Agriculture, Forestry & Economic Development- House

Thank you madam chair. Of those of us who were here two years ago you know we did the transformation bill that reorganize the state government and a lot of things that were in the loss of time. Needed to be changed in order to be in compliance with the transformation this happens to be the bill that That deal with the department of agriculture and the difference in the plant board the Department culture and the livestock poultry commission can get kind of confusing we have this in here what last week yes and was asked to make a couple changes to the bill just put in and a couple more words to make it more a clearly defined about exactly what this did and I'll be glad to take any questions be anybody has any if anybody have any questions committee. Seeing the questions is there anyone here to speak for the bill against the bill. You like to close for your bill do pass please ma'am all those in favor say aye. Those narrow congratulations your bill is passed house bill fifteen seventy five by representative Eubanks. Thank you madam chair the. I amended this bill I did you remember the original language had all six methods that had the that which specified that language had been struck I thought better that and thought we needed to the reinstate for those with that I'll take any questions are there any questions from committee members. Saying no questions is there anyone here to speak for the bill against the bill. Eight want to close for your bill closing I make a motion to pass all those in favor say aye. I was narrow congratulations your bill has passed. House bill seventeen twenty five representative back. Thank you madam chair. The person I want to do is is to. I have a couple of policies and back to the committee the first apology I want to make is that. I. Currently it missed communicated I was misunderstood someone said that I'd told him that that everyone was in agreement with this bill AT tie to mean that that's not the case and I think you can see. By the number of people probably speak against the bill that that's not the case but if I I apologize for any confusion that I might miss poker our our said I'd I'd never intended to do that that's the second thing is. After the last time I present this bill some people were saying that does they didn't see how this bill fix the problem yeah I was a little bit puzzle because I thought I'd explain that but I went back and I reviewed the video and and I I I think I failed to make one the connections that is important. House bill seventeen twenty five makes it clear that the rule teas on the first eighth of production. Which are to be paid at net royalty rates are the minimum royalties that are to be paid. That's this thing's stems off of that the first eighth royalties which. In the we talked last time about the nineteen eighty five or net roadies and those are the minimum royalties. By staff members seeing them as a minimum royalties in makes it clear that additional royalties which may be stated in the agreed upon laces. All are. Can be met now the wires the first one eighth. Is in that role too that's the minimum anything else that's in the lease should be honored so that's how this fixes the problem that we have we all heard a lot of people come in here I they do offer to come back but if in respect for the committee's time I decided that I would have you heard what they had to say they had one eight gross leases at the well had they were not being they were initially being paid that way for several years and then all of a sudden that changed and that was because of the interpretation that someone. Made a concerning the. Nineteen eighty five the statute. So with that said. I went back. And amended the bill. And I like to walk through those amendments if you might. The first on the very first page Allen who's here said that there was some confusion as to whether or not of a royalty or mineral rights owner could demand the rule are asked for their role tees in gas verses being paid in and dollars and. I didn't think that was what happened but we we change it to eliminate that so it's clearly says royalties are are Payton and currency. So you should remember that now the next thing that you remember is Allen said that by removing the line about that but not limited to all federal state and tax levied upon the production and proceeds that has by the legislative body removing that that might confuse the judiciary branch in taking that those those were not lawful deductions so we simply put those back in there that addresses that issue. The next question that you. Was brought up in the committee and actually some of you received texts and emails related to this is that somehow I intended to put the commission a state agency in the middle of private contracts that was that was never the intent of the original bill but to further establish that what I said is I've changed that as is it says that lawful deductions as established they obviously include the federal and state. State taxes as established by the committee for party subject to integration orders. For those of you who don't understand what integration order is is that's someone whose that that's the individuals that are in a row of our our unit I think is whether we referred to it that were integrated and they don't have leases that were integrated in by the oil and gas commission so so certainly that would be established a commission for those parties Jesse integration for a court of competent jurisdiction for parties that are subject to leases so this toner laminate the