Frank Bavendick remembers a day when there was no disagreement over what it meant to “commence” drilling an oil well.
But as an independent oil and gas operator for more than
60 years, the Bismarck man freely admits things have changed.
“It used to be accepted that if you don’t have a rig on site and you don’t have a bit turning to the right, drilling hadn’t commenced,” Bavendick told the Senate Natural Resources Committee on Thursday.
Today, after lawsuits and mediation and arguments over leases and more, the question isn’t so clear cut.
And big money is involved.
“The last few years, the value of crude has gone up, making new millionaires every day,” Bavendick said.
“Greed has stepped in,” he said, and it is now common for some mineral rights owners to do whatever they can to get out of a lease — and for some oil companies to do whatever they can to maintain their leaseholds.
State law should include a clear definition of “commencement of drilling,” Bavendick said, but he believes House Bill 1355, on the Natural Resources Committee’s table Thursday, falls short of the mark.
“This bill has further clouded the issues,” he said.
Myron Hanson of Souris, president of the Northwest Landowners Association, disagrees.
He knows from personal experience that production companies sometimes operate on bad faith.
It should be clear, Hanson said, that parking a road grader on a well site in an attempt to satisfy lease requirements for commencement of drilling is not acceptable.
The issue has arisen because mineral leases are for a finite period of time, usually three or five years. If the lease expires before drilling has commenced, the minerals owner can negotiate a new lease, potentially at a higher rate, or lease the minerals to a different production company.
Commencement of drilling “ties up” the lease.
Hanson said in his case and in others that he says he’s been told about, companies have done a minimal amount of work at the site to argue the lease should be maintained.
House Bill 1355 sets out specific conditions that must be met to tie up a lease.
Those conditions include site preparation and moving to the site a rig capable of drilling the well to its total depth, among other things.
The bill was amended in the House after discussions between landowners and industry representatives. Hanson said while the amendments aren’t perfect, members of his group support them.
Ron Ness, president of the North Dakota Petroleum Council, said his members do not.
“Our position is it’s a private contractual issue” between lessees and lessors, he said, “and the Legislature should not stand in the way of that.”
Oil and gas is a fast-changing industry, and factors at play now may be different a few years down the road, Ness said.
The committee closed discussion of the bill without taking a vote, then moved on to a bill that proposes a method for encouraging mediation in disputes between landowners and oil and gas companies.
Rep. Bob Hunskor, D- Newburg, said House Bill 1352 helps encourage mediation as an alternative to court cases.
Under the measure, when one party to a dispute requests mediation and the other party declines, the mediator must directly contact both parties to explain the benefits of mediation.
Two years ago the Legislature enacted a law permitting the North Dakota Mediation Service, in the Agriculture Department, to mediate oil and gas disputes.
Bethany Abrams, administrator of the service, said it has mediated 25 oil and gas cases with an 88 percent success rate.
There was no testimony against the proposal, though the committee did not vote on it.