoming
Madam Chairman and distinguished members of the Subcommittee my
name is Shawn Taylor and I am the Energy Policy Program Manager for the
Wyoming Energy Commission. It is a privilege for me to be here today to
testify on behalf of Governor Geringer and the State of Wyoming and to
discuss legislation that addresses a problem that is very significant
to the West and more specifically to Wyoming.
The coal and coalbed methane industries have created thousands of
jobs in the state of Wyoming; they provide millions of dollars to our
schools and were major factors in our states budget going from a
projected $200 million shortfall to a surplus of almost $700 million
over the past fiscal year. So I think we are rather fortunate as a
state to be here today to talk about how we can resolve conflicts
between these two industries and continue to develop these resources
that will not only bring continued revenue to the state but also
contribute to our nations energy security.
As you know coal currently is used to produce over half the
nation's electricity, 17% of that comes from Wyoming and the Powder
River Basin. However the national trend is moving towards natural gas
produced electricity. Wyoming, and more importantly the Powder River
Basin, has an abundance of both of these resources and that is one of
the reasons Governor Geringer and the state legislature created the
Wyoming Energy Commission, to find ways to capitalize on our supply and
the nations demand.
In Wyoming where nearly all the coal and over half of the oil and
gas is owned by the federal government and managed by the BLM, I think
it is imperative to have a director in place to provide guidance for
this management and to enforce the BLM's ``Policy on Conflicts between
Coal Bed Methane and Coal Development'', which was issued in February
of last year. Having said that, I urge our Senator's to do what they
can in the other chamber to get Mrs. Clark's confirmation process
expedited.
In an age when people are all too eager to head to the courtroom to
settle disputes it is encouraging to have legislation such as H.R. 2952
that will establish rules, timelines and procedures to resolve
conflicts between these two critical industries. This legislation is a
good start, it doesn't include the entire Power River Basin, however
once we prove that we can do it right in Wyoming I think other states
will follow suit. The State and Governor Geringer supports this
legislation and thanks you Madam Chairman and Senators Enzi and Thomas
for giving this issue the proper attention it deserves. Thank you.
______
Mrs. Cubin. I will go ahead and start the questioning, and
forgive me for stepping away. We don't eat around here, you
just have to grab something on the fly. That is what I had to
do today.
Question for Mr. Fulton. You state that the Interior
Department objects to section 16(b) that bars the State sharing
in the coal royalty credit burden. Can you tell the
Subcommittee whether the administration would support the
slimmed-down royalty credit provision if the State were to
fully share in that burden?
Mr. Fulton. I think that is the concern here, that the
State benefits from the royalty and the bonuses, and this is a
problem inside Wyoming that it is--the two resources are an
extraordinary gift that Wyoming has for the people of the
Nation.
And I think these issues can be resolved equitably if all
parties sit down and honestly look at resolving them, and we
would consider the State to be an important part of that. This
would be one of those ways.
Mrs. Cubin. For the you, too, Mr. Fulton. For the North
Jacobs Ranch coal lease that is scheduled for this winter, is
it true--which I believe it to be, but I would like your
opinion--that the BLM can expect significantly higher bonuses
to be proffered if the bidders know that any CBM which is for
some reason unable to be extracted before the mining will be
brought out under the provisions of this bill? Do you think
that that will help increase the bids if we get this bill
passed, in other words?
Mr. Fulton. Yes. I think that is entirely correct.
Mrs. Cubin. Mr. Taylor, I don't really need to ask you this
question, but I will.
Mr. Taylor. Okay.
Mrs. Cubin. It is the same question that I just asked Mr.
Fulton about section 16(b) of the bill. Can you tell the
Subcommittee whether the State would support the slimmed-down
royalty credit provision if the State had to share in part of
that burden?
Mr. Taylor. At this time, Madam Chairman, the State would
oppose any changes to the current legislation. I know I am
preaching to the choir when I talk about how dependent our
school structure is on the energy and the minerals that we have
from our State, and to--to take that away would be a big blow
to our school system.
Mrs. Cubin. Well, another thing that comes to my mind is
that--the fact that our coal pays 40 percent of the entire AML
fund, and we don't get it back. We don't get what we are
supposed to get. So I don't like for the State to have to pay
more either, but I do hope that we can get a resolution so that
these agreements can move forward and so that the minerals can
be produced in a timely manner.
So I hope that we will be able to find some compromise, or
I hope that somebody will yield. I don't know exactly how that
will go yet.
Again, Mr. Taylor, I understand that Wyoming passed
legislation that was designed to resolve these kind of mineral
conflicts. Could you describe how that process works and if it
has been very successful so far?
Mr. Taylor. I know it has been successful, but I couldn't
tell you how it works. I can definitely get back to you and
give you move detail on how it works.
Mrs. Cubin. Do you know when that was passed or how long it
has been in effect?
Mr. Taylor. A couple of years, I believe.
Mrs. Cubin. Okay. You have heard the administration witness
state that the Feds have a problem--never mind. I just did ask
you that.
Back to Mr. Fulton. On February 22nd, 2000, just prior to
the Senate hearing on S. 1950, the BLM issued its policy on
conflicts between coalbed methane and coal development, a
report, I think. Could you bring us up to date on whether the
policy has been applied and an assessment of its effectiveness?
Mr. Fulton. Yes. It is my understanding from the Bureau
that the instructional memorandum of February of 2000 has, in
fact, been applied in several instances in the Powder River
Basin, and that in their view it has successfully resolved some
of the conflict on this issue.
Mrs. Cubin. You stated that under BLM's policy that BLM is
prepared to order CBM drilling to produce the CBM that would
otherwise be vented by coal mining. Has BLM ordered any of
those things to be done?
Mr. Fulton. It is my understanding that BLM has directed
one company to do exactly that, and it is also my understanding
that the company complied.
Mrs. Cubin. As you know, we have talked before, but as you
know, part of the--the reason this bill is here is because I--
at a point in time we--I felt, actually still do, that BLM
could have handled this without this legislation. But it was
the State director's feeling that it couldn't, and therefore
the legislation.
What is BLM doing to expedite the timely permitting and
drilling of CBM wells within that conflict resolution area?
Mr. Fulton. Well, there are a number of things. We have
done an environmental--BLM has done an environmental assessment
to get a handle on the drainage problem. We are prioritizing
the approval of the APDs where--that are within the conflict
area. We have conducted reservoir studies to get a feel for the
size of the problem, and we have sent letters to operators
telling them that we need to get this work done not to lose
both of those resources.
Mrs. Cubin. One last question. We have been told by several
different people from the BLM that they don't feel that they
need more personnel, which is always, you know, a happy song in
my ears. However, we have--I can't remember if it is 3,500 or
2,500 APDs pending in the Powder River Basin. So how long--how
long before those are processed?
Mr. Fulton. Madam Chair, it is certainly my hope that we
can get that backlog taken care of with the additional
resources that the Committee and the Congress have provided,
and I think we can, as I said earlier when we visited about
this issue last. And I am going to hold to that. It will--it
will be our effort within the administration of the Department
of Interior to get those applications processed.
Mrs. Cubin. Do you have any idea what length of time will
be involved?
Mr. Fulton. I recall--2 years we would have them--no longer
a backlog.
Mrs. Cubin. Thank you, very much.
Mr. Otter. Thank you, Madam Chairman.
Mr. Fulton, you stated in your opening comments that you
had three goals in mind, that there were basically three
missions in mind. Number one was to protect the rights of the
lessee, number two was to provide the maximum return from the
resource, and number three was for safety, and I can see where
safety is important. Do you ever find that number one and
number two are in conflict?
Mr. Fulton. Well, yes. But it is--it is a matter of trying
to get the highest possible benefit both to the public and
while trying not to override the lesser one, so it is a
balancing act. I mean, it is a matter of trying to get the best
possible situation in each individual case.
Mr. Otter. Have you ever had those two in conflict? Do you
know of a resolution of a result of having the leaseholder
rights and then the maximum return be in conflict with each
other? If so, what was the resolution?
Mr. Fulton. Well, it is my understanding that when those
conflicts arise, that we are looking for an optimal result not
to maximize any one piece of that, but rather to balance, to
try to achieve a result that doesn't tilt it too far in either
direction.
I am not aware of a specific instance, but we can certainly
get that for you if you are interested.
Mr. Otter. I see.
Mr. Taylor, in the legislation that was passed in Wyoming
to provide for a resolution of those sort of problems, have you
employed that legislative solution?
Mr. Taylor. Yes, we have.
Mr. Otter. Successfully?
Mr. Taylor. Very successfully.
Mr. Otter. Can you give me an example?
Mr. Taylor. No, I can't. But I have heard from a number of
people that it has been used, and it has been successful. But I
can get you examples.
Mr. Otter. Maybe I should ask the question in a different
way. Would it be a shortcut to solution if the Congress were to
adopt the legislative process and the resolution process that
the State of Wyoming has adopted?
Mr. Taylor. I think that might be a good idea.
Mr. Otter. That was--the big $64 question is what is the
formula, isn't it? I would like to ask, Madam Chairman--I would
ask without objection that you provide us with that legislation
and what that solution is, and that that become, without
objection, part of the record for this meeting.
Mr. Taylor. I will get that to you right away.
Mr. Fulton. Mr. Chair, if I could ask that the
administration get a copy of that as well. We would be
interested in taking a look.
Mr. Otter. They may have already answered the question.
Mr. Fulton. They may have.
Mr. Otter. There is hope yet. I would note that Mr. Rehberg
has joined us.
Mr. Rehberg, the floor is yours for 5 minutes.
Mr. Rehberg. I do not need that.
Mr. Otter. If there is no further questions--.
Mr. Rehberg. Unless I can just ask Mr. Fulton a question
that I haven't asked him this week. Where are we with the Otter
Creek?
Mr. Fulton. We are certainly working on that, sir.
Mr. Rehberg. I will ask you again next week.
Mr. Otter. If there is no further questions, power is
fleeting even in this organization, so I will relinquish the
Chair to the Chairwoman.
Mrs. Cubin. [Presiding.] Thank you. I don't have any more
questions, and I thank the panel for their testimony and their
answers. I would like to point out that Mr. Taylor is pretty
new on the job that he is here to testify before us about, and
so that is one of the reasons that he might not have some
examples for the Committee today. But he is very capable, and I
know will get the information we asked for. So thank you very
much.
I would now like to call the next second panel: Mr. Ryan
Tew, who is the senior counsel of Peabody Energy Corporation,
on behalf of the National Mining Association; Mark Sexton,
president of Evergreen Resources, on behalf of the Independent
Petroleum Association of the Mountain States; and Mr. V.A.
(Bud) Isaacs, president of Rim Operating Companies.
Thank you. Thank you, all three of you, for being here.
The Chair now recognizes Mr. Ryan Tew to testify for 5
minutes. And once again, the timing lights are on the table in
front of you, and they will indicate when your time has
concluded. While the oral testimony is limited to 5 minutes,
your entire statement will be entered in the record.
Mr. Tew.
STATEMENT OF RYAN TEW, SENIOR COUNSEL, PEABODY ENERGY
CORPORATION, ON BEHALF OF NATIONAL MINING ASSOCIATION
Mr. Tew. Thank you, Madam Chairman, members of the
Committee. Thank you. I am delighted to be here today
representing not only Peabody Energy Corporation, but also the
National Mining Association. I am here today because H.R. 2952
is important not only to my company, but to the American coal
industry. Although the bill has effect on only a relatively
small part of the northeastern corridor of Wyoming, that small
area measuring approximately 400 square miles produces about
one-third of the Nation's coal, and coal produces over one-half
of America's electricity.
America's coal companies invested hundreds of millions of
dollars each in the Powder River Basin infrastructure and
produced hundreds of millions of tons of coal in the 15- to 20-
year period before anyone seriously contemplated producing
coalbed methane from the area. However, as those before me have
indicated, the area is now covered not only by coal leases, but
also by oil and gas leases, so that there are conflicts in some
cases.
The fundamental law of physics is that two people cannot
occupy the same location at the same time, and that has been
the source of our problem here in the Powder River Basin. There
has been a lease for coal and for coalbed methane for the same
area, hence the conflict.
The maps that are displayed here in the room show the area
of the conflict. There are really three subareas of pods that
we refer to from time to time, the northern pod, central pod
and southern pod that are shown in the map that is closest to
the wall. And the larger-scale map that is closer to me shows
the area in general.
Although there are conflicts in the area--.
Mrs. Cubin. Can we have staff bring that closer so that we
can see that better, even if it is up here in between the two
levels, please?
Thank you.
Mr. Tew. Although there are conflicts in some of the areas
that are depicted in these maps, we believe that the
legislation, H.R. 2952, provides an excellent vehicle to
resolve the conflict for at least three fundamental reasons.
The first is that the methodology that is provided by the
legislation is fair. It provides for full participation of all
of the parties that have an interest in the conflict, it
provides for a fair market value to be paid to those interests
who may have to step back and allow another interest to produce
first, it allows for experts to determine the valuation, and it
provides no extraordinary leverage to one party over another in
negotiations, all of which are improvements over the current
system of resolving difficulties.
Secondly, the methodology that is proposed by this
legislation does not compromise the Nation's energy security or
its energy supply. It does not leave us with the possibility
that we may have a significant portion of the energy supply be
compromised by delay or being ultimately being unable to be
produced. It allows for a quick and orderly method for these
disputes to be resolved, for them not to drag on with
uncertainty for the parties until such time as there is
necessarily a difficulty not only for the Nation, but also for
the parties themselves.
And finally, the methodology as set forth in legislation is
relatively simple. Although there are some provisions that
require--that set forth procedures that will be followed in the
dispute resolution policy, overall this policy--this procedure
will be much more brief, no longer than 14 months in duration,
than the procedure that is used presently, and certainly much
more brief than would be the case if these disputes needed to
be resolved through the courts, in which case we would
anticipate a period of several years before final resolution
could be reached.
We believe that this legislation takes into account not
only these three factors that I have referred to, but also
takes into account other factors that are important in
determining which mineral interest owner has the opportunity to
exercise its rights first. Those include factors such as which
has made the greater investment, which has been there longer,
which is permitted more, which has the greatest impact on
employment, which has the greatest impact on the Nation's
energy security system.
And for these reasons we, not only with the Peabody Energy
Corporation, but also the National Mining Association, fully
support this bill and ask the Committee to favorably consider
it.
That is the end of my prepared remarks. I would be happy to
attempt to answer any questions that the Committee may have.
Mrs. Cubin. Thank you, Mr. Tew.
[The prepared statement of Mr. Tew follows:]
Statement of Ryan Tew, Senior Counsel, Peabody Energy Corporation on
behalf of Peabody Energy Corporation and The National Mining
Association
Good Afternoon, Madam Chairman:
My name is Ryan Tew. I am Senior Counsel for Peabody Energy
Corporation. I am appearing here, not just on behalf of my company, but
also on behalf of the National Mining Association (``NMA''), to testify
in favor of H.R. 2952, The Powder River Basin Resource Development Act,
which has been introduced by Chairman Cubin.