possibility of the. The oil and gas commission entering into leases. Private places excuse me. No we didn't we didn't modify anything on the on the back of. The very end of this but I thought it might be I I would explain that briefly. Of terminology that might be confusing to some of you guys is is the the term working interest owner I'll explain that is why if you were rolled T. honor and I came to your house and I leased your royalties that would make me a working interest owner in the wells that are related to your property so one of the things says that if I'm actually marketing the the gas myself then I'm responsible for paying you the difference between the one eighth net. That's described in this statute and whatever agreement that you and I. Agreed upon. The other one says that again I'm same situation on the working interest owner I've I've leased your royalties but I don't I'm not marking the gas I marking the gas to the operator which is the person that's actually operating in popping the the gas out of the well then that that person is responsible for paying the the difference between what the one eight and that was in this statute and the. Whatever the whatever terms of lease that we agree to. One of the things that you heard last week for those you are hired by the you can verify this with your. Your colleagues on the committee if you had a lot of people come in here and say that they had one one eighth gross leases or they might have a twenty percent gross lease or something of that nature and that certainly there they were charged. For expenses when there Lee said that they were gross those laces are were great upon leases that were signed by and I'm not sure who I was here today but they were signed by the gas companies that have leases they were that these are great upon laces to record in our county courthouse but they're not been obligated because all of a sudden we decided. That. We don't honor those leases because they're using this statute this the say are it's my belief that they're using the statue to say that the one item that releases them of any other obligation as far as what is our concern on that first one eight the production. Now that's a nice interpretation and I don't I'm not saying it was done and intentionally but that means that. I don't I can now push some of those charges for that first one night down to the royalty owners even though they have a gross lease that says that they shouldn't be paying those charges. So that that's that's interpretation of that late now that's how it changes I live in good faith. made these these amendments hi I do not don't want to be deceptive and say that we agreed upon the amendments that's not the case I made the payments based upon what they said in committee Allen said Manawat Allen said in committee I made the of the judgments I filed it and then I sent them a copy of it that evening I sent him a follow up copy the next morning. Because it and then Friday that would have been Thursday morning Friday afternoon the I was contacted by Rodney Baker decided that the board had once again got together and said that they they did not agree with it as amended and that they felt and and the you might ask for more clarity on this but this is with my understanding of the county the only way to fix this thing are or maybe the best way to fix this thing was to get rid of the nineteen eighty five ACT. So. That's I'm I'm explain the the positions at this point of all the parties and how how we got to this point I too have tried to work to try to work this thing out it seems like we're not gonna be able to do that but with that I think I'll just stop at this point and ask if there's any questions in committee. Anyone have a question. Representative Coleman you're recognized. Thank you the representative back are there any a class action lawsuits now pending against any of these labels because we were here the other day people were saying that they couldn't afford to go to. The court now version rumors as there may be some class action lawsuits. It is my understanding that there is a class action lawsuit I am obviously not involved with that that that there is a class action lawsuit out there there's also some litigation that has occurred between the All in gas commission and a pro concerning since when a pro that it might be between one of the the gas companies but concerning the integrated wells and that is being appealed now to the Supreme Court it was it was in circuit court and they were denied the I. pro group was denied and now there's they're appealing to the Supreme Court. It is not correction it was between fly will and no against commission you're recognized for a follow up okay thank you in the the commission now the only thing that way they enter into this is just if there's an integration order. That they INTERPOSES don't make any other. Assessments about the payments or anything they approve part of it. The only thing that and that the whole statute the only thing that I've changed as far as what the oil and gas commission's role is is is that yeah they would be that to us be able to establish what the net deductions could be for integrated parties you are correct. President. Did you get your answer representative Coleman are you three okay representative in it you're recognized thank you ms Mrs chair Of how does this affect the county road funds. Well I would I would like to try to answer but probably the best way to to do that so I will I think that the county judges here he's going to be speaking it would with your permission I'd love to let that happen that