House Agriculture, Forestry and Economic Development Part 2
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Representative Jerry R. Brown
Unverified
0:00
Welcome to our afternoon session of Agri, Forestry, and Economic Development. And I believe that you have Senate Bill 265 that you would like for us to look at. And if you would recognize yourself to the committee, you may begin. Thank you, Mr. Chair. I'm Mary Ann Salmon, and I
Speaker 3
0:18
do have a— I'm sorry, Senator, do you have an amendment? I do have an amendment. The
Representative Jerry R. Brown
Unverified
0:22
staff will hand out that amendment. I put the words right out of my mouth. I'm sorry. Okay.
Senator Mary Anne Salmon
Unverified
0:32
And I need a copy of it because my cartridge ran out in my printer, and so, oh, thank you. This
Representative Jerry R. Brown
Unverified
0:56
I hope everyone has had a time to look at the amendment. Do I hear a motion on the amendment? We have a motion.
Do pass on the amendment. All in favor say aye. Aye. Opposed, like signed, the amendment passes.
Senator Mary Anne Salmon
Unverified
1:09
Ms. Salmon, you may begin on your bill. Okay. I'd like to say that Representative Shepard had a problem with my bill originally, and so he and I agreed on this amendment, and it's sort of an agreed-upon amendment that's his on this. But the main thing that this bill does is if there is some of your property, a unit
or what did we call it, a pooling unit, a section or pooling unit, that has not had any activity, that's any development or exploration on it, in a year's time, you may what may you do you can choose not to extend the lease on the property and then
what the amendment says if you'll look in section B subsection A there it doesn't prevent the parties to lease to the lease from agreeing to a continuous drilling provision in order to extend the lease term. And so that simply says you can have an agreement to go ahead with the lease and that the agreement must be in bold, enlarged, or other distinctive print. Basically, that's it.
Representative Jerry R. Brown
Unverified
2:39
I'll take questions. Committee, does anyone understand enough to ask questions? Excuse me.
Speaker 6
2:50
I thought I did a pretty good job. I'm making fun of you, Senator. I know. You do
Representative Matthew Shepherd
Unverified
2:57
that all the time. I apologize. Mr. Shepard. Thank you, Mr. Chairman. Senator Salmon, thank you for your work on this bill, and
thank you for working to alleviate some of the concerns of myself and some of my constituents.
And I'll preface this by saying, And would you agree that this bill attempts to deal with the issues you raised with regard to production holding a lease? And for those who might not be familiar, an oil and gas lease is for a set period of time, usually three years. And the production, if a well is drilled and is producing, it can extend that lease as long as that well is producing. And there is typically in the lease, there is contractual language to that effect that allows the production to hold the lease, extend the lease.
Senator Salmon's bill attempted to minimize the extent of that clause because in certain cases there may be landowners who are unsophisticated in this area. What this amendment does, it requires that that clause would be bolded or in some other distinctive language so that it's right there when they prepare to sign the lease. They see that those agreements are in there, and if it's not contained in the lease, then the default provision would be that the amount of the lease that is actually held by production would be minimized.
And, for example, subparagraph C, which she added that dealt with an uncontrolled oil field, which would be, for example, the smackover field in South Arkansas, the amount of land that could be held by production without other contractual language would be a quarter-quarter section or 40 acres. And so this allows the parties to still contract as they might
intend to. But at the same time, if it's not in conspicuous language, then Senator Salmon's bill has attempted to minimize that.
Senator Mary Anne Salmon
Unverified
4:57
You would agree that that's what we've done? I would agree with that. And there you have it from the mouth of an attorney. If
Speaker 21
5:05
you don't understand it now, you never will. I, for one, thank you, Representative, for that explanation. Because, of course,
Representative Jerry R. Brown
Unverified
5:15
I understood it the first time, Senator. You understand that. I
Representative Stephen Meeks
Unverified
5:19
know. We have another question by Representative Meeks. Thank you, Mr. Chairman. And this is just a clarification for me. We've got a lot of landowners that own hundreds and hundreds of acres of land,
and those acres are sometimes leased under different sections because they're over different pulling units. Will this affect the, you know, if I'm a landowner and I sign one broad lease for all that acreage, and I guess explain to me how this bill would affect that or would it affect that at all. Could you, if you're in a lease over a broad area, say you're over two pooling units and they get active on one pooling unit, is since you own that,
is that lease going to extend over to that other one if that other one's not active
Senator Mary Anne Salmon
Unverified
6:06
or is that other one going to be broken out into a different contract? I'm going to get my attorney to
Representative Stephen Meeks
Unverified
6:17
come over here and do this and explain that. But these El Dorado attorneys here are . Does it
Speaker 30
6:23
make sense, the question I'm asking? Yes. Please recognize yourself for the record, sir. I'm Richard H. Mays, attorney of law at Heber Springs. I was here this morning, and I hope I had better luck than I did this morning. But I will say you're probably so.
