[Congressional Record Volume 144, Number 125 (Friday, September 18, 1998)]
[Senate]
[Pages S10594-S10595]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. ENZI (for himself, Mr. Thomas, and Mr. Bingaman):
  S. 2500. A bill to protect the sanctity of contracts and leases 
entered into by surface patent holders with respect to coalbed methane 
gas; to the Committee on Energy and Natural Resources.


         Coalbed Methane Patent Holders Protection Legislation

  Mr. ENZI. Mr. President, I rise today, with my colleagues, Senator 
Craig Thomas of Wyoming, and Senator Jeff Bingaman of New Mexico, to 
introduce a very important bill for our western States and for others 
that have a lot of federally-owned coal. We have been working with 
other members, members of the Energy Committee, and with the Department 
of Interior to put together a good consensus bill.
  On July 20, the 10th Circuit Court of Appeals, in a final en banc 
decision, ruled that methane gas produced out of coal seams is part of 
the coal itself, and not actually a gas. That means instead of 
belonging to the owner of the oil and gas, as it has for the past 80 
years, it may now belong to the owner of the coal. In Wyoming, the 
owner of the oil and gas is often different from the owner of the 
coal--which in most cases is the Federal Government.
  What does that mean? In my home county, the Federal Government owns 
only about 55% of the oil and gas, but it owns 95% of the coal. That 
means, in many places where these two resources occur together, there 
are separate owners. This decision is poised to strip away a majority 
of the private ownership of gas in Campbell County. It could be an 
immediate transfer of $250 million over thirty years from private 
owners to the government--a loss of income and economic activity that 
will destroy the economy in my home town.
  The effects will be widespread because this decision would overturn a 
decades-old U.S. Government policy. This Interior policy has acted as 
the basis for thousands of gas contracts across the west. People have 
been using since 1981 to govern the development of their contracts and 
leases. Today, the Circuit Court's decision places all of those 
contracts in legal limbo. That limbo threatens the livelihood of entire 
regions in the States like Wyoming, Colorado, Utah and New Mexico.


                      WHO CURRENTLY OWNS THE GAS?

  For those of my colleagues who haven't been deeply involved in 
western public lands energy issues--across the west, oil and gas is 
often owned separately from the coal. It may also be separate from 
hardrock minerals, and over time through sale, can also be separate 
from the surface rights. This system of split mineral estates is the 
result of many layers of Federal statutes that granted varying levels 
of patents to homesteaders.
  The particular problem before us, arises out of the Coal Land Acts of 
1909 and 1910. Those statutes specified that homesteaders could retain 
surface rights (including the oil and gas) but reserved the coal to the 
U.S. Government. Now the question about whether methane is a gas, or 
coal, leads to questions of ownership.

  In Wyoming today, gas producers--through lease agreements with 
federal, state and private owners in Wyoming--produce over a billion 
cubic feet of methane gas per month. These leases are between the 
producers and the owners of the gas and many of them have been in 
effect for as long as twenty years and more. In New Mexico and 
Colorado, they are producing over 75 billion cubic feet of gas per 
month under the same system. This Court decision--which would attach 
the methane to the coal owner or lessee--jeopardizes all of the gas 
leases that govern these wells--including the federal gas leases.


                           how serious is it?

  The effect of this decision will have a profound impact in certain 
regions. Consider some of these effects:
  1. For the farm families who have secured mortgages with their 
royalties, this invalidation could deprive them of much needed lease 
income and force them into bankruptcy.
  2. For the small community banks who hold those loans, a number of 
bankruptcies could jeopardize their solvency.
  3. For the producing companies operating--or planning to operate--on 
those leases, this could delay their production--and all the jobs that 
come with it--for a year or more. So while the judicial system is 
sorting out the ownership issue, drilling and servicing companies are 
going to go belly up. Oil exploration has stalled because of low 
prices, so if they can't drill for cheap gas, there isn't much 
business.
  I received a letter in my office the other day from a small bank in 
Buffalo, Wyoming. In the letter, they discussed the effects this 
decision may have on interest owners and various trusts held by their 
bank. The advisory committee for one particular trust voted to suspend 
all further royalty payments to the trust beginning September 1. That 
decision was made based on the tax consequences and on the potential 
liability of having to repay royalties should any retrospective 
decisions be made.