you talk to him because he could tell you much closer all right thank you representative Bragg you're recognized for a question. Thank you madam chair so the main issue here on on this one eight payment is is the main issue that we heard last week. There's some contracts I have a twenty percent so is the main issue that it's they're claiming that the one eight this is the only payment that needs to be made on that And I apologize because I didn't make myself very clear on that the the the difference here that we're discussing about is is really the. The royalties that are paid on the first one I. The statute requires a minimum payment of net payment on the first one eighth that's the minimum that's that's what this will this might changes make perfectly clear. The way it is now. Through through work a little bit with that let I'll I'll use the example of a of an individual that has a one quarter lease that's a gross lease at the well head the way it would be done now they would receive payment of for the first one I know that and then the second one night to make the route the second half of the quarter would be paid it grows the great upon right in our whatever the great upon rate is in the lakes okay so it doesn't it it's really just the first one eight that's that's in question here okay thank you representative for no you're recognized for a question. Not. Okay anybody else representative when you're recognized for a follow on the what the representative Bragg was saying so I I just wanna make sure I understand so that first one eight what was happening with some of these as they were by the time they figured the the deductions it would take them below that one eighth amount is that correct. Now I'm gonna try that while the talk because it is a very complicated issue really is the the the issue is is that you look at it as. It's it's a little bit we say one eighth rule to that's a little bit confusing it's the role to be on the first one eight the production that would be at their clear way to say. The statute says right now in in in what I am proposing is this is that that first one eighth which in the statute says will be paid at that which means deductions will be taken from that. That will be paid at net all right that is the minimum amount that can be paid on that first one I now by stating that by changing that like we have here what it will say is that if you have a lease that. Requires that you get more than that on that first one I that you will be paid that difference The Great upon ways will will determine what you're paid on that first one I will pull. The lack of a better term trump the the the net one eight on the first of the the net on the first one that the production so it's really saying that everyone's going to get the one net for the first one I but if you're a lease return says you're signing agreed upon ways says that you get more than that for the first one I this says you're you deserve that The Great upon ways you that's what you get paid and it sets up for the of. Working interest to pay the difference between what that net price was in and whatever's in the contract okay thank you. Are there any other questions representative Jett you're recognized for a question. Thank you madam chair. Richmond back on a page three on line thirty three to thirty five plus the the gut status by the commission for party subject to interrogation of order of court competent jurisdiction what what was the driving force of that what was so it wasn't language referencing. Okay if I understand your question and and and you can circle back around with if I if I get this wrong if your question is was intent that I I put that in the this bill this change in the bill it says the other day we heard a lot of people say that their leases had gone I did and I'm just of top my head some all we're saying thirty percent now they're sixty eight percent that the charges against the royalties are that at one point we're thirty percent of the rule to check now are sixty eight percent of the rule to check. I I didn't dive into whether that's right or wrong what what what I'm trying to do here is to say let's put a court of competent jurisdiction to overlook that if there are no illegal charges are deductions being made against the well tended it really does nothing if there are then you have some ones at that a court of competent jurisdiction will be looking over inside these are that it's it's worth noting that initially I'd use the phrase of. That is. Of. A contract at arm's length which means basically that you can't they could sell the gas to themselves or something like that in that that was not acceptable we'll. The when I presented that to a woman that a problem they came back they they indicated that there was a list of deductions somewhere you know that there's unless I thought that be great be great would look make a list of what are lawful deductions in the well didn't they apply to the well you consent may apply and to the well that be great. That that never materialized all of a sudden that went away that. That there's is there a lease it seems to me like. It's a little bit disingenuous to expect a landowner out there to know whether all these Charges that they're paying for it are a legitimate charges so why wouldn't you put a court of competent jurisdiction and charges saying these are a legitimate charge this bill this is a list of legitimate charge second charge against well. If that land owner has a net lease. Then they should they should pay their part of these charges. The manager. Are there any other questions by