Speaker 34
6:37
Let me give a little history on this, because I think there's a little misconception about the need for it. In oil and gas law, there is a thing called a pew clause that I won't even begin to explain how that got that name, but under the law, originally, if a lease, oil and gas lease contained more than one section or drilling unit in it, such as, say, contained three
or four sections of land. And the gas company or the oil company would go in and drill on one section during the term of the lease, and Representative Shepherd is correct, the leases are usually for three to five years, and frequently they don't get around to drilling on these sections until the very last because they lease up a whole lot of land. They don't have enough rigs to get to all of them, so frequently they go to the one that's about to expire so they can hold that one by drilling on it.
Well if you've got a lease that's got like three or five or more than one section and they drill on one, then that under the pew clause as originally written, it would not hold the sections that were not drilled on, and the lease would terminate as to those sections and the landowner would be able to go out and release the sections that were not drilled on. Several years ago, several sessions ago, an amendment was added to the statute that contained
the Pew Clause that said that where they drill on one section in a multi-sectional lease, The lease is automatically extended for an additional year to allow the companies to continue to drill on the additional sections that they didn't drill on. And it goes on and on so that if they drill in one section, another section, or second one, in a year after the lease expires, it continues to hold the lease and so on. And this has created a tremendous amount of confusion.
But 99.9 percent of the landowners who signed these leases have no idea that if they drill on one section that it holds the lease for another year as to the other sections. And it's generated a lot of litigation. The Arkansas Supreme Court has, in a case recently that they decided called Southwestern Energy Production Company v. Elkins,
one of the Supreme Court justices said that they didn't believe this was the intent of the legislature, and if it wasn't the intent of the legislature, they encourage the General Assembly to examine the statute and clarify its intent. So what we're trying to do here is to reinstate the Pew Clause so that it won't be extended if they don't drill in all of the sections of the lease during the original term of the lease.
As to those sections that they don't drill in, it would release the sections that were not affected or not drilled in. So that's what the bill does. Okay. Thank you. Mr. Chairman, motion at
Representative Stephen Meeks
Unverified
10:01
the proper time. All right, sir. I have
Speaker 14
10:04
a question by Rep. Smith. Thank you, Mr. Chairman. Counselor, I think that this afternoon
Representative Garry L. Smith
Unverified
10:08
you have a much prettier sponsor on your bill. I would agree with that. I believe you're in better shape. This bill is really then. I'm telling Ms. Webb.
No offense. This bill is really more favorable to the drilling company. Is that
Speaker 34
10:25
right? You know, I think that the drilling companies are probably not going to be terribly affected by it. They can do things to hold these leases on the sections that if they would just get out and take some action toward development of those sections in the leases, they can hold them. But is there a reason then for there
Representative Garry L. Smith
Unverified
10:46
being an impatience on the part that the senator would bring this bill in the first place then?
Speaker 34
10:52
There is an obligation on the part of the drilling company. It's an implied obligation under the law that drilling companies have an obligation to develop these leases as prudently and quickly as possible and to market the gas for the benefit of both the landowner and the drilling company. But within the pew
Representative Garry L. Smith
Unverified
11:08
limitations that are presently at three to five years? Yes. Okay. And then one last question. Have there been any complaints that the print was not in bold print? Is that why? No. Well, actually, the way this bill was
Speaker 34
11:21
originally drafted, that was not in there.
The exception for allowing them to put the continuation of the lease in bold print was sort of a compromise with the gas companies. They said they wouldn't, as I understood it, and Senator Simon could speak to this better than I, but I understood they said they wouldn't have a problem with it if we put an exception in there that allowed them to continue
Speaker 45
11:48
the lease in bold print so that landowners would
Representative Garry L. Smith
Unverified
11:52
know what they're getting into. Okay, so it's a user-friendly stipulation then, is that right?
