American Oil and Gas Reporter - July 2015 - 35

tative Nicole Collier, would have created
a safety reimbursement program for employers participating in the workers' compensation system. Abbott said he rejected
the measure because of the threat of government growth from another seemingly
small, low-cost program.
* HB 2647, written by Representative
Trent Ashby, R-Lufkin, sought to amend
the Water Code to limit the state's au-

thority to curtail groundwater production
from wells used for power generation or
mining. The bill eliminated local discretion
in protecting access to groundwater by
mandating the preferential treatment of
certain types of groundwater use over
other uses, Abbott said in vetoing HB
2647.
* HB 4025, introduced by Representative James Keffer, R-Granbury, would

have funded roads in counties affected
by increased oil and gas activity. The
governor's veto message stated the legislation was an attempt to give counties
authority to create tax-increment reinvestment zones, a proposal ruled by three
attorneys general to violate the Texas
Constitution.
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Oklahoma Takings Bill Likely In 2016
OKLAHOMA CITY-Oklahoma's legislators moved toward balancing the rights
of mineral owners and landowners with
passage of a preemption bill in the 2015
session, and James Roller, vice president
of legislative affairs for the Oklahoma
Independent Petroleum Association, says
the follow-up is likely to emerge next
year.
"The 2015 session was good for the
oil and gas industry. There were a number
of measures really important for OIPA,"
Roller says. "SB 809, the preemption bill,
was the top priority. A lot of people saw
that bill as just being pro-industry, but
legislators created the opportunity to provide greater guidance to municipalities
and establish some black-and-white lines
showing where regulatory bodies should
fit."
The bill affirms that the Oklahoma
Corporation Commission is the state's
primary regulator of oil and gas activities.
Roller says it allows municipalities and
counties to establish "reasonable" restrictions on setbacks, noise and traffic, and
fencing, but prohibits drilling bans. Oklahoma Governor Mary Fallin signed the
bill on May 29.
In its support for SB 809, Roller says
OIPA worked with the Oklahoma Municipal League to protect municipalities'
abilities to protect the general health,
safety and welfare of their citizens.
To shield operators from local officials'
attempts to impose unreasonable restrictions, Roller says OIPA supported SB
468 by state Senator Bryce Marlatt, RWoodward, but the bill didn't move out
of the House of Representatives.
According to the Oklahoma Legislature's website, SB 468 would have classified as a taking, any regulation, ordinance
or law that interfered with the use of the
mineral estate, either by increasing costs
of operations or prohibiting access to the
estate. Under the bill, operators and royalty
owners could seek compensation for their
losses.
"We are open with municipalities on
what they can do under SB 809," Roller

says. "They can regulate setbacks from a
location. That is fine, until you get those
that generate setbacks in such a way as to
create an effective ban."
Roller poses as an example, a municipality that prohibits operators from drilling
within 4,000 feet of its boundaries.
State and city regulations have to
protect both the mineral and surface
estates, Roller says. The provisions in SB
468 would have given SB 809 teeth, and
provided mineral interest owners recourse
if access to their estate were blocked, he
reasons.
Unlike compensation paid in an eminent
domain lawsuit, mineral owners can't
know the value of their estates until they
are produced, he points out. If a lawsuit
based on SB 468 was filed, Roller says a
judge would determine value after both
sides submitted evidence.
2016 Session
Looking ahead to 2016, Roller says
OIPA will continue to support the takings
provisions in SB 468, and also seek to revise the unclaimed property section of
Oklahoma's Production Revenue Standards
Act.
Legislation similar to SB 468 is just
one part of a changing oil and gas world,
Roller poses. He says Oklahoma producers
also must deal with challenges arising in
a new world of horizontal drilling in a
state full of vertical wells.
"Those two technologies are both
vitally important to Oklahoma," he says.
"It is really interesting, because you have
a state that was produced heavily in a
vertical sense that now is being regenerated,
if you will, by drilling horizontally. The
issues are how to protect the rights of all
producers within those formations and
how those interest owners maintain their
ownership."
Roller says Oklahoma producers often
have to deal with effectively unclaimed
properties, where they cannot locate a
mineral owner.
"If someone owns a very small percentage of a well and the operator cannot

find him, there are a number of procedures
the operator must go through, and there
are interest rates tied to (the unpaid royalty)," Roller says. "That is fair, but when
does that interest clock run out? Can operators turn that money over to the state's
unclaimed property fund and say they
cannot find this owner?"
OIPA favors legislation that stops the
interest clock once an operator has filed
the required notification and allows him
to forward any monies owed to state officials to locate the owner, he says. Roller
adds that process would allow an interest
owner to keep retain the value in his
property while reducing the well operator's
fiscal responsibilities.
Several ad valorem issues arose during
the 2015 session, and Roller says many
have the potential to surface next year as
well. County assessors seeking to raise
funds for schools or roads continue to
support a range of measures targeting oil
and gas operations, and he says OIPA
will keep monitoring those efforts in
2016.
Starting in July, some Oklahoma wells
will see an increase in their gross production tax rate as a result of 2014's HB
2562. Previously, horizontal wells were
assessed a 1 percent GPT for their first
four years on production. HB 2562 eliminated the horizontal well incentive, but
set the initial GPT rate for all new wells
at 2 percent for 36 months (AOGR, June
2014, pg. 39). After three years, production
is taxed at 7 percent.
"Oklahoma's budget shortfalls will
continue to be a concern because the oil
and gas industry will be blamed for those
issues," Roller worries. "When you look
at the budget as a whole, the gap was not
a function of the industry's tax rate as
much as it was the price of oil going
from $100 a barrel to $50. When the
value of your state's most fruitful economic driver decreases by 50 percent, it
is going to cause budget issues. The industry gets the blame, but it is a commodity
issue."
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See Related Story Page 160
JULY 2015 35

American Oil and Gas Reporter - July 2015

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