the committee. Saying no questions will move to for and against and we'll start with against fob is it honing my saying that right. Yes Sir you're recognized state your name for the record and you may proceed. Good afternoon if the lights on does that mean is good to go. my name is Bob only I'm a partner in the Fort Smith law firm of hardened Jessen and Terry the reason I'm here I got at a law school in nineteen eighty three I can't say I was involved in drafting this bill in nineteen eighty five but I was around several of the people who were the key players in drafting that legislation so I have personal knowledge of you know how it all came about why that that piece of legislation was passed in the first place our firm has done only gas litigation for long as I've been practicing we've represented the industry we've represented royalty owners and class action litigation so we've been on both sides of it. And I was the attorney for XTO in the Whisenhunt case I think that maybe you heard about that the last time it was a case where the federal court judge interpreted the statute in the first case in which this precise issue was presented to a federal to a court and the decision was reached man and of segue here affirm the premise that the statute says met and that applies With that background I'm here I'm wearing two hats today I'm wearing a hat is the person speaking on behalf of a pro against the bill I'm also here as a representative of the Arkansas Bar Association and as a representative of the Arkansas Bar Association I have been asked to communicate to the committee that the Arkansas Bar Association opposes this bill as it is presently written the bill in the opinion of the Bar Association is ambiguous and unconstitutional the bars obviously not expressing any policy position on this one or the other they're just saying aye it's written it's it's not a good act it just isn't Turning to the merits start a little history and just trying to make sure that we're all understanding things completely before nineteen eighty five every royalty owner was paid in accordance with their lease. I think as you understand now the Arkansas only gas commission says a drilling unit for for natural gas is one square section one square mile and everybody in that is integrated into that well. That doesn't mean everybody in that section is leased to the same party in fact it that is in my experience never the case there are going to be multiple oil and gas companies who have leases for multiple owners in every section. Everyone of those the problem with that was if everybody's being paid by their own oil and gas lessee. The text didn't match up so two people who are next door neighbors in the same section once least XTO when once leased to seco the XTO person might get a check for two fifty because that's what XTO sold for and the seco person might get a check for two dollars because that's what single filled for. The world the owners didn't like that they couldn't understand it they didn't want to be that way and they complain to their legislators and in nineteen eighty five we got the the bill that the act what we call ACT two seven two the bill it says okay to solve that problem what we're going to do is take the first state no matter who sells it seco XTO whatever it might be we're going to throw it in a pot with an average it in every royalty owners going to get a check for the same amount. And. You know it was a royalty on legislation the only reason we're here today trying to undo this act on behalf of royalty owners is because royalty owners. Wanted it this way in nineteen eighty five. You know fast forward this question of net and gross at I want to make sure everybody understands netting gross in only gas will. You think about it only gas well it's out in the field. That gas doesn't do anybody any good sitting at the well head it's got to be transported from that well head and end up with the you know in your furnace at your house or run your gasto. Well how does it get there it might have come out of the ground to need some treatment in order to be you know appropriate for burning in your house it has to go across pipelines that might need to be compressed there's several things that might happen. All of those costs money as you would expect and we call those post production expenses. And there has developed in the only gas business this concept of gross and net and and what that means is well is the royalty owner going to have to pay a share of those post production expenses that's all it means and the net lease means the royalty owner pays you know shares in that burden those both production expenses a gross lease says no no no we you do not get to deduct that from my check before you write you know pay me my royalties. Well here's the rub back to seven to this legislation as it existed since nineteen eighty five. Says that this royalty pooled one eight cool we're gonna throw everything in a pot maverick Jett. That's net we contribute to that pool on a net basis is in any doubt that's what it says I have to confess even though I was around the the people who were involved in drafting that legislation I can't can't give you the lowdown on exactly why that's the way it was drafted or you know what deals might have been made or compromises agreed to but that's what it says contribute to the pool on a one eight the basis. Slash forward to the Whisenhunt case. The Whisenhunt case involved a lease that was negotiated up in the mid two thousands in connection with the the fat bill sale play. That lease was a gross proceeds lease. Right and the