General Introduction
Peabody Energy Corporation, headquartered in St. Louis, is the
largest coal producer in the United States. In 2000, our operating
subsidiaries mined 181.6 million tons of coal - approximately 16.9% of
the nation's production--from surface and underground mines in Wyoming,
Arizona, Indiana, Montana, Colorado, Illinois, West Virginia, Kentucky
and New Mexico. This coal fuels more than 9% of the electricity
generated in the United States.
In 2001, we expect to mine more than 100 million tons of low-
sulfur, sub-bituminous coal from our three surface mines in the Powder
River Basin (``PRB'') of Wyoming - North Antelope/Rochelle, Caballo and
Rawhide. Some of you have been to North Antelope/Rochelle, the Nation's
largest surface mine and have seen the quality of work and
environmental reclamation we conduct. For those of you who have not, I
would like to extend an invitation to you.
The National Mining Association (NMA) represents producers of over
80 percent of America's coal, a reliable, affordable, domestic fuel
that is the source for over fifty percent (50%) of the electricity that
America uses today. NMA also represents companies that produce metals
and non-metals, companies that are among the nation's larger industrial
energy consumers. Members also include manufacturers of processing
equipment, machinery and supplies, transporters, and engineering,
consulting and financial institutions serving the mining industry.
Powder River Basin Discussion
The Powder River Basin (PRB) coal field, located in Wyoming and
Montana, includes over one trillion tons of coal reserves--in place''.
Over 60 billion tons of these reserves are known to be economically
recoverable with today's technology. The PRB contains a truly
extraordinary seam of coal, the Wyodak. The seam ranges from 60--90
feet in thickness and geologically resembles an enormous, elongated
bowl that is roughly 80 miles across and 120 miles long. The first map
indicates its size and location. There are 14 large surface mines in
the PRB of Wyoming, all producing coal from the eastern edge (or the
outcrop) of the Wyodak seam. These mines are all located at a point
where the coal seam is most shallow--where it virtually intercepts the
surface. As the seam moves west, it gets progressively deeper and
actually thicker, as it quickly reaches depths that are not
economically recoverable with either today's surface or underground
mining techniques. PRB coal represents 32% of the coal produced in the
United States.
This enormous coal reserve contains coal that is low in sulfur and
is also low in inherent NOX when burned in power plants. As a result,
coal production in the PRB has increased dramatically over the past two
decades rising from just under 95 million tons per year in 1980 to
nearly 350 million tons in 2000. PRB coal, delivered to 124 U.S. power
plants in 26 states offers a primary source for low cost electricity
generated from coal.
Whether viewed as an economic or as a domestic energy security and
reliability issue, continued coal production from the PRB is critically
important to the United States. It is equally important to the people
of Wyoming. In 1999, PRB coal production generated nearly $202 million
in state and local property taxes; $193.5 million in federal royalties
(shared equally by the United States and Wyoming); almost $116 million
in abandoned mine land fees and $72.9 million in black lung taxes;and
tens of millions of dollars in payroll taxes, income taxes, etc. In
total, coal produced from Wyoming represented over $3.2 billion to the
total economy of that state. Although the precise data is not yet
completed, the economic impact of the coal produced in the year 2000
from the PRB will mean even more revenue for Wyoming than in 1999.
Conflicts Background
A brief history of mineral leasing demonstrates the need for H.R.
2952.
Virtually all of the coal and approximately 50% of the oil and gas
in the PRB is owned by the federal government and managed by the Bureau
of Land Management (BLM), Department of Interior under the Mineral
Leasing Act of 1920. The remaining oil and gas is owned either by
private landowners, conveyed under homestead laws enacted in 1920 and
1916, or by the States, conveyed under the statehood acts. Mineral
developers have leased vast tracts of these minerals from their
federal, State, or private owners.
The conflicts exist because BLM has issued both federal coal leases
and federal oil and gas leases for the same locations in the PRB. It
also has leased federal coal in areas that have already been leased by
private landowners or the State for oil and gas development. In those
areas leased both for coal and for oil and gas (``common areas''),
disputes over timing of mineral development have arisen. For safety and
operational reasons the resources typically cannot be developed
concurrently. The sequence of development in the common areas
frequently becomes a critical issue, because production of any one of
the minerals can result in the loss of another. For example, the CBM
will be vented if the coal is mined first; the coal may be bypassed if
the CBM is produced first. Even if a mineral is not lost, major costs
can be incurred due to the delay or interruption in that mineral's
development to accommodate another mineral's earlier production (e.g.,
the costs of plugging a deep gas or oil well below the coal seam and
removal of gathering lines until mining is completed, or of delaying
the progression of the coal mine until production of the oil or gas
ceases).
No clear statutory direction exists to resolve disputes over the
sequence of mineral development in the PRB's common areas. The BLM
provided no guidance to its lessees, and set no conditions in its
leases, for the resolution of these disputes. Even after the BLM issued
its official ``Policy on Conflicts between Coal Bed Methane and Coal
Development'' on February 22, 2000, the agency's officials in the field
have continued to inform federal lessees in the common areas that they
must work out mineral development disputes on their own, without BLM's
assistance or direction. In addition, the BLM continues to issue both
coal leases and oil and gas leases--and to approve both mine plans and
applications to drill--in the same locations in the PRB. In short, the
de facto policy of BLM merely to direct the companies to work out the
issues among themselves continues as it has for the last 25 years.
As a result of the absence of dispositive federal law or policy,
coal developers and oil and gas developers in the PRB's common areas
have attempted to negotiate private mineral development agreements. The
few agreements reached to date require the coal developers to pay the
oil and gas developers to ensure that mines on federal leases can
continue to operate. The coal developers believe these agreements are
inequitable, because the coal operators have made major capital
investments and do not have the flexibility to alter their mining plans
to accommodate oil and gas wells. The oil and gas developers seek
unreasonable compensation, because the coal developers simply cannot
afford extended negotiations or prolonged litigation in the face of the
economic consequences of idling drag lines, paying royalties on unmined
bypassed federal coal, and dealing with breached contractual
obligations. Another representative of the coal industry from the PRB
testified before this Subcommittee in the last Congress that his
company estimated that past agreements have called for payments to the
oil and gas developers of 3 to 5 times the fair market value of the
unproduced oil and gas. This situation is not isolated.
Lengthy Negotiations or Extended Litigation are not Viable Alternatives
Generally we agree that the best parties to resolve issues of
conflict are those who know the most about their own businesses--the
coal company which wishes to exercise the rights granted it to extract
coal under its federal coal lease, and the oil and gas producer which
has drilled a well or wells into oil and gas bearing horizons. But,
unfortunately, sometimes these issues cannot be worked out reasonably.
Sometimes, people are not reasonable. Companies which operate coal
mines in the PRB have frequently learned that the price of mining
through an existing oil and gas well is the payment of excessive
payments. The federal lessor frequently is not paid its full share of
the royalty on the payment made by the coal developer to oil and gas
developer nor is the State of Wyoming rendered its statutory share. BLM
indirectly promotes this behavior, nevertheless, by the absence of any
policy governing conflicts in multiple mine development.
Some representatives in the oil and gas industry contend that the
principle of ``first in time, first in right'' governs matters of
conflict in multiple mineral development. This principle means to them
that the first entity which was issued a lease, whether it be to a coal
or oil & gas company, must be given the complete and unfettered right
to develop its reserve without interference from the junior holder.
While ``first in time, first in right'' is certainly a well established
principle of oil and gas law, it has not been applied to coal conflict
situations, as some in the oil and gas industry suggest. Historically,
it is a rule of law that has applied to conflicts in title to disputed
property. It is not a rule that governs the priority of development of
different mineral estates.
The common law has resolved conflicts between oil and gas versus
coal or other solid mineral lessees by relying on other principles. We
would suggest that the rule of accommodation is more appropriately
applicable. Furthermore with regard to lands covered under the 1909 and
1910 Coal Lands Act, in which the U.S. reserved the coal when issuing
land grants, the U.S. Supreme Court has suggested in at least one case,
that ``first in time, first in right'' actually may have been
established at the time the U.S. originally reserved its coal rights,
not when the coal was leased.
Federal coal leasing statutes and regulations require that federal
coal lessees meet diligent development, maximum economic recovery, and
continuous operations requirements or pay penalties in the form of
royalties on bypassed coal, advance royalties, or even lease
forfeiture. These constraints restrict coal developers'' ability to
undertake prolonged litigation to resolve the legal questions raised
above. Business considerations including contractual obligations to
utility customers exacerbate the predicament. Operational factors
involving the movement or idling of massive and expensive machinery, as
well as the economic plight of thousands of mine workers in PRB, play
into the resolution of resource conflicts the coal operator never
contemplated when it made the decision to pay millions of dollars in
bonus bids for the right to mine the federal coal resource.
All of these considerations weigh on the coal lessee when it must
decide whether to endure extended litigation. These same concerns enter
into the decision to undertake lengthy negotiations in a market skewed
by the fact that the value is not determined between a willing seller
and a willing buyer, but rather between a coal lessee and an oil and
gas developer who is not confronted by similar statutory or economic
constraints. In short, our business enterprise is being held for
ransom.
The cards are further stacked against a coal producer by an
intentionally transparent process of providing information and public
participation. Under the terms of the Surface Mining Control
Reclamation Act of 1977 (``SMCRA''), before we are able to obtain a
permit to mine, we must submit a very detailed mining and reclamation
plan to both the state and federal government regulators covering the
life of the mine. As an initial part of that process, we usually must
go through the NEPA process of EIS preparation, which involves
extensive public participation. Additionally, we are required by both
federal and state statutes to go through another, very extensive, round
of public participation, in that we must submit a written notice to
every owner of any interest whatsoever within the life of mine permit
area as well within one half mile outside the permit area, advising
each of them of our pending operations and giving each of them an
opportunity to object. In fact, we must explain to each of them how
they can object if they choose.
Over the years oil and gas interests have come keenly to appreciate
their leveraging position in the mine permitting process. In fact, it
is typical for the Wyoming Department of Environmental Quality to
receive protest notices from some individual oil producers in or around
a coal mine permit area who demand that the operations not continue
unless the oil and gas owner is somehow satisfied (usually
financially). As a coal industry, despite the inequity, we have come to
terms with this process, and we deal with it.
H.R. 2952 will provide a predictable and fair resource development
dispute resolution mechanism where negotiations are unsuccessful and
extended litigation will prejudice coal lessees and needlessly add to
already crowded federal court dockets.
CBM Development
The issues described thus far concern the conflict in developing
two different minerals, each of which occupy a different physical space
(deep oil and gas) as well as CBM. As difficult as this situation has
been since the 1970s, it became infinitely more complicated in 1998
with the increased potential for coal bed methane development. Unlike
the traditional conflict, Coal and CBM conflicts pit two owners, one
seeking to extract gas from the very coal seam leased by the other.
It is important to recognize that coal operators that bid on
federal coal leases in the conflict area prior to the potential for CBM
development did not take into economic consideration in preparing their
respective bid packages the potential of conflicting coal bed methane
development. How could they? BLM itself has acknowledged that they did
not take such conflicting development into account in their economic
equation. The BLM did not even believe that coal bed methane existed in
economically recoverable quantities when these leases were made
available.
If coal companies bidding for the leases in the conflict area had
known of the potential for conflicts with other coal bed methane
developers, they likely would have discounted their bids significantly.
It is fundamentally important to recognize that, unless a provision
such as that which is contained in H.R. 2952 to allow a royalty credit
for such coal bed methane conflict resolution payments is enacted,
Peabody and other producers of coal from federal leases will suffer
considerable damages. Coal lessees in the conflict area have paid
hundreds of millions of dollars for leases which contain significantly
diminished rights and economic benefits compared to those that BLM
represented they would receive as the successful bidder. If H.R. 2952
is not enacted, future coal bids will likely be significantly
discounted, thus resulting in diminished revenues to both the Federal
and Wyoming governments.
BLM's February 22, 2000 Conflicts Policy
On February 22, 2000, BLM released a new policy that purportedly
deals with issues of conflict. In some limited respects, the contents
of the policy are a step in the right direction; in other areas, it is
a major step in the wrong direction. However, this policy fails to deal
in any manner whatsoever with the questions before us today: What
happens if conflicting parties with existing leases cannot reach
agreement? Without legislation, an agency policy cannot adequately
address existing coal and oil and gas leases, (particularly where wells
already exist or coal bed methane wells now scheduled are drilled in
the PRB) and where there is imminent conflict.
Without legislation, coal producers will be exposed to paying an
ever increasing ransom, far in excess of fair market value to mine coal
that the federal government leases with an implicit promise of
development. The coal industry must have a mechanism to resolve
conflicts if agreements cannot be reached. We believe that the
provisions embodied in the H.R. 2952 represent that solution.
Concerns Raised by Opponents of H.R. 2952
The attached maps depict the vastness of the Power River Basin coal
field and the coal bed methane that is contained therein, indicates
that less than 2% of the PRB area has conflicts between coal and coal
bed methane development. 98% of coal in the PRB is not economically
recoverable now or in the foreseeable future, so we are dealing with an
area of potential conflicts that represent a very, very small portion
of the total Basin area.
Some opponents of the bill argue that the bill will establish an
adverse precedent in other areas. This clearly is not the case. By its
very terms, it is applicable only to a limited and defined portion of
PRB and will not change existing law with regard to other areas of the
country or other minerals. Section 17 at the bottom of page 26 of H.R.
2952 provides expressly that:
SEC. 17. DENIAL OF USE AS PRECEDENT. ``Nothing in this Act
shall be applicable to any lease under the Mineral Leasing Act
or the Mineral Leasing Act for Acquired Lands for any mineral,
or shall be applicable to, or supersede any statutory or common
law otherwise applicable in, any preceding in any Federal or
State court involving development of any mineral outside of the
common area and within or outside the Powder river Basin.
Simply put: H.R. 2952 is not a precedent for wider application.
Industry Position on H.R. 2952
NMA and Peabody Energy favor private resolution of conflict issues,
wherever and whenever possible. The conflict resolution proceedings
established by H.R. 2952 would only be implemented on those occasions
when disagreements persist and a third party must enter and resolve the
dispute. H.R. 2952 would provide the missing statutory direction to
resolve these mineral development disputes. It would establish a formal
dispute resolution proceeding to be used only in the common areas
within the maps designated ``Dispute Resolution Area'' in the Wyoming
portion of the Powder River Basin and only as a last resort if private
negotiations and the February 22, 2000 BLM administrative policy fail.