[[Page S10595]]

  Another constituent contacted me to tell me that his multi-million 
lease agreement--that he had worked on for more than a year--had just 
fallen apart because this court decision had clouded the title. The 
investors had been unwilling to go through with the deal.

  These stories are just the start of a devastating series of 
consequences that will arise out of this decision. Each breakdown will 
have a multiplying effect on unemployment and loss of confidence in 
western states.
  This is a very serious situation, Mr. President, but it is one that 
can be stabilized.
  Today, we are offering a bill that would grandfather the leases that 
have been negotiated, in good faith, according to the explicit policies 
of the U.S. Government. The amendment would ensure that existing leases 
to produce methane--or natural gas out of the coalseam, as some of the 
older leases read--remain valid and that there is no future assertion 
of ownership by the Federal Government on these parcels.
  The amendment applies only to federally owned coal. It would not have 
any effect on tribally owned or state-owned coal. We have worked this 
out with the Chairman of the Indian Affairs Committee, Senator Campbell 
from Colorado.
  Furthermore, we have worked with the coal companies, who have valid 
concerns about their existing and future leases to mine federal coal. 
We have made it clear that nothing in this bill should be construed to 
limit their ability to mine federal coal under valid leases, nor should 
anything be construed to expand their liabilities to coalbed methane 
owners covered by the bill.
  The timing of the decision means we will be working to move this bill 
as soon as possible. Next year, we will pursue a more in-depth review 
of the situation. This body will need to conduct hearings and look at 
ways to work out problems with future leases and with conflicting 
resource use issues. These are details that demand very careful 
consideration.
  For now, however, we should take this opportunity to provide some 
certainty for people with existing agreements. This is a statement of 
support for the sanctity of those contracts--and a statement of support 
for the economies in our states.
  In closing, I would like to thank the Republican and Democratic 
members of the Senate who have been so important in helping us to work 
out this legislation. A special thanks to the Indian Affairs Committee 
for helping us craft language to accommodate tribal lands and a special 
thanks to the Department of Interior, who is helping us to protect 
eighty years of doing business. They have also helped us remove the 
possibility of devastating private property takings, retroactive 
liabilities, and mountains of litigation.
  Mr. THOMAS. Mr. President, I rise today to strongly support this 
legislation designed to protect contracts and leases of surface patent 
holders for coalbed methane. This legislation, which my colleague 
Senator Enzi and I are jointly introducing along with our House 
colleague Congresswoman Cubin, is vitally important to coalbed methane 
producers and lease holders in Wyoming and will address a problem which 
arose due to an appellate court decision rendered earlier this summer.
  On July 20, 1998, the Tenth Circuit Court of Appeals turned years of 
precedent and practice on its head by ruling that coalbed methane 
should be classified as a coal-by-product rather than a form of natural 
gas. That decision was completely contrary to past interpretation, and 
will severely impact coaled methane lease holders in Wyoming and 
throughout the nation. The ruling will also delay completion of leases 
and drilling, which will negatively impact our state's economy.
  The court's decision is particularly troubling for producers because 
the Office of the Solicitor at the Department of Interior had issued 
two earlier opinions regarding ownership of coalbed methane in 
federally-owned coal, which were directly opposite to the appellate 
court's ruling. Both in 1981 and in 1990, the Solicitor's office issued 
options which stated that coalbed methane was not part of the 
federally-reserved coal protected under the 1909 and 1910 Coal Lands 
Acts. Now, leaseholders and producers, who believed they were acting in 
good faith and compliance with federal law, are faced with the 
troubling possibility that their leases may be revoked.
  The legislation that we are introducing today is designed to remedy 
many of the problems caused by the appellate court's decision. This 
bill would protect current contracts and leases of surface patent 
holders for coalbed methane gas. The measure does not address future 
leases or contracts and only deals with folks who are already engaged 
in the production of coalbed methane gas or who have leased land for 
drilling and exploration. It is a fair and reasonable proposal and 
would simply protect people who acted in compliance with the law as it 
was interpreted by the Department of Interior.
  Mr. President, I hope the Senate will take quick action on this 
measure and approve it as quickly as possible. Coalbed methane 
production is a growing and vibrant part of Wyoming's economy and we 
need to take action to ensure that the lives of folks who rely on 
stable production of coalbed methane are not completely disrupted. 
Producers acted in good faith and in compliance with the law as they 
knew it. We should not punish them for actions beyond their control and 
should work to ensure that the blood and sweat which they invested into 
their businesses is not swept away by the actions of the court.

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