question was in the woods in that case was okay we have a statute that says you contribute to the one eighth royalty pool net you deduct all these post production expenses and the the lease that negotiated lease says gross proceeds you don't get to deduct post production expenses and the question in that case for the federal judge was which controls the lease for the statutes and the federal judge said the statute controls. So that's that's where it all ended up that's where we are. Turning to the bill at. What. What is a temp as I understand it the theory is that the fact that the bit that the existing legislation says that you contribute to the one eight world to pull on a net basis they don't like that because like wizened hunt there are people who have gross royalty leases and that's they don't match up. In the here's the problem with that. The one eighth world the pool is a pool it's a bland it's an average. And it is not as simple as saying oh well you just you know it you contribute to the one eight royalty pool on a one eight the basis and then with that you know after the fact then you got to put the expenses back in on top of that because it's a blended pool it just doesn't work that way it's far more complicated and it's not that simple. And the solution if if if you think this is a problem that needs a solution the solution is to go back the way it was before. Everybody pays their own. Leslie everybody or lessor everybody gets paid according to the terms of the lease instead of having this idea of a one eighth pool where we all contributed gets blended and then everybody gets an average it's There really isn't a way to. You can't have both you either have everybody getting paid in accordance with the release or you have ACT two seven to as it is as amended by whatever you just can't they're mutually exclusive propositions. If you're gonna bland if you gonna have at two seven two if you're going to have this statute. This meant gross this didn't work. If if you really want people to be paid according to the terms of the lease you got to go back to the way it was before nineteen eighty five. Are you ready for questions. Represented by Bragg you're recognized. For question thank you manager so what does this bill do. What you just explain. Well that's that gets into the reason the Arkansas Bar Association opposes it I'm not sure I know what it does I have some guesses but it is ambiguous and it depends on your interpretation of of the amendments I think what it does is it says okay. If there let's say let's I'm gonna use XTO seagoing Chesapeake this concern their names are remember let's say XTO sells at two twenty five Siegel sells it to and Chesapeake self little dollars seventy five XTO is going to put into the one eighth royalty pool at two twenty five. The royalty owners are going to get paid the average two dollars this access okay XTO your royalty owners get paid two dollars the average you sold it to twenty five under your lease you have to plan to twenty five so go go pay another quarter even though you've already paid one eight the what you made you're going to reach in your pocket and pay more on top of that. Which gets into why they act as white as drafted is unconstitutional. Follows yes you're recognized so is is there a problem with the part that says the one eight and this bill is amended one is an issue. And I think that's. That is already the case that is the practical effect of where we are right now you don't need the act any amendments to achieve that that's where we are it's just I I look at it is just something you can point to and say Hey it doesn't do anything if this is okay. So your point is there's a lot of unintended consequences basically of. Well said now you to set up a lot for your words and I just. One of the lawyers. The mental. The representative called when you're recognized for a question. Thank you. I'm having trouble understanding why you can't compartmentalize these if the. Group goes out there and they leased this you know area and everything then the average price is two dollars and they get an eight. The rolled over gets in eight to that after the expenses stating that but if you've got a guy that has a twenty percent contract then it looks to me like that it be fairly simple for the company the figures difference between twelve and eleven twenty percent of that person to deal in pay them. And I have figure it is wrong I mean why can't you separate those figures in one is amended in one as engrossed you've got a cost of producing this guess whether school pression or pull it out of the ground and that's an average for all the prices so. You figure that's published in hockey to compartmentalize that into the guy's got a. Roche deal. He should the deducted. No. I think what we're talking apples and oranges I thank let's assume we have a situation with a twenty percent gross lease which which was was in that case. The difference between one eight and twenty percent. Is paid. By the lessee in accordance with the terms of the lease the way it was done before nineteen eighty five it is only the one eight that goes through this crazy process of net and blending and you get an average and then all the problems that have us the complexities that have us here today. You're recognized for a follow up. Okay so you're saying now that the. The groups that have the leases are paying that extrusion a half percent with a separate check their pay in. Absolutely that's that's way attempt to illustrate by examples Lacy goes the operator of the well. You know seek would issue a check for the blended