Nothing in this bill prevents BLM from adopting policies or
promulgating regulations as to how conflicts can and should be resolved
in the longer term to avoid the ``last resort'' mechanism specified in
H.R. 2952. And, as a practical matter, the H.R. 2952 mechanism likely
will only be employed a few times in the court, because the parties
will quickly realize the fair market value methodologies which are
utilized by the panel of three experts and will thereafter resolve
their differences through private negotiations, without the need for
seeking judicial intervention.
This dispute resolution proceeding would (i) determine whether the
suspension of an oil and gas lease or development right in a common
area within the Dispute Resolution Area is necessary in order to allow
coal development to continue in accordance with the mine plan, and (ii)
calculate, and provide for the payment of the lost net income and fixed
costs to the owners of the suspended oil and gas lease or right to
develop.
It must be re-emphasized that the bill requires the mineral
developers to negotiate a possible resolution of each dispute first. If
both negotiations and BLM's conflict policy fail, either the coal
developer or the oil and gas developer can invoke the formal resolution
proceeding established by filing a petition with the local federal
court. Without these resolution mechanisms, if negotiations collapse,
coal development in the PRB and the many of the benefits derived by the
State of Wyoming and the federal treasury could be significantly
reduced. As a result, the Nation's largest source of its most abundant,
affordable and reliable energy resource could be compromised.
In short, Peabody Energy Corporation and NMA maintain that the
passage of H.R. 2952 is very important to the orderly development of
energy resources in the designated Wyoming portion of the Powder River
Basin.
Conclusion:
The provisions of the Powder River Resource Development Act will
reduce uncertainties, promote expeditious resource recovery, and
establish a fair and predictable procedure for resolving resource
development conflicts in the area representing approximately 2% of the
PRB coal region where conflicting leases and existing mines already
exist.
In summary, H.R. 2952 would merely establish that, if an oil or gas
well is in conflict with imminent coal production, the oil and gas
developer will receive full and fair market value for the well, even if
the lease is junior in time to the coal operator's. In addition, the
legislation will actually reduce confusion and conflict (and thus the
potential for litigation between the parties - including the United
States) and will strengthen BLM's ability to require diligent
development of coal bed methane operations. Very significantly, H.R.
2952 will increase revenue to both the federal and Wyoming treasuries
by establishing an economic foundation which results in full,
undiscounted federal coal bonus bidding rather than the present
situation, which will likely result in coal companies discounting
significantly their bids in anticipation of payments (usually 3-5 times
fair market value) to oil and gas operators that are in conflict.
We particularly appreciate the valuable guidance, direction and
leadership of Chairman Cubin on this legislation. We all thank you for
your leadership, Madam Chairman. We, as Wyoming Powder River Basin coal
producers, and the National Mining Association, believe that H.R. 2952
represents a fair piece of legislation which requires urgent and
favorable consideration.
Thank you very much for your time. I will be happy to answer any
questions you might have.
______
Mrs. Cubin. The Chairman now recognizes Mr. Sexton.
STATEMENT OF MARK SEXTON, PRESIDENT, EVERGREEN RESOURCES, ON
BEHALF OF INDEPENDENT PETROLEUM ASSOCIATION OF THE MOUNTAIN
STATES
Mr. Sexton. Thank you, Madam Chairman and members of the
Subcommittee. I am Mark Sexton, president and CEO of Evergreen
Resources, Inc., a Denver-based exploration and production
company specializing in coalbed methane production in the Raton
Basin in southern Colorado, in addition to coal-methane
projects we have throughout the world including United Kingdom,
Alaska and other areas.
I serve on the board of directors of the Independent
Petroleum Association of Mountain States, known as IPAMS. I am
also a member of the coalbed methane Subcommittee of IPAMS and
the legislation, legal and regulatory Committee. I am the
president-elect of the Colorado Oil and Gas Association, as
well as a member of IPAA's board of governors. These are all
nonprofit, nonpartisan trade associations that represent
independent oil and gas producers, surface and supply
companies, banking and financial institutions.
IPAMS, operating in the 13-State Rocky Maintain region,
including the State of Wyoming, represents substantially all of
these companies producing coalbed methane in Powder River
Basin. I am representing IPAMS at this hearing today. IPAMS
welcomes the opportunity to provide you with our testimony
concerning H.R. 2952.
IPAMS has been an active participant in the negotiations to
develop solutions to the resource conflicts in the Powder River
Basin as well as efforts to draft acceptable legislation since
the association first became aware of these conflicts. IPAMS
appreciates Representative Cubin's and the Wyoming Senators
regarding these conflicts and appreciates your continued
support for domestic energy production.
H.R. 2952 has been introduced in an attempt to resolve
conflicts between coal producers and producers of coalbed
methane, or CBM, in portions of the Powder River Basin.
Although well-intentioned, 2952 effectively grants coal
producers the right to condemn, vent and waste coalbed methane
and to deduct the cost of condemnation from payments of their
Federal coal royalties. Where these conflicts exist in the
Powder River Basin, the oil and gas producers hold senior lease
rights, having executed their leases before the coal companies
sought leases in the area.
IPAMS is opposed to H.R. 2952 because it is simply not
needed. 2952 is not a consensus bill, it is a special interest
legislation that favors one resource over another at the
expense of taxpayers. It sets a poor precedent for resolving
resource conflicts. It encourages waste of the valuable CBM
resource. It fails to fully and fairly compensate CBM producers
for the loss of their resource. It is constitutionally flawed.
The so-called conflicts are extremely localized,
encompassing a very minute portion of the Powder River Basin.
Those are local issues that have been and are being resolved
locally through private negotiations allowing the development
of both valuable resources. Rather than promote the cooperative
production and recovery of all valuable energy resources, 2952
encourages the condemnation, venting and waste of CBM at
taxpayer expense.
2952 delegates the power of condemnation to private coal
companies and allows Federal funds to be used to condemn senior
property rights held by domestic oil and gas companies. It
amounts to a taking of private property rights not only on
Federal oil and gas leases, but also on State and private
leases. It also sets un unwarranted and dangerous precedent for
management of public lands and resources.
We are fooling ourselves if we do not acknowledge that this
bill will set a political, if not a legal precedent, and
precedents were cited here in a lot of testimony already. If
this bill is passed each time a resource industry feels that it
needs to help in private negotiations with a competing
industry, it will come to Congress for a similar fix.
I am familiar with potential conflicts between coal
producers and CBM producers in the Raton Basin in Colorado. I
have come to successful business resolutions between Evergreen
and prospective coal producers in the Raton Basin that will
provide for cooperative development of both resources. It can
be done. It is being done.
IPAMS supports the process by which all of the resources in
the Powder River Basin can be developed to the fullest extent
possible while protecting the health and safety of the citizens
of Wyoming and the quality of the environment.
IPAMS also supports private business negotiations in lieu
of government intervention. Policies and procedures are in
place, along with a number of privately negotiated agreements,
that have successfully resolved conflicts between coalbed
methane and coal producers in the PRB. IPAMS strongly supports
the Bureau of Land Management's formal written policy for
resolving this type of conflict, IM No. 2000. We believe this
policy has worked and is working; therefore, there is no need
for Congress to intervene and enact sweeping legislation.
May I have another 30 seconds?
If, despite the serious policy issues raised by IPAMS,
Congress is still intent on enacting condemnation legislation,
IPAMS supports legislation that provides for condemnation by
the Federal Government, not by private business entities. IPAMS
supports legislation that provides for fair and adequate
compensation for the loss of investment in its leases,
including the loss of future oil, gas and coalbed methane
production from the lease, the loss of coalbed methane created
by nearby mining, and the loss of investment in facilities and
equipment, such as gathering systems, compression facilities
and pipelines.
Thus summarizing, H.R. 2952 is not needed. We already have
the policies in place that are needed. H.R. 2952 sets a poor
precedent for resolving resource conflicts. It encourages waste
of the coalbed methane resource. It fails to fully and fairly
compensate CBM producers for the loss of their resource. It
provides the taxpayers bear the cost of condemnation awards and
forgo important tax and royalty revenues, and it is
constitutionally flawed.
Madam Chairman, thank you very much for the opportunity to
appear before the Subcommittee to provide this testimony and to
answer any questions.
Mrs. Cubin. Thank you.
[The prepared statement of Mr. Sexton follows:]
Statement of Mark S. Sexton on behalf of The Independent Petroleum
Association of Mountain States (IPAMS)
Thank you, Madam Chairman and Members of the Subcommittee. I am
Mark Sexton, President of Evergreen Resources, Inc., a Denver-based
exploration and production company with coalbed methane production in
the Raton Basin in southern Colorado, in addition to CBM projects in
the United Kingdom and exploratory interests in Alaska, Chile, and
northwestern Colorado. I serve on the Board of Directors of the
Independent Petroleum Association of Mountain States, known as IPAMS. I
am a member of the coalbed methane subcommittee of IPAMS Legislative,
Legal and Regulatory Committee. IPAMS is a non-profit, non-partisan
trade association that represents independent oil and gas producers,
service and supply companies, banking and financial institutions, and
consultants in a thirteen state Rocky Mountain region, including the
State of Wyoming. IPAMS represents substantially all of those companies
producing CBM in the Powder River Basin. I am representing IPAMS at
this hearing.
IPAMS welcomes the opportunity to provide you with our testimony
concerning H.R. 2952, The Powder River Basin Resource Development Act.
IPAMS has been an active participant in the negotiations to develop
solutions to the resource conflicts in the Powder River Basin (PRB), as
well as efforts to draft acceptable legislation, since the Association
first became aware of the conflicts. IPAMS applauds the efforts of
Representative Cubin and the Wyoming Senators to resolve these
conflicts and appreciates your continued support for domestic energy
production.
H.R. 2952 has been introduced in an attempt to resolve conflicts
between coal producers and producers of coalbed methane (CBM) in
portions of the Powder River Basin. Although well-intentioned, H.R.
2952 effectively grants coal producers the right to condemn, vent and
waste CBM and to deduct the costs of condemnation from payments of
their federal coal royalties. The reason the conflicts exist is because
the same areas have been leased by the federal government to developers
of both oil and gas and coal. In general, where these conflicts exist,
the oil and gas producers hold senior lease rights, having executed
their leases before the coal companies sought leases in the area.
IPAMS is opposed to H.R. 2952 because it is not needed. It sets a
poor precedent for resolving resource conflicts. It encourages waste of
the valuable CBM resource. It fails to fully and fairly compensate CBM
producers for the loss of their resource. It is constitutionally
flawed. And, certainly not the least of the problems, the cost of
condemnation will be borne by the taxpayers.
Rather than promote the cooperative production and recovery of all
valuable energy resources, H.R. 2952 encourages the condemnation,
venting and waste of CBM at taxpayer expense. H.R. 2952 delegates the
power of condemnation to private coal companies, and allows federal
funds to be used to condemn senior property rights held by domestic oil
and gas companies. The bill erodes private property rights and the
certainty of rights that has allowed parties to invest with security in
the development of our nation's natural resources. It also sets an
unwarranted and dangerous precedent for management of public lands and
resources.
IPAMS supports a process by which all of the resources in the
Powder River Basin can be developed to the fullest extent possible
while protecting the health and safety of the citizens of Wyoming and
the quality of the environment. IPAMS also-supports private business
negotiations in lieu of government intervention.
H.R. 2952 is Not Needed
In situations where a junior lessee cannot operate without
interfering with the resources or operations of a senior lessee, the
parties have customarily entered into agreements whereby the junior
lessees buy out the senior lessee or the parties otherwise agree upon
mutually satisfactory arrangements for the joint development of their
respective resources. This system has worked well over the years in
several different locations and in connection with conflicts between
various resources. In fact, this system has already worked effectively
to resolve conflicts between coal and oil and gas operators in the PRB.
Indeed, in no instance have negotiations reached an impasse.
Policies and procedures are in place, along with a number of
privately negotiated agreements, that have successfully resolved
conflicts between coalbed methane and coal producers in the PRB. IPAMS
strongly supports the Bureau of Land Management's formal, written
policy for resolving this type of conflict, IM No. 2000. We believe the
policy has worked and is working; therefore, there is no need for
Congress to intervene and enact sweeping legislation.
Background
The potential conflict between CBM and coal was anticipated by the
BLM when it issued the Thundercloud coal lease in an area of existing
oil and gas production in the PRB. Both the EIS and the Record of
Decision (ROD) authorizing the Thundercloud lease explained that this
conflict would be handled by a lease stipulation (the ``Senior Rights
Stipulation'') which expressly prohibits the approval of coal mining
operations that unreasonably interfere with orderly development and
production under senior oil and gas leases. The ROD also explained that
conflicts between senior oil and gas lessees and junior coal lessees
would be resolved in favor of the senior lessees in accordance with the
``first in time, first in right'' principle. Accordingly, the coal
lessees clearly understood that they would take their rights under the
Thundercloud lease subject to the senior oil and gas leases.
The BLM assured the oil and gas companies that ``these stipulations
are all that is necessary to ensure that the `first in time, first in
right' policy can be implemented if conflicts arise between oil and gas
and coal on the Thundercloud tract''.
However, BLM urged the parties to negotiate cooperative agreements
that would: (1) allow surface coal mining operations to proceed; (2)
encourage the cooperative and contemporaneous production of both coal
and oil and gas; and (3) fairly compensate the senior oil and gas
lessees for resources unavoidably lost due to the advancing coal mines.
Meanwhile, the coal companies began drafting legislation to supercede
the BLM's authority.
The BLM issued its Instruction Memorandum, IM No. 2000, and began
implementing its authority and the tools at its disposal to resolve the
conflicts. BLM required oil and gas producers that hold leases located
in an area where coal will be mined within the next ten years to submit
their plans to develop and produce CBM prior to the time overburden is
removed for coal mining operations. Where plans have been submitted,
BLM has prioritized the drilling sequence so that those wells closest
to the mine face will be drilled first. BLM has given precedence to
processing APDs for wells in these areas. Moreover, BLM has been a
participant, along with the State of Wyoming, in the cooperative
development agreements that have been executed that promote the
development of both resources.
Clearly, coal companies in the PRB do not need the right of
condemnation. Cooperative agreements have provided far superior
resolution of the conflicts than Congressional legislation of private
business disputes. While the cooperative joint development agreements
may not represent an ideal outcome for either the coal producer or the
oil and gas producer, they are essentially fair and equitable
agreements that have resulted in the production of both coal and oil
and gas.
Under the cooperative agreements, the coal companies are allowed to
pursue their surface coal mining operations without interference,
restriction or delay, and the oil and gas companies are encouraged to
drill and operate CBM wells in advance of the coal mine.
Under the cooperative agreements, the state and federal governments
receive prompt and full payment of royalties and taxes on the expedited
production of the entire coal resource, on the portion of the CBM
resource that is actually produced, and on payments made by the coal
company to the oil and gas company for CBM that cannot be recovered
from wells that must be abandoned.
