Legislative Affairs February 2015

OCAPL Legislative Affairs - February 2015

Aaron Meek, Hampton and Milligan

As you may know, a major focus of oil & gas industry efforts during the 2014 session was the passage of HB2562, which prevented a dramatic tax increase on gross production from horizontal wells. Members should be aware that with reduced gross production tax revenues to the state due to low oil prices, there will likely be increasing discussion of revisiting the issue of raising the tax to cover state budget shortfalls.

No doubt in response to the contribution of low oil prices to the current state budget shortfall, Rep. Todd Russ, R-Cordell, has proposed HB1129, which would create the Energy Revenue Stabilization Fund. This bill would allocate any gross production taxes collected in excess of a moving five-year average amount to the Stabilization Fund. The Stabilization Fund could only be accessed if gross production tax revenues declined by 5% or more from the previous year. This bill does not attempt to increase gross production taxes, but instead establishes a mechanism to smooth otherwise volatile state revenues from gross production taxes.

A major focus of oil & gas legislation in the current legislative session is municipal limitations on drilling. Anti-fracking activists have enjoyed notable success in convincing municipalities in Ohio and Texas to impose severe limits or outright bans on drilling and fracking. Attempting to build upon these successes, anti-fracking activists in Stillwater recently attempted to persuade the city council to ban drilling within city limits. Their attempt failed, and they are now attempting to persuade the city to adopt increased offsets required between well sites and homes, businesses, and other properties, with the intent to make it more difficult, if not impossible, to locate wells within city limits. In response to this development, no less than eight bills have been introduced to prevent municipalities and other local government entities from enacting regulations that effectively ban drilling or fracking: HB1395 (Casey Murdock, R-Felt); HB1722 (Leslie Osborn, R-Mustang); HB1954 (Weldon Watson, R-Tulsa); HB2070 (Sean Roberts, R-Hominy); HB2124 (Mark McBride, R-Moore); HB2178 (Jeff Hickman, R-Fairview); SB468 (Bryce Marlatt, R-Woodward); SB809 (Brian Bingman, R-Sapulpa). OKOGA states on its website that bills preventing municipalities from banning drilling are among its top legislative priorities this year. Conversely, HB1107 introduced by Edward Cannaday, D-Porum, would make it unlawful to locate the wellbore of a well that is fracked within 2,000 feet of any occupied structure or producing freshwater well.

Another prominent theme of this session is legislation amending the statutes controlling drilling and spacing units and elections under pooling orders. Bills in this vein are: HB2177, Jeff Hickman, R-Fairview; SB341, Ron Justice, R-Chickasha (2015 Oil and Gas Conservation and Regulation Modernization Act; provides for multiunit horizontal wells; provides for separate pooling elections for each subsequent well drilled under a pooling); SB385, John Sparks, D-Norman (provides for separate pooling elections for each subsequent well drilled under a pooling); SB565, Bryce Marlatt, R-Woodward (provides for 1,280 acre spacing for horizontal wells); SB646, Jason Smalley, R-Stroud (provides for 1,280 acre spacing for horizontal wells); SB807, Brian Bingman, R-Sapulpa.

Other relevant bills and regulations are as follows:

The Journal Record reports (“New rule could require frackers to notify other drillers,” Sarah Terry-Cobo, Feb. 4, 2015) that the Oklahoma Corporation Commission is considering changes to its rules to require drillers of horizontal wells to give nearby well operators notice prior to fracking. This is intended to limit situations where horizontal frack jobs interfere with production from shallower vertical wells.

SB69, Rob Standridge, R-Norman: Removes statutory language stating that if county clerks provide records in electronic format, the fee charged may not exceed $0.25 per page or $0.15 per page for providing more than 3,500 pages in electronic format. Presumably by removing this limitation it would allow county clerks to charge the traditional $1 per page for records provided in electronic format.

SB654, Anastasia Pittman, D-Oklahoma City: Amends the Oklahoma Energy Security Act (17 O.S. Ch. 22) to change the renewable energy standard goal from 15% by 2015 to 25% by 2020. Note, significantly, that Oklahoma’s renewable energy standard is, and under SB654 would remain, merely a goal, not a requirement as it is in most states.

HB1802, Tommy Hardin, R-Madill: This bill instructs the OCC to not issue a permit for any newly drilled or newly converted injection or disposal well unless and until roads and bridges exist or are upgraded to meet minimum standards and can be used without substantial detriment to the roads and bridges.

HB1803, Tommy Hardin, R-Madill: Increases the amount of financial ability required to drill or operate an oil & gas well from $50,000 to $100,000, and the amount of bond required from $25,000 to $50,000.

SB470, Bryce Marlatt, R-Woodward, and SB614, Brian Crain, R-Tulsa: Removes the requirement to compound interest annually on certain payments that are not timely made; provides that where title has been unmarketable for 2+ years, the operator may presume the accrued proceeds to be abandoned; provides that interest is not applied on proceeds that are not timely paid when the owner elects to take in kind or where the owner cannot be located.

SB745, Anthony Sykes, R-Moore: Provides that with respect to transfer on death deeds, where a record owner with a TODD died prior to November 1, 2011, an affidavit of death does not need to be recorded within 9 months. However, where the record owner with a TODD dies on or after November 1, 2011, the recording of an affidavit of death within 9 months of death would still be required.

Less relevant bills that may be of interest are: HB1386 (establishes the Oklahoma Land Application Act, which directs the Corporation Commission to require operators applying deleterious substances to land sites to use a computer-controlled discharge system); HB1968 (modifies the Oklahoma Wind Energy Development Act); HB2115 (creates the Oklahoma Water Reclamation Study Task Force); HB2126 (directs the OWRB to not take any action affecting certain permits used pursuant to the Federal Clean Water Act, and prohibits the state from promulgating any rule that would extend the definition of waters of the state); SB16 (provides that any impounded water originating from any natural source be considered the private property right of the landowner and not subject to eminent domain); SB17 (provides that natural spring water be considered the private property right of the landowner and not subject to eminent domain); SB225 (Regional Water Development Act); SB354 (Regional Water Planning Act); SB355 (amends the Oklahoma Wind Energy Development Act); SB356 (allows the recovery of attorney fees under the Energy Litigation Reform Act); SB469 (in civil actions alleging property damage from oil & gas operations, the court may appoint an expert witness who can be agreed upon by the parties or selected from a list provided by the Oklahoma Geological Survey); SB634 (Regional Water Sustainability Act); SB676 (prohibits the adoption of certain state implementation plans regulating emissions from fossil fuel-fired generating units without prior legislative approval); SB744 (authorizes the OCC to establish a program to permit land owners to apply certain oil & gas drilling fluids and solid wastes to land deemed appropriate for such application).