| Local businessman David Hinkins speaks with John Baza. |
John Baza the director for the Division of Oil, Gas and Mining spoke at the recent economic development summit. He said coal prices have gone up, but nothing like gas prices. “Coal is governed by long-term contracts and we expect to see coal go up as the long term contracts are renegotiated,” said Baza. DOGM is more supply side oriented and works to improve things for the producer. “High prices have spurred a lot of drilling activity. In 1992-93 when the prices were down we issued 100 permits, in 2004, 1,100 drilling permits were issued for the drilling of new wells. Companies ask for drilling permits and sometimes they don’t capitalize on those drilling permits. By mid-September we already surpassed last year’s drilling permits and are projecting 1,500 permits for 2005. There have been 1,215 permits so far. Seventy percent of those permits have been in Uintah County looking for natural gas with 13 percent in Duchesne County.
“The Wolverine well in Central Utah is an impressive set of wells. They have 10 drilled and six ready which are producing 3,000 barrels of oil a day, and a projected million barrels a year. It is an amazing production and the oil is dark and easily refineable. They started with a geological concept, a whim, and until they drilled their first well; it had not been tested. No one was giving them any credit, but their find has spurred activity and another company is drilling wells in that area,” said Baza.
He also mentioned a well by Nephi which was trying to reach a depth of 12,000 feet and gave up at 7,000 feet after sinking a million into the project. He said the Bill Barrett Company has been involved with a significant project and drilling numerous wells in Nine Mile Canyon. But, the archaeological sites have necessitated extra care and Barrett has done good things to protect these sites. In Emery County, XTO Energy will be doing additional drilling.
“Companies find it easier to drill on private and state land due to regulations, when the private and state land is exhausted then the gas and oil companies move to federal land. In Carbon and Emery counties, there is a lot of representation on the DOGM board: James Peacock, Sam Quiqley, Kent Petersen and Doug Johnson. Carbon and Emery counties are a hub for energy production in Utah. The energy production is significant and presents entrepreneurial opportunities,” said Baza.
Baza explained some of the duties of DOGM which include: coal mining and regulation, minerals, mining and reclamation; abandoned mine reclamation; oil and gas conservation and underground inspection control. “All of these meld together to apply consistent regulation to all energy,” said Baza.
Baza explained how land owners and companies work together to drill on private land. Sometimes the mineral right owner and the surface right owners are not the same people which leads to conflicts. Surface owners have little ability to stop mineral rights owners. Contracts must be entered into which pay a royalty to the land owner. A standard rate is one eighth of the value of what’s produced returns to the land owner. A royalty interest doesn’t pay for the development of a site, but a working interest helps pay for the cost of development, with a chance for a higher return.
Companies will use lease brokers to quote prices and offers to lease. As land values go up land owners can ask for higher lease terms. The duration of a lease is negotiable and some leases include a delay rental in case production is delayed.
Companies will work with surface owners until they can’t and sometimes it’s settled in court. “Surface owners don’t get considered much, but that is changing,” said Baza.
Oil and gas pools are governed by geological conditions and the flow is movable, one owner could drain all the resources. In the 1930s conservation rules came into effect which spaced out wells more so there was more recovery and everyone profits. “The government steps in and helps keep it equitable for everyone. The state creates rules and future direction,” said Baza.
“We work to encourage development of necessary energy and mineral commodities to provide an economic impact to the state. We also work with education programs and creating public awareness. In Utah, 90 percent of the generation comes from coal fired plants. We look to responsible mineral extraction to improve Utah. We work as a government to be more efficient and use tax dollars wisely to provide a service to companies and citizens,” said Baza.
Baza said exploration opportunities are expensive. He thinks there is a market for small companies that develop resources. He said an opportunity exists for education and advocacy in educating people about their rights and opportunities in dealing with minerals. “Lawyers are not always expert in land and mineral leasing contracts,” said Baza. “There is an opportunity for someone to learn mineral law to help people sign leases.
“An entrepreneurial opportunity exists in educating school children on where energy comes from. Someone with expertise in an area such as coal bed methane could help others to get through the permitting process. It’s not easy to get through and public land permitting is different requiring a NEPA review and other stricter guidelines. Local experts could guide companies through the process and help in that way. Local companies could offer field services such as road construction. An information technology expert could pool information into a single data base with maps and detailed information which could be valuable to drilling companies and others. These could become paid services,” Baza indicated.
Baza reported that companies will soon be able to report their production on line to DOGM. Soon electronic permitting will also be used.
“You don’t have to live in Salt Lake to create software that can be used by companies,” said Baza,”We are committed to Utah and its citizens to maintain quality of life for Utah citizens.”