Oil company land rush causes Mississippi regulators to re-examine rules for drilling permits

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JACKSON, Mississippi — Southwest Mississippi is still waiting for an oil boom to kick in fully, but a land rush is definitely on, and it's causing state regulators to rethink their rules.

Oil companies are scrambling to win drilling permits, which would give them control of big slices of land in Amite, Wilkinson and Pike counties where they have leased mineral rights.

But permits expire after a year if no one drills, and companies are seeking dozens of units. There appears to be little chance companies can drill all those wells within that time, but they're grabbing acreage that other companies might drill.

"Obviously, none of these companies have the wherewithal to finance or otherwise to drill all their wells within the term of the permit," said Howard Leach, attorney for the Mississippi Oil & Gas Board. "The board's concern is that these large blocks of acreage are being locked up but can't be drilled."

When companies don't drill, mineral rights owners don't get royalties. That's just one factor leading some mineral rights owners to say Mississippi's rules favor oil companies over them.

Bernell McGehee, a Liberty accountant who owns mineral rights and publishes a website that tracks Tuscaloosa Marine Shale developments, said landowners in Louisiana can get better terms because rules there favor oil companies less. He wants Mississippi to reduce the leverage that oil companies have to force owners to sign leases, as well as stop allowing companies to permit units of up to 2,000 acres.

"If the oil is there, they're going to take it," McGehee said. "We've been so easy that we're kind of being taken advantage of."

The Oil & Gas Board plans to discuss possible changes at a 9 a.m. Wednesday meeting at Southwest Mississippi Community College in Summit. One proposal would allow the board to look at drillers' development plans and finances to evaluate how likely drilling is.

Leach said any decision will likely be delayed until November.

The land rush began building over the summer as new entrants to the field competed to stake out drilling units in Amite and Wilkinson counties. The number of units pending approval has ballooned to 61, leading the board to call a time-out on approvals.

Companies typically sign leases with owners of mineral rights, which in Mississippi may not be the same as the people who own the land atop the oil. Before a company can drill, it has to draw a line around a unit, control all the mineral rights within that unit, and get a drilling permit from the Oil & Gas Board.

Only rarely do companies sign up the mineral owners for an entire area. That's especially true with the Tuscaloosa Marine Shale, because companies aren't just drilling straight down, but are drilling horizontal legs more than a mile long. Instead, companies can force other owners to lease rights or else pay part of drilling costs, a process called force pooling. That's what McGehee is unhappy about. He said that too many companies are flouting the spirit of a law that requires them to negotiate before sending owners a letter that lays out a final leasing offer. With wells running $10 million or more, many people can't afford to pay their own share of costs to avoid leasing.

Leach said such letters meet the board's definition of good-faith negotiations. But McGee said he'd like the board to require something more than a take-it-or-leave-it offer.

Mississippi has eagerly encouraged drilling, and agreed to grant much larger units than in the past, up to 2,000 acres.

Once a well is drilled, the company controls the unit as long as the well is producing. But some companies have been drilling only well per unit, instead of the two that were contemplated when the larger units were approved. That means owners will get less in royalties and the company can sit on the land indefinitely, possibly selling its interest or only drilling more wells when oil prices are higher.


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