Yes. For the landowner. Is that why, Representative Shepard, is that why you
Representative Matthew Shepherd
Unverified
12:06
brought that up? May I ask that? Yeah. There obviously has been some instances where that came out. This was actually, these provisions were, I think, proposed by APRO. Okay. And basically one of the concerns that I had and some of my constituents had, And the reason for this language is to allow, in particular, such as in South Arkansas, to allow those who may be more sophisticated and familiar with oil and gas leasing to still be able
to contract and agree to terms between the parties
without having to be bound by this default provision. These oil and gas
Speaker 35
12:36
leases, as you may know, are in very fine print. And the language in them has been developed for years. It's a lot of trade industry language in it, and it's very difficult for the average person to understand. Okay. All right. Thank you. Thank you, Mr. Chairman. Do we have
Representative Jerry R. Brown
Unverified
12:54
other questions? Seeing none. Yes, ma'am? I was just about to get there.
Is there anybody in the audience that would like to speak against this bill or for the bill? Yes, ma'am. If you'd come at the end of the table, if someone would please make room for this lady. Ma'am, and if you
Speaker 4
13:17
would have a seat and introduce us to you, or you to us, and you
Speaker 49
13:24
may begin. Hello. I was here this morning. It was very interesting because I've never
Beverly Langford
Unverified
13:28
gotten to come to one of these before. My name is Beverly Langford, and I have property in the shale.
I live on the shale. And we have actually signed three of these leases, which now once the different gas companies got through, when we bought our property, we thought that we owned a third of our mineral rights. And by the time the last gas company did their abstract, we now own none of our mineral rights. And we have a gas pad that has five wells on it that they're fixing to frack starting the 1st of April, all five of them at one time.
And if none of y'all have ever been on a pad where there are fracking wells, you can't even begin to imagine. But back to the lease, when we were approached to sign a lease, which we did not want to do, we were originally integrated into our section, and we were the last ones to sign a lease. And it doesn't specify that. It isn't in any kind of different print. So we, and I know a lot of other people, and I'm not going to talk about it a lot of other people, We were never told that it would continue on and on and on.
If a well is drilled in our section and it is producing, that it just continues forever until it doesn't produce anymore. And we assumed when we first signed a lease, and we were told a man came to our house. The first one came, and we kind of ran him off because we didn't want to do it. And so it got turned over to someone else. They're very persistent. They never give up. And we spoke to our attorney who basically said you might as well sign it
because if you don't, they're going to come on you anyway. If you get a lease and sign it, you can at least maybe put a couple of provisions in there that weren't there already, which we did. We told them that they had to be three times further away from our house, and we put a time limit on how long they had to clean up once they were done. And they are a little bit further away from our house, but, you know, the lease, we don't have a lease anymore because they told us we don't have them.
But from someone who has signed several of these, we were told by the man who came to our house and said at our kitchen table that, and it was a five-year lease. At the end of this five years, and we asked him what happens at the end of the five years, you know, because we have rental property. We deal with leases all the time. I have six rental units, so I know what a lease means. When my lease is up, it's up. You know, we can come back and re-sign, but we sit at the table and we re-sign.
There is nothing in there that says this, I mean, unless you know how to read them, which no one up there did or does. And the fact that he sat there and said, oh, when five years is up, someone will come back. You'll sign a new lease. you can renegotiate that that's not true that's untrue and you know and and I don't have I'm not talking bad about them but if you're not in it you don't know these people come to your house
over and over and over they call over and over and over you know they will not go away and the fact that they they tell you something that is untrue isn't something that I was ever used to I wasn't raised that way. You talk to people, you look them in the eye, and you tell them the truth. And these people don't do that. And that's what needs to be addressed. That's what, when we want to hold them accountable, we just want to be treated like you treat each other, you know. And we're not getting that.
And so I do think that this is a great thing that needs to be passed so that the people who are up there, I mean, you're talking about people in my area who don't even have running water, you know, and they're expected to sign these leases and understand what they're signing. You know, they can't understand what they're signing. And so, you know, if it is, at least in bigger print, where they are obligated to say, if this happens, you know, then this is what's going to happen after that.