However, while an approach such as the cooperative agreements has
obvious benefits, there is little incentive for coal companies to
negotiate when they can institute condemnation proceedings and recoup
any condemnation award at the expense of the taxpayers. Once the
disincentive of H.R. 2952 is removed, there is every reason to believe
that the few remaining conflicts will also be resolved cooperatively.
There is simply no need for intervention by Congress or the enactment
of federal condemnation legislation.
H.R. 2952 Establishes and Dangerous and Unwarranted Precedent for
Resolving Resource Conflicts
H.R. 2952 establishes an unwise and illogical precedent for
resolving resource conflicts. Despite language to the contrary in the
bill, common sense and experience tell us once a law is enacted, its
potential for use (or misuse) in other instances is possible, if not
probable. In fact, Thomas A. Dugan, president of Dugan Production
Corp., an independent oil and gas company located in Farmington, New
Mexico, testified at a hearing on S. 1950 (the predecessor legislation
to H.R. 2952) before the Senate Energy Committee Subcommittee on
Forests and Public Land Management last year that he was already
engaged in a similar conflict situation with a coal lessee in the San
Juan Basin who was using the potential passage of this legislation as a
stalling technique to avoid negotiating an agreement with Dugan. Dugan
asserted very strongly that the terms and conditions of this kind of
legislation can affect - and are already affecting - conflicts outside
the PRB. Wherever coal exists, the potential for conflicts with CBM
producers also exists.
If coal companies are granted the right of condemnation in the PRB,
a strong argument can be made that other conflicts between mineral
developers or land uses and values should be resolved in the same way.
A system that relies on condemnation to resolve conflicts, rather than
the priority of property rights, will promote uncertainty and
discourage investment in the development of our natural resources. Our
traditional system, based on the sanctity and priority of property
rights, has worked well and does not need to be replaced by a
condemnation system.
H.R. 2952 Encourages the Waste of CBM
When captured and put to beneficial use, CBM is one of the cleanest
burning fuel resources. However, H.R. 2952 encourages that large
volumes of this nonrenewable energy resource be wasted. In its December
1999 study, the National Petroleum Council estimated that, while the
United States currently produces only 22 Tcf of natural gas annually,
by the year 2015 the anticipated demand for natural gas will reach 31
Tcf. In order to meet this growing demand, production of natural gas -
including CBM - must be dramatically increased.
CBM resources in the Rocky Mountain region represent a significant
portion of our nation's known and potential gas resources. The Gas
Technology Institute estimates that the amount of CBM gas in place in
the PRB is 39 Tcf, of which 9.4 Tcf is recoverable. GTI further
estimates that, if properly developed, this resource could yield $5.3
billion in production taxes and royalties alone. However, the
realization of these benefits is dependent upon the implementation of
policies and practices that encourage and allow production of the CBM
resource.
The Costs of H.R. 2952 Will Be Borne by the Taxpayers
H.R. 2952 is a bad bill for the taxpayers. H.R. 2952 provides that
amounts paid by coal companies as condemnation awards to CBM lessees
may be recovered through deductions from their federal coal royalties.
In other words, the taxpayers will be paying for condemnation on behalf
of the coal companies. Additionally, no royalties or taxes will be paid
on the CBM that is condemned and vented rather than produced. According
to the Wyoming Oil and Gas Conservation Commission, in 2000, revenues
from natural gas production in Wyoming ($4.15 billion) exceeded
revenues from oil ($1.53 billion) and coal ($1.25 billion) combined.
Moreover, that will be the case again in 2001, based on six month
totals. This revenue is attributed largely to the increase in coalbed
methane production.
In contrast, under the existing cooperative agreements in the PRB,
the state and federal governments will receive prompt and full payment
of royalties and taxes on production of the entire coal resource, on
the portion of the CBM resource that is actually produced in advance of
the coal mine, and on payments made to the CBM operator for CBM that
cannot be recovered from wells that must be abandoned.
H.R. 2952 Does Not Provide Full or Fair Compensation to CBM Lessees for
Loss of Their Resources
While H.R. 2952 requires coal companies to compensate oil and gas
lessees for CBM originally underlying and lost from the specific
acreage to be mined, as discussed above, surface coal mining causes the
loss of CBM from a much larger area. In fact, a study in the PRB
demonstrated that CBM can flow several miles to the exposed face of a
coal highwall and be vented and lost. CBM lessees must be compensated
for all CBM that will be lost and wasted as a result of coal mining on
their property, not just the portion of the resource that was
originally situated beneath the acreage actually mined. Any legislation
that contemplates condemnation of CBM must account for the huge volume
of CBM that will be lost through drainage and venting.
Making matters worse, H.R. 2952 allows coal developers to condemn
oil and gas leases in sequential steps, as needed for their operations.
As the coal mine approaches the oil and gas lease, CBM will be drained
and vented from the surrounding area. By the time the coal mine reaches
the oil and gas lease, the CBM will be gone, significantly reducing the
amount of any condemnation award that would otherwise have to be paid
by the coal company.
Moreover, the bill ignores the developers of other facilities
incidental to the production of CBM. No compensation is contemplated
for an oil and gas producer's investment in the lease or operations,
including rental and bonus payments and costs incurred in connection
with exploration and development, despite the fact that this procedure
would result in a taking and the loss of all of the producer's
investment. There is no compensation provided for the owners of
compression facilities, gathering systems, pipelines, monitoring
equipment, electrical power and transmission lines and similar
facilities, nor roads or rights-of-way to and from such leases.
H.R. 2952 is Constitutionally Flawed
H.R. 2952 delegates the power of condemnation to private entities
for the first time in our nation's history, and allows federal funds to
be used to terminate vested senior property rights held by domestic oil
and gas companies.
In addition to considerations of equity and fairness, the U.S.
Constitution requires payment of just compensation for private property
taken through condemnation. As drafted, H.R. 2952 would be subject to
formidable constitutional challenge because it fails to compensate
senior oil and gas lessees for a substantial portion of the CBM that
would be lost as a result of surface coal mining.
Oil and gas lessees are required by H. R. 2952 to initiate actions
no later than 210 days prior to a commencement of operations under a
coal mining plan to protect their interests and receive compensation
for lost CBM. This is an unreasonable burden on oil and gas lessees to
know of the existence and timing of every mining plan, especially given
that H.R. 2952 says a mining plan does not have to be approved in order
to toll the time limits set forth in the legislation.
H.R. 2952 contains other provisions and procedures that violate due
process, including limitations on the rights of appeal, and the use of
experts paid by interested parties both to establish the condemnation
award and to testify in court. The panel of experts may not be
disinterested parties to the development. These experts would also be.
privy to certain information about which they may later be called to
testify. The experts cannot be both adjudicators and witnesses.
Moreover, H.R. 2952 contains complex and unclear terms, tests and
standards that would likely result in significant litigation which, in
turn, will result in further delay in the resolution of conflicts
between resource producers in the PRB.
Conclusion
H.R. 2952 does not meet the statutory or administrative goals for
conservation of our nation's valuable nonrenewable natural resources.
The bill would permit large volumes of CBM to be lost and wasted,
rather than captured and put to beneficial use as a clean burning fuel.
In order to meet the dramatically increasing demand for natural gas in
the United States and elsewhere, this country needs to develop policies
that encourage the recovery of this valuable nonrenewable resource, not
enact legislation that results in its waste or loss.
If, despite the serious policy issues raised by IPAMS, Congress is
still intent on enacting condemnation legislation, IPAMS supports
legislation that provides for condemnation by the federal government,
not private business entities. IPAMS supports legislation that provides
for fair and adequate compensation for the loss of investment in a
federal lease, including the loss of future oil, gas or CBM production
from the lease, the loss of CBM created by nearby mining, and the loss
of investment in facilities and equipment, such as gathering systems,
compression facilities and pipelines.
H.R. 2952 is not needed. H.R. 2952 sets a poor precedent for
resolving resource conflicts. It encourages waste of the CBM resource.
It fails to fully and fairly compensate CBM producers for the loss of
their resource. H.R. 2952 is constitutionally flawed. H.R. 2952
provides that taxpayers bear the cost of condemnation awards and forego
important tax and royalty revenues.
Thank you for the opportunity to appear before the Subcommittee and
to provide this testimony.
______
Mrs. Cubin. The Chair now recognizes Mr. Isaacs.
STATEMENT OF V.A. (BUD) ISAACS, JR., PRESIDENT, RIM OPERATING
COMPANIES
Mr. Isaacs. Good afternoon. My name is Bud Isaacs. I am
chairman of Rim Operating, Inc., and I am a member of IPAMS and
the IPAA. I appreciate the opportunity to testify here today.
This testimony is offered in behalf of Rim Operating, Inc., and
its affiliates which hold leasehold and operating rights of CBM
covering approximately 30,000 acres in the Powder River Basin.
Rim recognizes and greatly appreciates Chairman Cubin's
longstanding support of the energy industry, but this bill
itself is ill-conceived and counterproductive. Rim has spent
the last 2 years resolving its conflicts with coal companies in
the Powder River Basin, but I am testifying today against this
bill because it is bad law and bad policy. It is legislation
that inappropriately favors one industry over the other,
creates dangerous precedent by delegating Federal powers of
condemnation to private companies for the first time, is costly
to the taxpayer and totally unnecessary. It is special interest
legislation that benefits only coal companies at the expense of
small oil and gas operators, the taxpayers and the environment.
When the predecessors of this bill were introduced, several
legislators, including the Chairman of this Subcommittee, urged
Rim to resolve its conflicts with the coal mines to show that
takings legislation is not needed. They also suggested that Rim
should develop and produce its CBM to demonstrate the
legitimacy of its concerns and positions. We have done
everything that has been asked of us, and it should now be time
to end the debate regarding the need for takings legislation.
When similar legislation was first introduced almost 2
years, the coal companies argued that the legislation was
needed in order to resolve conflicts with Rim. They argued that
there was no commercial value of CBM in the conflict area and
that Rim had no intention of actually developing and producing
the coalbed methane. They argued that Rim was motivated solely
by a desire to reap a windfall profit from the coal companies.
In short, the coal companies made the same arguments that they
are making today.
But all of coal's assertions and predictions have been
proven false. Rim has entered into three joint development
agreements. Just recently with Kennecott on the North Jacobs
LBA within the last month with two major coal mines covering
more than 10,000 Federal acres and resolved its conflicts.
Pursuant to these agreements, both coal mining and CBM
production are proceeding in the conflict area. Rim has drilled
95 coalbed methane wells in the conflict area itself and has 28
additional wells on the immediate adjacent acreage.
Rim is drilling eight new CBM wells in the Hilight Field
every month. In the past 9 months, Rim has produced and sold
2.3 billion cubic feet of gas from South Hilight Unit. Rim and
its partners have spent $6-1/2 million in developing the
conflict acreage, and present estimates of CBM reserves are in
the area of 25- to 30 billion cubic feet of gas.
This is a substantial amount of CBM that is being produced
to meet our country's energy needs and on which severance taxes
and production royalties are being paid. Moreover, pursuant to
these agreements, coal mining has not and will not be delayed
even 1 day.
Rim supports the BLM's policy for resolving this type of
conflict as set forth in IM 2000. This policy emphasizes the
BLM's use of regulatory tools to encourage the consensual
resolution of conflicts and to optimize the recovery of both
coal and coalbed methane. This policy was introduced in
February of last year and is working well.
All conflicts have that have emerged to date have been
resolved by joint development agreements. Pursuant to those
agreements, CBM is being produced in advance of the coal mines,
and coal mining is proceeding without any delays whatsoever.
The parties are cooperating and coordinating their operations,
and the production of both coal and CBM is being optimized.
This has all been accomplished by agreement without the need
for Federal legislation, without the suspension or termination
of oil and gas leases, without the takings of vested senior
property rights, without the use of Federal subsidies and tax
credits, and without administrative and judicial condemnation
proceedings, all of which are contemplated in this bill.
In the process we have learned a few things. Coal and CBM
can be produced concurrently from the same tract if the parties
work together. Rim meets frequently with coal companies and
works with them closely to coordinate operations. This type of
cooperation cannot be mandated by Federal legislation. In fact,
if this bill had been enacted last year, we would still
probably be fighting with the coal companies instead of working
closely with them. CBM would have been wasted instead of
produced, and coal operations may have been delayed as well.
The coal companies argue that they need this bill to avoid
protracted litigation and the closing down of mines, but they
cannot point to one example of any such harm actually
occurring. Over the past few years there have been only
cooperative agreements between coal and CBM producers. There
has been no litigation. This is a record that should be
applauded and continued, not changed by contentious and one-
sided legislation that can only lead to problems.
This is a bad bill for the environment and for the prudent
stewardship of our nonrenewable natural resources. This is also
a bad bill for the Federal budget. Not only will Federal
royalties on coal be reduced to reimburse coal companies for
the amounts paid to condemn coalbed methane, but no royalties
or taxes will be paid on CBM that is condemned and vented
rather than produced.
The bill has constitutional problems. It does not provide
full and fair compensation to CBM lessees. The bill requires
that compensation be paid for only a small portion of the CBM
that will actual be lost as a result of coal mining. The grant
of powers of condemnation to private coal companies, coupled
with their ability to exercise that right by payment of less
than full and fair compensation, raises serious constitutional
questions.
Our opposition can best be summarized by Senator Bingaman
in the markup of Senate bill 1950, the predecessor of this
bill. And I quote Senator Bingaman: ``1950 turns over the
Federal Government's power of eminent domain to private mining
companies so that they make take the private property rights of
other mining companies. To the best of my knowledge, this
measure is unprecedented.'' Still quoting. ``To make matters
worse, the bill abandons the traditional constitutional `public
interest' test for when the United States may take private
property, yet passes the entire expense on to the Federal
Treasury, and ultimately the taxpayers. And instead of relying
on traditional condemnation law and procedures, it erects a
complex and cumbersome new system.'' End quote.
Mrs. Cubin. Can you summarize your testimony, Mr. Isaacs?
Mr. Isaacs. I am right there. Thank you.
And I submit Senator Bingaman's comments for the record.
H.R. 2952 and its predecessors could not pass muster when
they were first introduced. During the past 2 years
developments in the Powder River Basin have only proven that
the bill is not needed and would, in fact, be
counterproductive.
Simply put, this is an unneeded and unconstitutional
takings bill. Our system isn't broke, and certainly won't be
fixed by this bill. It is time to end this debate and send us
all back home to work together and play by the rules.
Thank you for the opportunity to testify today. I would be
pleased to answer any questions you may have.
Mrs. Cubin. Thank you.
[The prepared statement of Mr. Isaacs follows:]
Statement of Vernon A. Isaacs, Jr., Rim Operating, Inc.
