The Facts

Frequently Asked Questions

Our most common questions and answers can be browsed through below by finding the question and clicking the plus sign for the answer.

If they don‘t get long laterals it will hurt the state’s economy and cost jobs. And if they do get the longer laterals it will be an economic bonanza!

Quite the opposite is true.  If 10,000 foot laterals are not permitted, the industry will just continue to drill twice as many wells at half the length (or build long drilling and spacing units) then they will actually recover more oil which is to the benefit of the state, the royalty owners, drilling contractors, service companies and oilfield workers. The cost of drilling two shorter wells instead of one longer one is perhaps a $10MM drilling cost to the producer instead of say $7MM, offset in part by greater and faster recoveries. On net, Oklahoma gains, particularly since the cost is borne largely by out-of-state shareholders and the benefit is garnered by increased Oklahoma economic activity and tax collections.

Oklahoma oil and gas producers pay 22% of state taxes, right?

This comes from a flagrantly dishonest study result from the State Chamber. You should know that they count the sales taxes and income taxes paid by their employees (all Oklahoma oil C-corps. combined pay only $4MM in income tax) and if that isn’t bad enough, they count the royalties paid to the state land office (and probably the bonuses as well) which, of course, are not taxes, just the cost of buying the right to drill from the landowner. If you count the only relevant taxes – GPT and income and ad valorem (which producers generally don’t pay) – the number is about 5% of state taxes. The industry’s size is 17% of GDP.

What is wrong with SB 284?

SB 284 expands current law to allow Targeted Reservoirs in multiple sections to be taken by an operator. It has no protection for those reservoirs with current production in a producing zone from new horizontal wells drilled into their property sometimes ruining existing wells and draining the reserves of the current property owner protected by existing vertical production statutes. It is like subsurface eminent domain exercised by the horizontal driller to take property that they want now but didn’t explore for, find, and develop. Like in any other business transactions between owners of property each owner should have to agree or make a business deal for one party to infringe upon the rights of another who is lawfully there. Only in Oklahoma do companies have the capability for such a taking.

How does the 50% amendment work to protect current property owners?

Asking those who want to further develop reserves that have already been found and are being produced with vertical wells to get the consent of 63% of the owners of the property to agree is a good protection to keep companies from using the pooling power of the state to “take “ the property that is owned by another. In any other state they would have to have 100% agreement to drill thru someone else’s property. If 63% agree it’s probably a good deal for all. If they don’t it’s probably an unnecessary taking of private property.

Remember all we are asking for is this protection on zones that have already been found and are being produced by owners with vertical wells. Nothing in this amendment would keep them from taking all the other zones in the wells they want without the 63% approval- although there probably should be.

Why 50%? Where did that come from?

For decades companies have had to get 63% of owners to agree to develop reserves using a secondary recovery method like Water flooding. Oil and gas zones often times cover more area than one or even 20 or more owners own. When it’s determined that more oil can be recovered by injecting water in some of the wells in a certain pattern putting the entire project together in one unit is necessary. It’s been a standard and successful process to get 63% agreement between owners to agree before moving forward. The concept of drilling a horizontal lateral or hole thru a zone over a large area with multiple ownership is very similar; and having the 63% approval language is a good way to determine if everyone’s property is being developed fairly. We agreed to compromise down to 50% from 63%.

Why the 50% amendment is considered a poison pill that would kill the bill?

The simple answer is that it is considered by the other side as a poison pill because they don’t like it. The other side in this legislation currently has the ability to acquire up to 640 acres by simply going to the Corporation Commission and forcing companies with ownership in that acreage  to come to their terms using the pooling power of the state in an eminent domain way to “take “ someone else’s property. This is a very sweet deal for them and allows them to take acreage owned by others without making a business arrangement with them. They now want to continue this “taking process” over any “Targeted Reservoirs”, including our producing reservoirs.  These same companies work in many other states. In no other state do they have this capability. No wonder they protest so vehemently to keep their Sweet deal as they expand the acreage almost without limitation that they can take. They want a better deal than fair!

Aren’t the producers that want the 50% protection amendment just a small group of small producers who are insignificant and unsophisticated?

At least half of the 40 or so producers coming to the Capitol and advocating for the 63%(now 50%) amendment are either degreed Geologists or degreed Petroleum Engineers living and working in Oklahoma with an average of 30 years’ experience.

Those in favor of this bill, as is without our amendment, say the 63%(50%) language is not necessary because every unit put together would have to have 100% agreement anyway; that small producers rights are protected by the multiunit laterals. So why would producers be arguing for the 63%(50%) of owner protection?

If that were true why would they object to the point of calling it a poison pill if we are offering to take that 100% approval to 63%(50%)? And why would they want a bill that keeps them from doing the very thing they want to do unless everyone agrees? The truth is that it’s only a poison pill because they don’t like it. The truth is that they know if this bill passes as is they will be able to go to the Corporation Commission and do what they have always done – take others’ property using the pooling power of the State. They don’t want to have the 63%(50%) approval language in the Statute because that would inhibit their high priced Commission lawyers from using the forced pooling Statute and getting the sweet heart deal they have always gotten them.

Shouldn’t we just leave all of this for the Corporation Commission to decide?

  1. The big companies advocating for the bill have lawyers that practice at the commission every day. They are a handful of lawyers that only practice at the Corporation Commission. They are extremely effective at getting their big company clients what they want. Most small producers don’t go before the Commission except on rare occasion mainly to protest these big companies taking of their property. We are simply out lawyered and out spent.
  2. The Corporation Commission has the obligation to prevent waste and protect correlative rights. They have a definite development bias. Over 80% of the actions requested there are approved. They need to do the job of protecting property owner rights as well as they advance development. Because of that pro development culture- which isn’t a bad thing when rights are protected as well- we need statutory guidance for the Commission like 63%(50) approval of affected owners for the commission to follow.
  3. The nature of the legal process of the Corporation Commission favors those with deep pockets. The companies asking for this taking authority have their lawyers get continuance after continuance making the protesting companies hire lawyers and expert witnesses that have to come to the commission multiple times which cost more and more money (tens of thousands of dollars). The deep pocket companies game this system to wear down protestants.
  4. Most of us trust the current three Corporation Commissioners who are elected state wide. But to get a case in front of them can cost as much as $100,000. That is no money to big publically traded companies (who aren’t spending their own money anyway). But it is a debilitating amount for a small business producer to spend. Besides we should pass laws without considering who is in power at the Commission because who knows who may come along next.