Jim Bemis suggests forming local chapters of independent producers and royalty owners

In case you missed. Maybe we ought to start a local chapter of the "Arkansas Independent Producers and Royalty Owners Association " I've seen the Texas version, but didn't know we had the association in Arkansas.

Jim

Environmentalists, gas firms split on lobbyists' influence
BY CHARLIE FRAGO

Posted on Sunday, April 5, 2009

URL: http://www.nwanews.com/adg/News/256566/

The 87th General Assembly is the first to convene after the increase in the severance tax on natural gas last year, and as the legislative session nears its end, opinion is divided on how powerful the gas lobby has become and what that means for the state.

Environmentalists say companies like Southwestern Energy Co. and Chesapeake Energy Corp. have pushed legislation to increase the power of an industry that many say has helped the state avoid the worst of a nasty recession.

The companies referred questions to a gas industry association official who said the industry was surprised that some bills considered by industry officials to be noncontroversial - like establishing that a majority of the Oil and Gas Commission shall be experienced in those fields - drew fire.

But the gas industry, said J. Kelly Robbins, executive vice president of the Arkansas Independent Producers and Royalty Owners Association, didn't come to the state Capitol "with a plateful of things trying to get enacted" in the session scheduled to end Thursday.

Many lawmakers say that the drilling in the Fayetteville Shale has been an important boost. That may have produced some hesitation among legislators to challenge an economic engine estimated by University of Arkansas at Fayetteville researchers to have had an impact of more than $2.3 billion in 2008.

"It's an industry that we'd like to keep in Arkansas. If we do too much, it might be what pushes them over the edge as far as exploiting our minerals," said Rep. Jonathan Dismang, R-Beebe, who has challenged natural gas companies on several occasions this session.

But Rep. Bruce Maloch, DMagnolia, co-chairman of the Joint Budget Committee, said he didn't think the gas companies had exerted too much influence.

"I've never been in a meeting public or private where it's been said, 'Hey, we've got to do something for these guys,'" Maloch said.

Here are some of the higherprofile issues involving natural gas this session:

Legislation to ensure that a majority of the nine-member commission have experience in development, production or transportation of oil or gas failed in its first try in the House.

Some members, including Dismang, questioned if it would unfairly restrict the influence of royalty owners and others.

Eventually signed into law as Act 389, Robbins said he was surprised that the bill sponsored by Rep. Garry Smith, D-Camden, became a "lightning rod" for criticism of the industry.

Maloch agreed, saying most boards and commissions have a majority of members with experience in whatever industry that board oversees.

But not every board has the power of the Oil and Gas Commission, said Rod Bryan of the Arkansas Conservation Alliance, an environmental organization.

"They have offices in three cities and the power of an agency. They call them a commission so that they can have their cake and eat it, too," Bryan said.

Maloch's proposal to codify a prudent operator standard for oil and gas companies to protect them against lawsuits also drew attention.

A 2000 Arkansas Supreme Court ruling awarded $109 million to royalty owners after the court found that gas companies had sold gas at below-market rates to a sister company.

The ruling contained "dicta" - or judicial remarks not directly related to the ruling - that oil and gas companies had a fiduciary responsibility to royalty owners.

Examples of a fiduciary responsibility are an executor of an estate and an heir or a guardian and a ward, Maloch said. That kind of legal arrangement requires that any action only be done in the best interests of the heir or ward, he said.

"I don't know of any business that operates that way," Maloch said. "That would mean that the mineral owner could demand that the natural gas company drill a well to extract $500,000 worth of gas even if it costs $3 million to drill the well."

Maloch's legislation, now Act 719, codifies the "prudent operator standard" already in practice in courts in Arkansas and neighboring states, he said.

That standard requires companies to act in good faith and for the mutual benefit of the company and royalty owner.

The Senate changed the bill to remove language that some attorneys thought would benefit the gas companies in negotiations, said Sen. Jim Luker, D-Wynne.

Luker said the gas industry has "put money in the pockets of people who had been of modest means," but "those who don't directly benefit financially are not quite as satisfied."

"Our job is to try to strike a balance," he said.

"People fussed for a long time that we weren't taxing them enough. We finally got it done and they said we didn't do enough. Well, we got them paying something," Maloch said.

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