I. INTRODUCTION
HR 2952 has been introduced to attempt to resolve conflicts between
coal producers and producers of coalbed methane (``CBM'') in portions
of the Powder River Basin (``PRB''). Effectively, HR 2952 grants coal
producers the right to condemn, vent and waste CBM and to deduct the
costs of condemnation from payments of their federal coal royalties.
Certain oil and gas associations, including the Independent Petroleum
Association of Mountain States (``IPAMS''), oppose HR 2952 as drafted.
This testimony is offered on behalf of RIM Operating, Inc. and its
affiliates (``RIM''), which hold leasehold and operating rights to CBM
covering more than 30,000 acres in the PRB.
RIM recognizes and greatly appreciates Representative Cubin's
longstanding support of the energy industry. But, as promoted by
certain interested parties, HR 2952 itself is ill conceived and
counterproductive.
RIM supports the BLM's formal policy for resolving this type of
conflict, as set forth in Instruction Memorandum No. 2000. This policy
emphasizes the BLM's use of various regulatory tools at its disposal in
order to encourage the consensual resolution of conflicts between coal
and CBM producers and to optimize the recovery of both resources. This
policy was introduced in February of last year and is working well. RIM
and its partners have entered into three separate joint development
agreements (``JDAs'') with two major coal mines, resolving conflicts on
more than 10,000 acres of federal land. Pursuant to these JDAs, RIM is
rapidly producing CBM in advance of the coal mines and coal mining is
proceeding without any delays whatsoever. The parties are cooperating
and coordinating their operations and the production of both coal and
CBM is being optimized. This has all been accomplished by consensual
agreement, without the need for federal legislation, the suspension or
termination of oil and gas leases, the taking of vested senior property
rights, the use of federal subsidies and tax credits or administrative
and judicial condemnation proceedings, all of which are contemplated
under HR 2952.
RIM has now resolved all of its conflicts with the coal companies
in the PRB and should not itself be affected, one way or the other, by
HR 2952. But I am testifying today against HR 2952 because I strongly
believe that it is bad law and bad policy. It is legislation that
inappropriately favors one industry over another, creates dangerous
precedent, is costly to the taxpayer and, perhaps most importantly, is
totally unnecessary.
HR 2952 encourages the condemnation, venting and waste of CBM into
our atmosphere at taxpayer expense, rather than promoting the
cooperative production and recovery of all valuable energy resources.
HR 2952 delegates the sovereign's power of condemnation to private coal
companies and allows that power and federal funds to be used to
terminate vested senior property rights held by smaller oil and gas
companies. The bill erodes the sanctity of private property and the
certainty of rights that have allowed parties to invest with security
in the development of our country's natural resources and sets a
dangerous precedent for management of our public lands and resources.
HR 2952 unnecessarily involves the Federal government, Federal
legislation and Federal subsidies in what is essentially a private and
local dispute that can readily and equitably be resolved through
private agreement, as such conflicts have routinely been resolved in
the past. Without the inducement of the ``better deal'' that certain
coal companies hope to obtain through HR 2952 at taxpayer expense,
conflicts in the PRB can quickly be resolved through private
negotiation and agreement, with no delays whatsoever to coal
operations. Such agreements can provide for the cooperative recovery of
coal and CBM and have already been successfully negotiated and
implemented in the PRB.
HR 2952 is a bad bill for the environment and for the prudent
stewardship of our non-renewable natural resources. The bill encourages
the condemnation and venting into the atmosphere of substantial amounts
of methane, one of the most potent greenhouse gases. The detrimental
effects of this venting on the environment are not fully understood. At
the same time, the bill allows large volumes of CBM to be lost and
wasted forever, rather than captured and put to beneficial use as a
clean burning fuel. In order to meet the dramatically increasing demand
for natural gas in the United States, we need to develop policies that
encourage the recovery of this valuable non-renewable resource, not
enact legislation that results in its irrevocable loss for all
generations.
HR 2952 is also a bad bill for the Federal budget. Not only will
Federal royalties on coal be reduced to reimburse coal companies for
amounts paid to condemn CBM, but no royalties or taxes will be paid on
the CBM that is condemned and vented rather than produced.
If, notwithstanding the serious policy issues outlined above,
Congress is intent on enacting condemnation legislation, HR 2952
nevertheless contains serious flaws and inequities. HR 2952 does not
provide full or fair compensation to CBM lessees for the loss of their
resource. The bill requires that compensation be paid for only a small
portion of the CBM that will actually be lost and wasted as a result of
coal mining. HR 2952 is convoluted, difficult to understand and
embodies certain other procedural and constitutional shortcomings. In
particular, the grant of powers of condemnation to private coal
companies, coupled with their ability to exercise that right by payment
of less than full and fair compensation, raises serious constitutional
questions. Even more disturbingly, HR 2952 has been promoted based upon
certain distortions and misrepresentations, particularly regarding the
purported need for condemnation legislation.
When similar legislation was first introduced two years ago, the
coal companies argued that the legislation was needed in order to
resolve conflicts with RIM and its CBM partners, that there was no
commercially valuable CBM in the conflict area and that RIM had no
intention of actually developing and producing the CBM, but was instead
motivated solely by a desire to reap a supposed windfall from the coal
companies. All of these assertions have been proven false. As noted
above, RIM has entered into three joint development agreements, with
two major coal mines, covering more than 10,000 federal acres and
resolved all of its conflicts. Pursuant to these agreements, both coal
mining and CBM production are proceeding in the conflict area. RIM has
already drilled 95 CBM wells in the conflict area itself and 28
additional wells on immediately adjacent acreage. RIM is drilling eight
new CBM wells in the Hilight Field every month. CBM production from the
South Hilight Unit has recently been averaging 11,000 MCF per day and
in the past nine months a total of 2.336 billion cubic feet of CBM has
been sold. Installed compression capacity on the conflict acreage
presently totals 13,500 MCF per day and requests are pending for an
additional 4,500 MCF per day. RIM and its partners have spent
approximately $6.5 million in developing the conflict acreage and
present estimates of the CBM reserves in this area are 25 to 30 billion
cubic feet. This is a substantial amount of CBM that is being produced
to meet our country's energy needs and on which severance taxes and
production royalties are being paid to state and federal governments.
Moreover, pursuant to these joint development agreements, coal mining
has not and will not be delayed even one day.
When the predecessors of HR 2952 were introduced, several
legislators strongly encouraged RIM to resolve its conflicts with the
coal mines consensually to show that condemnation legislation is not
needed. They also suggested that RIM should develop and produce its CBM
as a means of demonstrating the legitimacy of its concerns and
positions. We have done everything that has been asked of us and it
should now be time to end the debate regarding the need for
condemnation legislation.
II. BACKGROUND
The conflict between coal and CBM operators in the PRB has focused
upon an area of Campbell County, Wyoming covered by the Hilight oil and
gas field (the ``Hilight Field'').1 In order to understand
the present conflict, it is essential to understand recent events
relating to the Hilight Field and the manner in which conflicts have
been successfully resolved to date.
---------------------------------------------------------------------------
\1\ The Hilight Field is comprised of four oil and gas units: the
Grady Unit, the Jayson Unit, the Central Hilight Unit and the South
Hilight Unit.
---------------------------------------------------------------------------
The Hilight Field has been producing oil and gas, primarily from
deep formations, for several decades. In the past seven years,
production of gas from the Hilight Field has increased dramatically and
numerous wells that were previously shut-in have been returned to
production. This increase in product is attributable partially to
secondary recovery of deep gas and partially to the development of CBM,
which has become highly attractive and valuable due to the recent
construction and commissioning of pipelines and gas gathering
facilities.
The oil and gas unit at the southern end of the Hilight Field is
known as the South Hilight Unit (the ``SHU''). RIM holds leasehold land
operating rights to CBM in the SHU, primarily under senior Federal oil
and gas leases dating back to the 1960s. M&K Oil Company (``M&K'')
holds leasehold and operating rights to the deep oil and gas within the
SHU under the same leases.
Two major coal companies, Arch Coal Company and its affiliates
(``Arch'') and Kennecott Energy Company and its affiliates
(``Kennecott'') have surface coal mines in the area. Arch's Black
Thunder mine has been approaching the SHU from the south and
Kennecott's Jacobs Ranch Mine has been approaching the SHU from the
southeast.
The potential conflict between the oil and gas operators and the
coal operators came to a head in connection with the issuance of the
Thundercloud Federal Coal Lease (WYW 136458, referred to hereinafter as
the ``Thundercloud Coal Lease'') effective as of January 1, 1999. The
Thundercloud Coal Lease covers lands within and immediately adjacent to
the SHU, including substantial acreage covered by RIM's and M&K's
senior oil and gas leases. The Thundercloud Coal Lease itself was
issued to Arch, but on April 29, 1999, the Bureau of Land Management
(``BLM'') approved an assignment of a portion of the Thundercloud Coal
Lease to Kennecott.2
---------------------------------------------------------------------------
\2\ The portion of the Thundercloud Coal Lease assigned to
Kennecott was given a new serial number (WYW 148123). Pursuant to
applicable Federal regulations, at 43 CFR Sec. 3453.2-5, the Assigned
Thundercloud Lease constitutes a separate and distinct Federal coal
lease on the same terms and conditions as the original Thundercloud
Lease.
---------------------------------------------------------------------------
RIM was understandably quite concerned about the issuance of the
Thundercloud Coal Lease. Surface coal mining within the SHU would cause
the irretrievable venting and waste of the CBM resource. Coal mining
destroys the reservoir in which the CBM resides and directly vents CBM
into the atmosphere. Moreover, the exposure of the coal seam causes a
drop in reservoir pressure. This acts like a hole in a tire, and CBM
from throughout the area will flow through the porous coal structure to
the mine face and be lost through venting. RIM has provided to the BLM
a rigorous study which establishes that, even prior to the initiation
of mining on the Thundercloud Coal Lease, the Jacobs Ranch and Black
Thunder Mines were causing the drainage, venting and losses in excess
of 500 million cubic feet of CBM from the SHU per year.3
This study was accepted and approved by the BLM.4
---------------------------------------------------------------------------
\3\ J. Craig Creel, ``Drainage of Coalbed Methane Resources, South
Hilight Unit-Hilight Field, Campbell County, Wyoming'' (March 18,
1999). This study also concludes that the Jacobs Ranch and Black
Thunder Mines are venting in excess of 2.3 million cubic feet of CBM
per day.
\4\ Letter from Asghar Shariff, Chief of Wyoming Reservoir
Management Group, BLM, to Mr. Stephen Rector of RIM, received May 4,
1999.
---------------------------------------------------------------------------
Following the issuance of the Thundercloud Coal Lease, the BLM and
the State of Wyoming encouraged negotiations to resolve operational
conflicts on the Thundercloud Tract. In April 1999, at the suggestion
of the Powder River Basin Regional Coal Team, the BLM convened a
federally supervised mediation involving coal companies (including Arch
and Kennecott), oil and gas producers (including RIM and M&K), the
State of Wyoming and Federal agencies (including the BLM and the
Minerals Management Service). At the Federal mediation, the BLM re-
emphasized that intractable conflicts would be resolved by the BLM on
the basis of the ``first in time, first in right'' doctrine, but urged
the parties to negotiate consensual agreements that would: (i) allow
surface coal mine operations to proceed; (ii) encourage the cooperative
and contemporaneous production of both coal and oil and gas; and (iii)
fairly compensate the senior oil and gas lessees for resources
unavoidably lost due to the advancing coal mines. While productive
discussions were held between certain parties, the mediation did not
immediately result in any agreements.
On May 21, 1999, the BLM sent representatives of Arch, Kennecott,
RIM and M&K a letter indicating that the BLM would not, at least for
the time being, approve any APD permits (for CBM or oil and gas
drilling) or R2P2 permits (for surface coal mining operations) on the
Thundercloud Tract.5 Confronted with this obstacle to their
respective operations on the Thundercloud Tract, Arch and RIM entered
into focused negotiations and, three months later, entered into a Joint
Development Agreement dated September 1, 1999 (the ``Arch JDA'').
---------------------------------------------------------------------------
\5\ Letters dated May 21, 1999 from Alan R. Pierson, Wyoming State
Director, BLM, to James Aronstein (representing RIM), Morris W. Kegley
and Jacobs Ranch Mining Company (all representing Kennecott), Blair M.
Gardner and Thunder Basin Coal Company (representing Arch) and Peter A.
Bjork and M&K Oil Co., Inc. (representing M&K).
---------------------------------------------------------------------------
The Arch JDA demonstrates clearly both that coal companies in the
PRB do not need the right of condemnation and that consensual
agreements can provide a vastly superior resolution. The Arch JDA was
accomplished through creative and good faith negotiations between Arch
and RIM, with significant support, involvement and encouragement from
the State of Wyoming and the BLM. While the Arch JDA may not represent
an ideal outcome for either Arch or RIM, and while some degree of
necessity and urgency may have been required to bring the parties
together and get the deal done, it is nevertheless an essentially fair
and equitable compromise and results in the cooperative production of
both coal and oil and gas.
Following the execution of the JDA, each of Arch, RIM, the State of
Wyoming and the BLM entered into a Memorandum of Understanding (the
``MOU'') which formally acknowledges, supports and blesses the JDA. In
the MOU, the State and the BLM acknowledged and confirmed the
``appropriateness of the arrangements and agreements between Arch and
RIM.'' In cover letters, the BLM acknowledged its participation in the
mediation process and stated its belief that ``this agreement is a
reasonable attempt to optimize production of both resources from the
Thundercloud lease''6 and the State of Wyoming commented
that it ``has supported the process, believes that the agreement is a
rational solution to the conflict and is willing to be a signatory to
the agreement.''7
---------------------------------------------------------------------------
\6\ Letter dated September 28, 1999 from Alan R. Pierson, Wyoming
State Director, BLM, to representatives of Arch, RIM and the State of
Wyoming.
\7\ Letter dated September 27, 1999 from Stephen A. Reynolds,
Director of Office of State Lands and Investments, State of Wyoming, to
representatives of Arch, RIM and the BLM.
---------------------------------------------------------------------------
In contrast to HR 2952, which encourages the condemnation, venting
and waste of CBM so that coal can be produced, the Arch JDA encourages
the cooperative production of both of these non-renewable energy
resources. Under the Arch JDA, Arch (which is the junior lessee) is
allowed to pursue its surface coal mining operations without
interference, restriction or delay and RIM is encouraged to drill and
operate CBM wells in advance of the coal mine. The parties work closely
together to coordinate their respective operations and use of surface
facilities (which cooperation cannot effectively be mandated by Federal
legislation). When the face of Arch's coal mine comes within a critical
distance of a CBM well, RIM is required to curtail production and
abandon the well. In consideration, Arch compensates RIM for the loss
of remaining production.