So, and I'm sorry to take up so much of your time, but I do feel like it's a great thing and it needs to be passed, and I'm speaking from my own experience. Thank
Representative Jerry R. Brown
Unverified
17:51
you very much. Thank you, ma'am, for coming today and giving us
Speaker 9
17:55
your testimony. Is there anyone else in the audience that wants to speak for or against this bill? Senator, would you like
Lisa Mabry-Williams
Unverified
18:06
to close for your bill? Thank you, Mr. Chair. I think I'll leave well enough alone. I'd appreciate a good vote.
Representative Kelley Linck
Unverified
18:13
Representative, question? If it's not too late for a question, something just struck me, and you all may have
covered it and I might have slept through it, but what's this due to existing leases, or is this for only new leases? So if I have a
Speaker 34
18:36
five-year lease right now. This would only apply to leases that are entered into after the effective date of the act.
Representative Kelley Linck
Unverified
18:42
Very good. I assume that, but thank you.
Speaker 53
18:44
Yes. I'm looking for a motion from the committee. Representative Dale, do you have a motion? I'll make a motion. Do pass. We have a motion. Do pass. All in favor of the motion, say
Lisa Mabry-Williams
Unverified
19:03
aye. Aye. Opposed, like. Congratulations, Senator. This is a very good committee. I do have one question. You just don't know. I have one question
Speaker 9
19:11
for... I stand corrected. We passed that motion as amended.
Lisa Mabry-Williams
Unverified
19:14
Oh, thank you. Yes. Could I ask Representative Shepard a question? Sure. If he'll take it. Will you
Speaker 17
19:24
take a question, please? Depends on what it is. No. Would you carry my bill on the floor, please? Sure. Thank you. Thank you, Senator, for coming. I have a question for the Senator, too. Thank you. When we come down to the Senate, you'll
Speaker 9
19:42
be nice to us, won't you? As always. Committee, we have one more item. to take up before the 4 o'clock hour.
And we have House Resolution 1026 by Representative Hopper, and Representative Link is going to run that. And we have an amendment with that also, and if staff will hand out that amendment, this House Resolution hopefully will not take long. Hi. Thank you, Mr. Chair.
Representative Kelley Linck
Unverified
20:26
I'm Kelly Link, District 86 State Representative. I'm presenting this bill on behalf of our colleague, Representative Hopper, who is in state agencies figuring out the upcoming districting. So she's a little taken up right now. Let me begin by, is there any
Speaker 9
20:43
discussion on the amendment? If not, do I hear a motion on the amendment? We have a motion that we have a due pass on the amendment. All in favor say aye. Aye. Opposed, like.
Representative, you may speak to the bill. Thank you, committee. This bill gives honor to
Representative Kelley Linck
Unverified
21:01
one of Representative Hopper's constituents and, of course, a leader of our tourism industry and trout fishing industry who will be honored at an upcoming event at the ASU campus in Mountain Home, and I believe that Representative Hopper would like to bring that attention to the state through this resolution. Any questions? I'm happy to answer.
Speaker 53
21:28
Do we have questions about the resolution? Anyone want to speak in
Speaker 9
21:33
the audience for or against the resolution? What's the recommendation of the committee? We have a due pass by Representative Smith. All in favor of the resolution, this is an aye. Aye. Opposed, like. The resolution passes, Representative Link. Congratulations. Thank you, committee, and Mr. Chair. Looking at the agenda, we will have more items coming at us from the Senate end, guys.
So we're in very good shape. I do really appreciate y'all's diligent work this morning. We did a yeoman's job running 12 bills through here, and I thought they all got adequate time. So thank you all so much for your attention and your work. We stand adjourned today.
Agenda
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Speakers
Representative Jerry R. Brown
Unverified
Speaker 3
Senator Mary Anne Salmon
Unverified
Speaker 6
Representative Matthew Shepherd
Unverified
Speaker 21
Representative Stephen Meeks
Unverified
Speaker 30
Speaker 34
Speaker 14
Representative Garry L. Smith
Unverified
Speaker 45
Speaker 35
Speaker 4
Speaker 49
Beverly Langford
Unverified
Speaker 9
Lisa Mabry-Williams
Unverified
Representative Kelley Linck
Unverified
Speaker 53
Speaker 17