Both Arch and RIM recognized that the value of RIM's CBM wells
would be dramatically impacted by the approach of Arch's surface coal
mine. As a surface coal mine approaches a CBM well, reservoir pressure
is reduced and CBM throughout the area is drawn to the mine face and
vented into the atmosphere. By the time that the coal mine arrives, a
CBM well will be rendered virtually worthless. Accordingly, the Arch
JDA values lost production by reference to a model CBM well for the
area, with stated characteristics of quantity and life of production.
This model reflects an estimate of the producing characteristics of a
local CBM well unaffected by surface coal mining operations. Under the
Arch JDA, the amount of production lost from a CBM well at the end of
its fourth year, for example, is established by determining the amount
of production remaining in the model well after year four. The value of
that lost production is then reduced to present value by application of
a discount rate.
The Arch JDA has obvious benefits for all parties concerned.
Although it is the junior lessee that took its coal lease subject to
the obligation not to interfere with the operations or resources of the
senior oil and gas lessees, Arch obtained the right to advance its
surface coal mine without restriction, delay or limitation. RIM is
allowed to drill CBM wells and to produce as much CBM as possible in
advance of the coal mine and is compensated for CBM resources that are
unavoidably lost. The State and Federal governments receive prompt and
full payment of royalties and taxes on the expedited production of the
entire coal resource, on the portion of the CBM resource that is
actually produced by RIM and on payments made by Arch to RIM for CBM
that cannot be recovered from wells that must be abandoned. The
government and its resources are not tied up in a cumbersome and
inappropriate condemnation scheme and the coal and oil and gas
operators work together in a cooperative, rather than an adversarial,
relationship. Most importantly, the Arch JDA encourages the production
and recovery of both coal and CBM and minimizes the waste and venting
into the atmosphere of non-renewable energy resources.
While a consensual approach such as the Arch JDA has myriad and
obvious benefits, coal companies will not be motivated to enter into
such arrangements if they are afforded the right of condemnation at
taxpayer expense. As profit motivated businesses, coal companies would
certainly prefer to condemn the CBM resource at taxpayer expense than
to make payments under a joint development agreement.
On July 7, 2000, RIM entered into a Joint Development Agreement
with Kennecott covering the portion of the Thundercloud Coal Lease that
Arch had assigned to Kennecott. This Joint Development Agreement allows
both companies to conduct their respective operations on the lands at
issue. RIM holds rights to develop coalbed methane (CBM) in the area
pursuant to senior federal oil and gas leases dating from the 1960s.
The Joint Development Agreement will allow coal mining operations to
proceed throughout the conflict acreage without interference or delay
and, at the same time, will allow existing CBM wells to produce up
until the last possible date.
Most recently, RIM and Kennecott entered into a Joint Development
Agreement dated August 23, 2001. This Joint Development Agreement
covers almost 5,000 acres known as the North Jacobs Ranch Tract, which
Kennecott hopes to lease for future coal mine expansion, as well as
thousands of adjacent acres where Kennecott already holds coal leases.
As with the other Joint Development Agreements, this agreement will
allow coal mining operations to proceed throughout the conflict acreage
without interference or delay. RIM will also be able to operate CBM
wells until the coal mine arrives. The BLM approved and blessed this
Joint Development Agreement by the execution of a Memorandum of
Understanding, in which all parties concerned have confirmed that the
Joint Development Agreement will provide a viable framework for the
development of coal and CBM and that the amounts to be paid to the CBM
parties for their unavoidable losses constitute ``appropriate
compensation.
RIM has now resolved all of its conflicts with the coal companies.
RIM has entered into three JDAs, with two major coal mines, covering
more than 10,000 acres of federal land. Pursuant to these JDAs, both
coal mining and CBM production are proceeding as fast as possible in
the conflict area. RIM has already drilled 95 CBM wells in the conflict
area itself and 28 additional wells on immediately adjacent acreage.
RIM is drilling eight new CBM wells in the Hilight Field every month.
CBM production from the South Hilight Unit has recently been averaging
11,000 MCF per day and in the past nine months a total of 2.336 billion
cubic feet of CBM has been sold. Installed compression capacity on the
conflict acreage presently totals 13,500 MCF per day and requests are
pending for an additional 4,500 MCF per day. RIM and its partners have
spent approximately $6.5 million in developing the conflict acreage and
present estimates of the CBM reserves in this area are 25 to 30 billion
cubic feet. This is a substantial amount of CBM that is being produced
to meet our country's energy needs and on which production royalties
and severance taxes are being paid to the federal and state
governments. Moreover, pursuant to these JDAs, coal mining has not and
will not be delayed even one day.
Under the existing JDAs, the coal and CBM operators are cooperating
and coordinating their respective operations and the production of both
coal and CBM is being optimized. This has all been accomplished by
consensual agreement, without the need for federal legislation, the
suspension or termination of oil and gas leases, the taking of vested
senior property rights, the use of federal subsidies and tax credits or
administrative and judicial condemnation proceedings, all of which are
contemplated under HR 2952.
In order to try to establish a need for condemnation legislation,
where none exists, the proponents of HR 2952 have resorted to attacking
and misrepresenting the Arch JDA. They allege that Arch was forced to
enter into the Arch JDA under duress and that it must pay RIM a
``multiplier'' of the fair market value of the CBM resource. These are
quite simply fabrications and distortions. Consider, in particular, the
following facts:
1. LIn entering into the Arch JDA, Arch was no more under duress
than was RIM. Both parties needed to enter into the Arch JDA in order
to obtain permits to operate within the Thundercloud Tract. RIM would
have preferred to produce the CBM resource without interference or to
receive more adequate compensation for its losses. Neither Arch nor RIM
was entirely pleased with the result, but the compromise that was
ultimately struck was fair and appropriate;
2. LUnder the Arch JDA, Arch does not pay for the full value of the
existing CBM resource, as would be required in connection with
condemnation. Once Arch's coal highwall comes within a critical
distance of a CBM well and the well is shut-in, Arch is obligated to
compensate RIM only for the loss of remaining production. Arch pays
nothing for the value of CBM that can be recovered by RIM in advance of
the surface coal mining operation;
3. LThe amount and value of lost CBM production is determined by
reference to a model well for the area. This model well was proposed by
Arch, not by RIM, and was based on a BLM study of actual production
from 85 CBM wells operating nearby in the PRB;
4. LThe value of lost production from a CBM well is reduced to
present value prior to payment to RIM at an extremely high discount
rate. The applicable discount rate is defined as nine percentage points
above the ``Ask Yield'' for U.S. treasury notes with a maturity of ten
years;
5. LIn order for any compensation to be payable to RIM for the loss
of a CBM well, the well must be drilled prior to January 1, 2002.
Otherwise, Arch pays RIM nothing at all for the loss of a CBM well; and
6. LThe BLM and the State of Wyoming encouraged and supported the
Arch JDA and executed the MOU which affirmatively blesses it.
Based upon these facts and provisions, as well as others, it should
be clear that the Arch JDA does not require Arch to pay more than the
fair market value of the CBM resource. As the actions and concurrence
of Arch, the BLM and the State of Wyoming suggest, the JDA presents a
viable, balanced and equitable mechanism to resolve disputes between
coal and CBM operators in the PRB.
The coal companies have sometimes argued that they have overpaid
for CBM in conflict areas by noting that they can purchase oil and gas
leases elsewhere in the PRB for a significantly lower price per acre.
But all acres are not the same. Under JDAs, CBM lessees are being
compensated for lost gas reserves, not lost acres. It stands to reason
that coalbed methane reserves are often greatest in areas where the
coal is also the thickest and most valuable. Comparisons to the average
price of oil and gas leases throughout the PRB are patently misleading.
CBM lessees have been fairly, but not overly compensated for their
leases under the JDA
Virtually all of the conflicts that have arisen to date between
coal and oil and gas producers in the PRB have been resolved by
consensual agreement. In September 1999, Arch and RIM entered into the
Arch JDA covering thousands of acres in the Thundercloud Tract. Arch
and RIM also reached a contractual settlement in the Jayson Unit, at
the northern end of the Hilight Field. In July 2000, RIM reached
agreement with Kennecott on the Assigned Lands in the South Hilight
Unit. In August of this year, RIM and Kennecott entered into a Joint
Development Agreement covering the North Jacobs Ranch Tract and
thousands of adjoining acres. Kennecott and M&K also entered into a
settlement regarding their conflict over deep oil and gas in the South
Hilight Unit. Contractual solutions have worked and are working in the
PRB. Once the disincentive of HR 2952 is removed, there is every reason
to believe that any additional conflicts that might arise in the future
will also be resolved contractually. There is simply no need for
intervention by Congress or the enactment of Federal condemnation
legislation.
III. MAJOR PROBLEMS WITH HR 2952
A. Federal Condemnation Legislation Is Unnecessary and Inappropriate,
It Discourages Both the Resolution of Conflicts by Private
Agreements and the Cooperative Development of Coal and CBM.
Federal condemnation legislation is not needed in order to resolve
conflicts between coal and oil and gas operators in the PRB. The BLM
and the State of Wyoming have policies to address these conflicts.
These policies have been carefully developed over a number of years and
give appropriate and constitutionally required consideration to issues
such as the protection of vested property rights. Under the system that
has evolved, junior lessees take their leases subject to the express
obligation not to interfere unreasonably with orderly development and
production under senior leases for other resources.
In situations where the junior lessee controls the more valuable
resource and cannot effectively operate without unduly interfering with
the resources or operations of a vested senior lessee, the parties have
customarily and routinely entered into agreements whereby the junior
lessee buys-out the senior lessee or the parties otherwise agree upon
mutually satisfactory arrangements for joint development of their
respective resources. This system, in which conflicts are ultimately
resolved by private agreement, has worked well over the years in
several different locations and in connection with conflicts between
various resources. In fact, this system has already worked effectively
to resolve conflicts between coal and oil and gas operators in the PRB.
HR 2952 discourages both the resolution of conflicts by private
agreement and the cooperative development of coal and CBM. Private
agreements, such as the JDAs between RIM and each of Arch and
Kennecott, allow surface coal mining operations to proceed without
delay or interference, encourage the production and recovery of CBM in
advance of coal mining and provide for the payment of appropriate
compensation for resources that are unavoidably lost. There are obvious
benefits for all parties involved. However, if coal companies are
afforded the right to condemn the CBM resource at tax payer expense,
they will not be motivated to enter into such arrangements.
HR 2952 unnecessarily involves the Federal government, Federal
legislation and Federal subsidies in what is essentially a private and
local dispute that can readily and equitably be resolved through
private agreement, as many similar conflicts have routinely been
resolved in the past. Without the inducement of the ``better deal''
that certain coal companies hope to obtain through HR 2952 at taxpayer
expense, future conflicts in the PRB can quickly be resolved through
private negotiation and agreement, with no delays whatsoever to coal
operations and without the use of Federal funds. Such agreements can
provide for the cooperative recovery of coal and CBM.
B. Granting Coal Companies the Right of Condemnation Is Inconsistent
With the Sanctity and Priority of Private Property Rights on
Which Our System is Based and Sets a Dangerous and
Inappropriate Precedent
HR 2952 delegates the sovereign's power of condemnation to private
coal companies and allows that power and Federal funds to be used to
terminate vested senior property rights held by smaller domestic oil
and gas companies. The bill erodes the sanctity of private property and
the certainty of rights that have allowed parties to invest with
security in the development of our country's natural resources.
HR 2952 also sets a dangerous precedent for the manner in which we
manage our public lands and resources. If coal companies are granted
the right of condemnation in the PRB, a strong argument can and will be
made that other conflicts between competing mineral developers (and,
for that matter, conflicts between other competing land uses and
values) should be resolved in the same way. In a system that relies on
condemnation to resolve conflicts, rather than the priority of property
rights, the big and politically powerful will always prevail over
smaller interests. Moreover, because of the insecurity and uncertainty
inherent in such a system, few will be willing to invest in the
development of our natural resources. Our traditional system, based on
the sanctity and priority of property rights, has worked well and does
not need to be replaced by a condemnation system.
Implementation of a condemnation solution is a radical and global
fix to what is essentially a local problem. The right of condemnation
must only be granted to private companies in exceedingly rare and
unique circumstances and where absolutely required by a compelling
public interest. As discussed throughout this testimony, coal companies
simply do not need the right to condemn CBM in the PRB.
C. HR 2952 Will Encourage the Venting of Methane, a Potent Greenhouse
Gas, Into the Environment.
HR 2952 encourages coal producers to condemn and vent CBM into the
atmosphere at taxpayer expense. There will be no incentive for coal
companies to enter into joint development agreements for the
cooperative development and recovery of CBM in advance of coal mining.
Coalbed methane is one of the most potent greenhouse gases and
contributes significantly to global warming when released into the
atmosphere. It has been estimated, on behalf of the United States
Department of Energy, that methane is 56 times more detrimental to the
environment (in terms of global warming potential) than
C02.8 It has also been estimated, in a study approved by the
BLM, that the Jacobs Ranch and Black Thunder Mines alone are venting
2.3 million cubic feet of CBM per day.9 While the
environmental effects of this venting are not yet fully understood, it
is clearly unwise to encourage such emissions through the enactment of
Federal legislation.
---------------------------------------------------------------------------
\8\ M. Q. Wang, ``GREET (Greenhouse Gases, Regulated Emissions and
Energy Use in Transportation) 1.5 - Transportation Fuel Cycle Model''
Volume 1, Center for Transportation Research, Energy Systems Division,
Argon National Laboratory (August 1999) - work sponsored by the United
States Department of Energy, Assistant Secretary for Energy Efficiency
and Renewable Energy, Office of Transportation Technologies.
\9\ See footnotes 3 and 4, sup
---------------------------------------------------------------------------
D. HR 2952 Will Encourage the Waste of CBM, A Clean-burning and Non-
Renewable Energy Resource.
When captured and put to beneficial use, CBM is one of the cleanest
burning fuel resources. HR 2952 encourages large volumes of this non-
renewable energy resource to be condemned, lost and wasted forever.
In a recent study entitled ``Meeting the Challenges of the Nation's
Growing Natural Gas Demand,'' dated December 25, 1999, the National
Petroleum Council estimated that, while the United States currently
produces only 22 trillion cubic feet of natural gas annually, by the
year 2015 the anticipated demand will reach 31 trillion cubic feet. In
order to meet this growing demand, production of natural gas must be
dramatically increased.
CBM resources, especially in the Rocky Mountain region, represent a
significant portion of our nation's known and potential gas resources.
The Gas Research Institute estimates that the amount of CBM gas in
place in the PRB is 39 trillion cubic feet, of which 9.4 trillion cubic
feet is recoverable. The Gas Research Institute further estimates that,
if properly developed, this resource could yield $5.3 billion in
production taxes and royalties alone. A substantial investment has
already been made in the development of CBM in the PRB. The Wyoming
Independent Producers Association estimates that, as of 1999, Wyoming
CBM developers had invested approximately $290 million in drilling and
completion costs and another $400 million in lease acquisitions (60%
Federal, 35% fee and 5% State). Within the next year, another $295
million was to have been invested in pipelines and compression
stations. When the Fort Union and Thunder Creek Pipelines are operating
at their maximum capacity of I billion cubic feet per day, which is
five times greater than the rate at which they are currently operating,
the State of Wyoming and producing counties can expect approximately
$300,000 per day in tax revenues and royalties at today's natural gas
price. But the realization of these benefits is dependent upon the
implementation of policies and practices that encourage and allow the
production of the CBM resource.
In keeping with fundamental notions of good stewardship of our
country's non-renewable natural resources, and in order to meet the
dramatically increasing demand for natural gas in the United States, we
need to develop policies that encourage the recovery of this valuable
and clean-burning energy resource, not enact legislation that results
in its irrevocable loss for all generations.
E. Pursuant to HR 2952, Federal Funds Are Used to Condemn CBM On Behalf
of Coal Producers; Royalties and Taxes on CBM Are Also Lost.
HR 2952 provides that amounts paid by coal companies to condemn CBM
may be recovered by deductions from their Federal coal production
royalties. Effectively, the taxpayers will be paying condemnation
awards on behalf of the coal companies. Additionally, both the State
and Federal governments are forced to forego the collection of
production royalties and taxes on CBM that is condemned rather than
produced. RIM estimates that, for the 5,200 acres covered by the JDA
between Arch and RIM, the cumulative cost to the Federal government of
HR 2952 would have been $22.6 million. This area is less than one fifth
of one percent of the total acreage covered by HR 2952.
In contrast, pursuant to cooperative development agreements such as
the JDAs, the State and Federal governments receive prompt and full
payment of royalties and taxes on the production of the entire coal
resource, on the portion of the CBM resource that is actually produced
in advance of the coal mine and on payments made to the CBM operator
for CBM that cannot be recovered from wells that must be abandoned.
It defies understanding as to why the Federal government should
incur these significant fiscal costs in order to assist coal companies
to condemn senior oil and gas resources, which would otherwise have
been produced and generated significant royalty and tax income to the
United States.
F. HR 2952 Does Not Provide Full or Fair Compensation to CBM Lessees
for the Loss of Their Resource; The Bill Requires That
Compensation Be Paid For Only a Small Portion of the CBM That
Will Actually Be Lost and Wasted As a Result of Coal Mining.
HR 2952 requires coal companies only to compensate oil and gas
lessees for CBM that is lost from the specific oil and gas lease to be
mined. However, as discussed previously, surface coal mining will cause
the loss of CBM from a much larger area. RIM has conducted a drainage
study which establishes that CBM in the Hilight Field will flow several
miles to the exposed face of a coal highwall and be vented into the
atmosphere.10 This study has been approved by the
BLM.11 CBM lessees must be compensated for all CBM that will
be lost and wasted as a result of coal mining, not just from the
specific oil and gas lease that will actually be mined. When dealing
with a gas in a porous structure, there is no rational basis for
distinguishing between lost gas that was originally situated beneath
the lease actually mined and lost gas originally situated beneath
adjacent leases. This would be akin to putting a hole in a tire and
then disclaiming responsibility for the loss of air from portions of
the tire that are not directly beneath the hole. HR 2952 needs to
account for the huge volume of CBM from surrounding oil and gas leases
that will be lost through drainage and venting.
---------------------------------------------------------------------------
\10\ See footnote 3, supr
\11\ See footnote 4, supra.
---------------------------------------------------------------------------
This problem is compounded by the fact that HR 2952 allows coal
operators to condemn oil and gas leases in sequential steps, and as
needed for their operations, rather than requiring the condemnation of
an entire area in one proceeding. This will dramatically reduce the
compensation payable for lost CBM. As the coal operator mines on one
oil and gas lease, CBM will be drained and vented from surrounding oil
and gas leases. Then, when the coal operator condemns the next oil and
gas lease, the CBM resource will be valued at a significantly lower
level due to losses of CBM already caused by coal mining. In this
manner, coal operators will pay for lost production from a specific CBM
lease only when their coal mine has come close to the lease and
destroyed its remaining value. Oil and gas lessees will receive cents
on the dollar for the loss of their CBM resource.
HR 2952 allows coal companies to commence mining in conflict areas
long before the amount of compensation payable to the displaced oil and
gas lessees is determined. Even more incredibly, the bill provides that
the CBM lessees will not be compensated for CBM that is lost as a
result of such mining during the months preceding the award
determination.
Pursuant to HR 2952, CBM lessees will bear an intolerable burden to
establish the quantity and value of CBM lost from lands that have not
yet been drilled. This is particularly unfair in view of the fact that
CBM operators have often been materially delayed or precluded from
drilling by regulatory authorities and/or by coal companies that
control the surface of the lands at issue. The ownership of CBM and CBM
leases constitute private property subject to the full protections of
the United States Constitution, regardless of whether or not yet
drilled and producing. HR 2952 needs to provide appropriate mechanisms
to test and value the CBM resource in undrilled areas in order to
insure that full and fair compensation is paid for the lost resource.
In addition to considerations of equity and fairness, the United
States Constitution requires payment of just compensation for private
property taken through condemnation. As currently drafted, HR 2952
would be subject to formidable constitutional challenge because it
fails to compensate senior oil and gas lessees for a substantial
portion of the CBM that would be lost as a result of surface coal
mining.
G. HR 2952 Totally Disregards Seniority.
HR 2952 totally disregards the seniority of the condemning and
condemned parties. Junior coal lessees, as well as junior oil and gas
lessees, took their interests with full knowledge of the existence of a
prior lease and of the need to avoid interference. Under HR 2952, not
only will junior lessees be allowed to condemn senior leases, but
senior lessees may be required to condemn and pay for junior leases.
This would be a totally inappropriate and unjustified windfall for the
junior lessees and would impose an additional and unnecessary expense
upon the United States, which funds the payment of condemnation awards
through deductions from Federal royalties.
H. HR 2952 Allows Coal Lessees to Condemn Oil and Gas Leases Without
Regard to the Relative Values of the Resources and With No
Public Interest Determination.
HR 2952 allows coal lessees to condemn conflicting oil and gas
leases without regard to, or consideration of, the relative values of
the subject coal and oil and gas resources. Accordingly, a coal lessee
could compel the condemnation and termination of oil and gas leases
that far exceed the value of the coal in the subject conflict area.
Such condemnation would clearly not be in the public interest. This
point underscores certain of the constitutional shortcomings of HR
2952. Essentially, the bill delegates the power of eminent domain to
private parties, allows private condemnation to proceed with no
determination of public benefit and does not require full and fair
payment for lost property rights.
I. HR 2952 Is Convoluted, Difficult to Understand and Embodies Certain
Other Procedural and Constitutional Shortcomings.
HR 2952 contains numerous provisions and procedures that violate
due process, including limitations on rights of appeal, the use of
experts paid by interested parties both to establish the condemnation
award and to testify in court, and the right of coal operators to
commence mining operations prior to the conclusion of proceedings and
the payment of a condemnation award.
In addition to containing constitutionally questionable provisions,
including the delegation of condemnation rights to private parties, HR
2952 contains complex and unclear terms, tests and standards. This
would likely result in significant litigation which, in turn, will
delay the resolution of conflicts between resource users in the PRB.
IV. CONCLUSIONS
HR 2952 unnecessarily involves the Federal government, Federal
legislation and Federal subsidies in what is essentially a private and
local dispute that can readily and equitably be resolved through
private agreement. The bill encourages the condemnation, venting and
waste of CBM into our atmosphere at taxpayer expense, rather than
promoting the cooperative production and recovery of all valuable
energy resources. In establishing condemnation as a means to resolve
conflicts between resource users, HR 2952 erodes the sanctity of
private property rights and sets a dangerous precedent for the
management of our public lands. HR 2952 is a bad bill for the
environment and for the prudent stewardship of our non-renewable
natural resources. It is also a bad bill for the Federal budget. By
entering into JDAs with Arch and Kennecott, RIM has now resolved, in a
positive manner, all of the significant conflicts between coal and CBM
in the PRB. If and when future conflicts develop, we are confident that
they can be resolved by agreement in the same way that the existing
conflicts have all been resolved. Joint development agreements have
successfully resolved and will continue to successfully and
appropriately resolve all conflicts. Condemnation legislation, Federal
intervention and taxpayer subsidies are simply not appropriate and not
needed.
Thank you for the opportunity to appear before the Committee and to
provide this testimony.
______
[The statement of Senator Bingaman follows:]
Statement of Hon. Jeff Bingaman, a United States Senator from New
Mexico on S. 1950
S. 1950 turns over the Federal Government's power of eminent domain
to private mining companies so that they might take the private
property rights of other mining companies. To the best of my knowledge,
this measure is unprecedented. While some of the states have extended
state eminent domain authority to mining companies, I am not aware of
any instance in which Congress has farmed out the federal eminent
domain power to private mining company to use for its economic
advantage.
To make matters worse, the bill abandons the traditional,
constitutional ``public interest'' test for when the United States may
take private property in favor of a new economic test that simply
measures which source is more valuable. It replaces the traditional
fair market value measure of just compensation with a new loss of
income plus consequential damages standard and passes the entire
expense on to the Federal Treasure and, ultimately, the taxpayers. And,
instead of relying on traditional condemnation law and procedures, it
erects a complex and cumbersome new system.
Although I strongly disagree with the approach taken in S. 1950, I
recognize that the bill is a well intended effort to resolve a serious
conflict between the owners of coal beds in the Powder River Basin and
the owners of the coalbed methane imbedded with in the coal. Ownership
of the two resources often lies in separate hands and one resource
cannot be extracted without loss of interference with the other.
The Supreme Court recognized the possibility of this conflict when
it ruled little more than a year ago that coalbed methane was not part
of the coal estate. ``Were a case arise in which there are two
commercially valuable estates and one is to be damaged in the course of
extracting the other,'' the Court said, ``a dispute might result, but
it could be resolved in the ordinary course of negotiation or
adjudication.'' Time has proved the Court correct. The two major
conflicts between coal and coalbed methane producers in the Powder
River Basin have been resolved by the parties without legislation,
without the use of eminent domain, and without taxpayer subsidies.
Even so, I was willing in Committee to agree to a reasonable
legislation solution to the problem. I offered a substitute to Senator
Thomas's substitute, which would have allowed the Secretary of the
Interior to begin eminent domain proceedings to acquire the rights to
coalbed methane deposits on behalf of the coal owner where the
Secretary determined that the public interest in the timely and orderly
development of the coal outweighed the public interest in the
development of the coalbed methane. Unlike S. 1950 and Senator Thomas's
substitute, my proposal would have made use of existing condemnation
law and procedures. Regrettably, the Committee voted down my substitute
on a party-line vote and adopted Senator Thomas's substitute, which
retains the serious problems inherent in S. 1950 as originally
introduced.
______
Mrs. Cubin. I will begin the questioning.
Mr. Tew, you heard the testimony of Mr. Isaacs and Mr.
Sexton, and it is their mutual opinion that the--that
cooperative agreements are working out, that things are moving
ahead in a timely manner, and that there is no need for this
legislation, that BLM's policy is working, and that they have
been proactive in resolving the conflicts.
Mrs. Cubin. And at this point, RIM has resolved all of its
conflicts, actually. Could you give me your response to that,
and then I would like to also ask you if you can anticipate how
many other conflicts there might be that could be resolved by
this legislation. And you obviously think there is a need for
the legislation.
Mr. Tew. Yes, ma'am. I believe that there have been
settlement agreements that have been reached. But as you well
stated in your introductory remarks, these were negotiated on
an uneven playing field. I am not surprised that a coalbed
methane interest would be interested in continuing to negotiate
those settlements with an uneven playing field. As long as the
playing fields is as uneven as you stated, agreements will be
less than arm's-length agreements and the threat of delay will
continue to be a problem for the development of energy in the
Powder River Basin.
Mrs. Cubin. For the record, would you just--would you
describe to me how you think the playing field is uneven or
uneven? What makes it so uneven and slanted toward the coalbed
methane companies? Just real simple.
Mr. Tew. There are a number of different factors, but one
of the factors is that the coal companies have made such a
large investment and when a coalbed methane well is placed
immediately in front of the coal fields, the threat of
protracted litigation that would delay the process of acquiring
new permits or acquiring new coal leases can be a threat that
makes the playing field uneven.
Some of the same coalbed interests that have been referred
to here today have been very active in protesting and demanding
that permits not be issued to the coal companies and demanding
that new leases not be issued to the coal companies. This is
the kind of cooperation that they are referring to.
Mrs. Cubin. Okay.
Mr. Isaacs, I would like to ask you this then. As a demand
for coalbed methane and coal from the Powder River Basin
continues to rise, I think we can expect more of these kinds of
conflicts. Sooner or later someone is going to hold out for a
higher settlement than anyone else is getting. And it certainly
is bad policy to bypass a block of coal that won't be reserved
because--won't be produced because the dispute can't be
settled.
You obviously don't like H.R. 2952, and I would argue with
you that it isn't the same bill as S. 1950. But what procedure
would you recommend we use to prevent stalled negotiations from
causing the loss of those coal reserves?
Mr. Isaacs. Well, so far, we are talking about a
hypothetical situation because that hasn't happened yet. And to
date, even though there are some wild numbers bandied about by
both sides--and I can go back to when Jacob Schantz testified
at the regional coal team meeting that we had no commercial
reserves in the South Hilight area.
And Lord knows, I have been fighting that misrepresentation
for a number of years and in a number of confrontations or
discussions with you all. And it turns out that every one of
these disputes that have actually come up--and there have been
lots of places where we have those situations, where we have a
producing well and the coal mines coming and we don't want to
sell it. We want to keep producing it and they want to mine the
coal.
In the real world, in the business world, it gets worked
out, as it has always gotten worked out. We have been doing
this for, I don't know, I don't want to say hundreds of years,
maybe 50 years, where we have had producing oil wells and deep
formations. We have had situations like we have with the
coalbed methane where we are competing for the same resource.
They always get worked out. And what is uneven for one person
is normally just as uneven for the other person.
I mean, when we were in the negotiations with Arch, neither
of us, we couldn't drill our wells, they couldn't get their
mining permit. So we were both stymied; neither party could do
what they wanted to do. So the harm goes both ways.
I mean, we have been at risk in the Hilight area for 15, 20
years. I mean, we have had our oil and gas investments working,
while we have only recently had the coalbed methane; because we
are now able to produce that resource, we have been there, we
are doing everything that is physically possible to get the gas
out front so that we don't delay.
Mrs. Cubin. Okay.
Mr. Isaacs. We haven't delayed.
Mrs. Cubin. I guess I could accept that you haven't delayed
today. But the mining companies have to make plans and
investments years out. And so while maybe, as for today that
hasn't happened, I can certainly envision that years out these
conflicts could cause smaller bids to be, bonus bids to be made
which certainly isn't beneficial to the State.
But what I asked you, and let me state it again; it wasn't
very clear.
Picture in your mind the coal company that has hundreds of
millions of dollars invested in their mine. And then a coalbed
methane producer with, quote, unquote, ``senior rights,'' so
the coal company cannot proceed forward on the vein of coal.
Now, the coalbed methane producer has a property right
there and the value. Now, should that value be enhanced because
it is in the way of a coal mine moving forward? Or should it be
worth the value of the coalbed methane if it is sold per BTU
like other energy is sold?
What is the value? Is it the value of the BTUs produced or
is it more valuable because you can, in the words of some--
well, I won't use somebody else's words, but because you can
demand it from the coal company because they have invested
hundreds of millions of dollars and you can get more than its
worth in terms of energy.
So which value would you say is correct?
Mr. Isaacs. Well, the problem that we have had--.
Mrs. Cubin. No. No. Just tell me which one you think is
right. What is the value? Is it the value of the coalbed
methane, based on market price per BTU or whatever, or is it
more valuable because the coalbed methane is in the way of the
path that the coal was going to be produced.
Mr. Isaacs. I can only speak for myself.
Mrs. Cubin. Okay.
Mr. Isaacs. And in speaking for my company in our
negotiations, it was solely done on what we felt was the
drainage area, the amount of reserves that would be drained.
You are talking about a relatively new resource, so it is
very early in its productive life. Being early in its
productive life, it is very hard to determine exactly what will
happen with time.
But we have found that wells up next to the coal face are
much better than people previously thought. We have exceeded
the production that we thought when we first came to this
astute body to tell them what they are. So as far as
determining, is there a value for being in front of the mine,
well, sometimes that value is enhanced because the mine, by
mining the coal, has lowered the pressure, and we get more
production.
We don't know how long that will go.
Mrs. Cubin. I understand that.
Mr. Sexton, what is your opinion of this same question?
Mr. Sexton. I think I understand the question, and may I
paraphrase the question to make sure I understand this.
Mrs. Cubin. Sure.
Mr. Sexton. What you are really saying is, the value of the
coalbed methane resource to be determined, the value of the
BTU, value of the gas in place, or the gas to be drained in and
around the coal mine, versus some sort of obstructionist value
for having a resource if that happens to be in the way of a
coal mine operation and some added value because of that?
Mrs. Cubin. I wouldn't use it--I didn't use the word
``obstructionist,'' but I can see why you would; and, yes, I
think you understand the question.
Mr. Sexton. I did say ``paraphrase,'' and I am trying to
understand the concept.
Mrs. Cubin. That is okay.
Mr. Sexton. You are right. You did not use that word; that
was my word.
Clearly, the value is the value of all of the gas that
would be drained in that area. I certainly--I don't believe
producers are trying to hold up coal mines. They are simply
trying to get proper valuation for the resource, and they are
trying to get that resource properly quantified and valued. And
reasonable people can come up with different answers, but
unreasonable people can come up with very different answers;
and I think where some of the conflicts have come up has to do
with the perception that the coal producer is saying, well, the
value of the gas is zero and the gas producer is saying well,
no the value of the gas is a gazillion dollars, if you don't
mind my using such an improperly precise term.
Mrs. Cubin. I love that term.
Mr. Sexton. And the real value can be determined fairly
carefully by economic analysis and by reservoir modeling and by
economic engineering, and this is done all the time in the
buying and selling of properties. Evergreen Resources does
quite a bit of coalbed methane development acquisitions and
operations, and we think we are pretty good at determining the
value of coalbed methane gas in place to be extracted. We think
a lot of other companies are, too, and we don't think this is
what I would call a great deal of rocket science. It is
something that can be determined and would be determined in
reasonable--in a reasonable conflict resolution; and I believe
that IM 2000 already has the administrative procedures in place
and is already encouraging just this sort of compromise.
Mrs. Cubin. I absolutely agree with you. The only problem
is that if we haven't already had a situation where we had an
unreasonable entity trying to resolve this conflict, then--
without a doubt we will. Someone will be unreasonable and stop,
as you stated, either the production of the coalbed methane or
the coal.
Mr. Tew, did you want to respond to that?
Mr. Tew. I would like to, if you don't mind, Madam
Chairman. The bill that has been proposed has been criticized
for not providing for full and adequate compensation for the
coalbed methane interests. And yet the interest--the language
in the bill that provides for that compensation is precisely
the language that was sought by the IPAA representatives when
the language of the bill was being negotiated.
I appreciate what Mr. Sexton said about those damages and
those amounts being capable of being precisely determined by
those that are experts. And that is precisely what the bill
provides for.
Mr. Sexton. May I respond to that comment?
Mrs. Cubin. Sure.
Mr. Sexton. While Mr. Tew's comments sound as if there is
some sort of collaborative effort going on here, the fact is
IPAMS is here today because we feel that we were shut out of
negotiations that did go and that the comments we provided,
that would have made it acceptable--made this bill acceptable,
were largely ignored.
So we are here today because we think we agree. We think
there is an unlevel playing field, and we think the--giving
private condemnation rights to coal companies is much too big a
hammer for entities that are already quite a bit larger than
the independent producers they are dealing with.
Mrs. Cubin. Although there is a process to challenge, to
make sure you get fair market value in the bill?
Mr. Sexton. Fair market value is a concept that we can all
understand, and I believe the administrative procedures that
are already set forth in IM 2000, you know, encourage exactly
that sort of determination. It seems unnecessary to have a bill
to do what is already in practice, and is also set forth in
the--by the BLM as their, you know, preferred method of doing
things in their own instruction memorandum.
Mr. Tew. May I provide one final restatement?
The bill provides a method for both parties to share their
modeling procedures with each other, to make sure that they are
accurately valuing the property; and we would be delighted for
such a procedure to be put in place that isn't in place today.
Mrs. Cubin. Well, I get the last word.
Mr. Tew. Sure.
Mr. Isaacs. And, Madam Chairman, may I respond to the IPAA?
Mrs. Cubin. You bet.
Mr. Isaacs. During the duration of which IPAMS was not
allowed, but we did have some input, the IPAA wanted no
artificial limit on actual drainage when they were talking
about that formula; and in this current bill, as in the last
bill, the mining companies, because of how they do their
business, they work within fixed boundaries. In other words,
their lease goes to a lease line. They can mine coal up to that
lease line, and that is how they conceive the world, which I
appreciate.
I don't--I am not a mining engineer, even though I went to
a mining university. But in the oil and gas business our
drainage reaches out much further than that. It goes beyond
lease boundaries; it is what it is. And we are finding in the
Powder River Basin that that drainage, because of fracturing
systems within the coal, can branch out way beyond, and the
mining actually affects areas beyond what would be called the
``common area'' between the coal companies and the oil and gas
companies. And that is precisely our problem in that portion of
this bill.
Again, it is limited to the boundaries by the coal lease,
not what the drainage of a well is. And just as Mr. Sexton
says, there are ways of calculating this, but it involves
different techniques than just taking a fixed volume or the
volumetric approach to determine what the reserves are under a
fixed volume of coal. And we have not been able to get that
idea through in the evaluation of, the determination of what
the values of these leases are. That is part of the reason we
have this big difference of, they are saying it is worth X and
we are saying it is worth Y.
Mr. Tew. I believe that Mr. Isaacs misrepresents the
language of the bill with regard to taking into account
drainage, because it does take into account drainage outside of
the area being mined.
Mrs. Cubin. Yes, it does.
I will make the last point, and that point is that when you
look at the overall--first of all, I want you to know--everyone
here knows this--that I have been very reluctant, I have been
very reluctant to come on board and support this bill or any
bill like it because I do believe in private property rights
and I do believe in seniority rights.
But as I evaluated the situation, I came to believe and
understand that there really is not a level playing field in
negotiations because of what I just said. The coal companies
have, you know, hundreds of millions of dollars invested, and I
do believe that if it hasn't already happened, it will happen
that an unreasonable party will become involved and it will be
damaging to the energy production, which damages the companies,
the country, the State and all of us. So that is why I finally
decided to move forward with this legislation.
I thank the witnesses for their valuable--oh, excuse me. I
didn't realize you were here Mr. Rehberg. You are so loud.
Mr. Rehberg. Thank you, Madam Chairman. And I apologize for
being late; I had a preexisting conflict.
But I want to thank you, as well, for introducing this
legislation and calling this hearing. It always gives us a
precursor of what we may anticipate in the northern regions of
the Powder River Basin and that is the State of Montana. And I
always hate it when our friends are fighting, and in this case,
it seems as if they are. But, hopefully, we can come to some
kind of a successful conclusion and resolution.
Mr. Tew, are you an attorney?
Mr. Tew. Yes, sir.
Mr. Rehberg. Okay. I guess I would like to ask then, as an
absolute legal or factual matter, are all coalbed methane
leases and subleases senior to Federal coal leases in the
Powder River Basin?
Mr. Tew. Not all.
Mr. Rehberg. They are not? Okay. Then I guess Mr. Isaacs,
do you have other leases within this area, other than the
disputed area?
Mr. Isaacs. No, all our coalbed methane leases are in the
disputed area.
Mr. Rehberg. Okay.
Mr. Tew, let me go back to you then. Constitutionality has
been thrown around a lot among the three of you--maybe not as
much you. But I always worry when that is thrown out and there
is no factual or case law to make a determination that this is
constitutional or unconstitutional.
In your view, is it unconstitutional and can it be written
so that it is not unconstitutional?
Mr. Tew. I believe that it not only can be so written, but
it has been so written.
Mr. Rehberg. Okay, so you would disagree.
Mr. Sexton, are you an attorney?
Mr. Sexton. No, I am not. I am an engineer by background
and a financial analyst and coalbed methane operator off and on
for 20 years.
Mr. Rehberg. I guess I would like to know then, how do you
base your argument? I am not an attorney either, but I always
get real sensitive when--that is one of the reasons I don't
want to serve on the Judiciary Committee, because there are a
lot of lawyers sitting around arguing, and all I can bring is
common sense to the table, which oftentimes outweighs anything
they say.
So--excuse me, Mr. Tew. But you must have legal counsel. On
what basis do you determine that this is unconstitutional? I
understand the condemnation argument, and I am trying to
determine in my own mind the value between coalbed methane and
coal. Just exactly how can it be interpreted, other than going
to the United States Supreme Court to make that determination
this is unconstitutional.
Mr. Sexton. Well, this is not a legal answer, but hopefully
it is a common-sense answer. I believe that we have determined
that gas is gas and rock is rock, or that coal is considered a
rock, and that coal resource is not--does not include coalbed
methane resource. And that has already been handled as a matter
of legislation by Senator Enzi.
However, the reason I say it is constitutionally flawed is,
I see, on a common-sense approach, three problems. One is--I
believe it is--it does delegate condemnation authority to
private interests which, is my understanding. Is that the first
time that the government is giving that sort of condemnation
authority? It is a taking without just compensation to the
coalbed methane producer, and I don't see any right of appeal
here. And I--those three things trouble me.
Mr. Rehberg. Well, in looking at your testimony, you stated
that IPAMS supports private business negotiations in lieu of
government intervention; and similar to the Chairman, I agree
with that, referring to the coalbed methane and coal disputes.
And while in nearly every case that probably is better, how can
you justify the fact that in the past agreements, then, you
have called for payments to the coalbed methane developers in
the amount of up to five times the fair market value of the
unproduced oil and gas?
I mean, it seems like a conflict in theory or philosophy
then.
Mr. Sexton. Well, I will note that my representation here
today is as a non-Powder River Basin producer, as someone that
would hate to see this used as a precedent in resolving other
conflicts between coalbed methane operators and coal operators;
and in the Raton Basin, I would hate to see this type of
precedent set. While I know that there is language in this bill
that it does not, it only affects this limited area and is not
intended to set precedence, we all know that legal and
legislative precedents are set all the time. And I heard that
word twice Mr. Otter's testimony. I heard Mr. Taylor, Mr.
Fulton, refer to precedents and that really troubles me.
And it turns out that, you know, Senator Bingaman's
minority views on Senate 1950 articulate the issue better than
I can and do so with some measure of legal consideration than I
have given. I have simply given you my common-sense approach.
As far as, you know, the rights of it being five times the
value of the oil and gas, you are citing an example I am
personally not familiar with. But I also know that I know the
answer is not a gazillion dollars, and I know the answer is not
zero; and I can't believe the parties can't sit down and, in
private negotiations, come to a conclusion of what it is.
Mr. Rehberg. From--Mr. Tew and Mr. Sexton, from your
associations' perspective then, is this a concern that we are
going to be confronted with within the State of Montana as
well? Can you give me examples of maybe a conflict that also
exists that hasn't come to a head yet?
Mr. Tew. Peabody Energy Corporation has operations also in
Montana. I am not aware of any such conflicts having arisen
thus far. I can't say that there isn't one out there that I
don't know anything about.
But in further response to your questions about
constitutionality, I would like to add that this legislation,
like all legislation, is reviewed before testimony, before--by
the Department of Justice to determine whether there are
constitutionality issues. The Department of Justice, the last
session--in the previous administration and the Department of
Justice in this session, in this administration, both reviewed
this legislation and neither found any constitutionality
problems with it.
Mr. Sexton. May I just make one comment?
Mr. Rehberg. Certainly.
Mr. Sexton. If this bill is passed, I see this going into
court on exactly those issues.
Mrs. Cubin. I didn't hear your answer, your remark.
Mr. Sexton. I was just saying I disagree with Mr. Tew's
conclusion, and that if this bill is passed, I see it having--
of necessity, going to court on exactly those sorts of
constitutional issues, particularly takings without just
compensation and the delegation of condemnation rights
effectively to a private interest.
Mr. Tew. May I add one other comment in response?
The State of Wyoming currently has a statute on the books
that allows the oil and gas industry to go in and condemn
rights-of-way to place pipelines across the private property of
other parties. To my knowledge, no one has ever thought to
contest it on the basis of constitutionality. And my company
was the defendant in such a lawsuit within the last month. We
certainly did not think to contest it on the basis of
constitutionality, because we saw no constitutional argument.
Mr. Rehberg. Thank you, Madam Chairman.
Mrs. Cubin. Thank you. I thank the witnesses for their
valuable testimony and the answers to the questions.
Members of the Subcommittee may still have--in fact, I know
we do--some additional questions for the witnesses, and we will
ask you to respond to those in writing. The hearing record will
be held open for 10 days for those responses.
[All information submitted for the record has been retained
in the Committee's official files.]
If there is no other business, the Subcommittee adjourns.
[Whereupon, at 3:22 p.m., the Subcommittee was adjourned.]
-