average net one eighth and if it's a lease with XTO XTO would issue a check for the gross proceeds at two twenty five for seven point five percent. Sure somebody's not getting their money here would senator they think they're not. What the mean the royalty owners that we're here for the last areas okay Administration the the the get those. I've been with respect they are getting exactly what the road under their leases and under the law as it exists and the reason for that is as a federal judge affirmed you have a conflict between the statute in the least the statute controls and yes the release says they're gross and you should take the ducks and yes the one eighth royalty pool is met it's it's the ducks. But that's what the statute says. You're recognized for one more five. But there's been several Kate court cases they said that have gone did any of these court cases change in any of the contracts. That are out there now. It could you repeat that question but didn't quite follow the there's been as you said they've been number of court cases and these people have individual contracts with the different companies have these court cases changed any of these contracts on what the. Roll the owner gets I'm not sure about the the referenced court cases parole the only case I know about that students don't with this statute is the wisdom right K. okay did it change the contracts now I mean the the point of the wisdom that cases that the but the contract the only gas lease in the statute or meet contradictory they're mutually exclusive you got up. You have one of the other you can't have both in the court said the statute controls. So it didn't change the terms of the lease it just says yep that's what the lease says but it doesn't matter the statute controls on the one eight. The representative Fortner you're recognized for a question. Thank you madam chairman did I understand you to say that. This can't work the way it is now did you say that or did I miss involved. The the existing system is work since nineteen eighty five the that's what I was going to say what went wrong. up until a couple years ago it worked fine up until then did not and and it still does. Well there's a lot of people seem to think it doesn't. Well and that's. That's a result of. Let me know I let fly will speak to that but it's as I understand it is a result of. Southwestern seco. Choosing they'll either mistakenly or voluntarily paying more than they were required under the statute as it exists and fly fly wheel. All of this blew up because fly wheel commenced paying in accordance with the statute and the the numbers changed and. And here we are. You're recognized for a follow up. And so then I guess what you just told me is The statute is at fault. These people have a contract and maybe that statute needs to be changed is that not what the the representative trying to do. I think that's what he's trying to do and and my point is that. His efforts as they are presently before this committee. Don't get there okay thank you president of the bank you're recognized for a question. Thank you madam chair when was this. Whisenhunt case when did that take place. two thousand. No that was in that case was thirteen fourteen something in there two thousand thirteen your term correct follows you're recognized so you're basically saying that. The previous. Producers were paying more than they actually had to. Based on that case. Yes I think that's very either mistakenly or out of the goodness of their heart. That is correct okay and why Wallace decided. The follow the statute again I'm not here as a spokesperson okay I will let it fly safely that's what it looks like thank you. Are there any other questions representative while back you're recognized thank you madam chair you mention the Bar Association said that was unconstitutional would you. I guess be more specific about. What what specifically is unconstitutional I thank there are a couple of aspects of it that that leap out is is raising constitutional concerns the first one is is my example of a situation where XTO sells at two twenty five contributes to the one eighth royalty pool their lessor is paid at two dollars the average and then XTO is required to make up the difference between the two and a quarter XTO soul that and the two dollars that they got out of the royalty pool in other words XTO would pay royalties at two twenty five what they sold it for and then more on top of that XTO would have to be it would be a tax this. That's paid to a royalty owners date of the instead of to the state revenue. that's. Constitutional issue number one a constitutional issue number two has to do with the the language about interpreting only gas leases and hence orders of. Everybody is subject to an integration or everybody people who negotiated a lease people who who didn't negotiate a lease people who were integrated and signed the lease people who were deemed least they're all subject to the integration or. It's questionable whether the Arkansas aghast Commission has authority to interpret the law the language of the lease form that applies to people who are deemed at least because they did not make an election under an order of integration the Arkansas aghast Commission clearly does not have authority to. Interpret leases that were the result of arms length transactions in the way the verbiage is used in this the legislation is currently before the committee it. It doesn't pass muster it could proportion to give the Arkansas one gas commission jurisdiction to decide something it doesn't have jurisdiction to decide. You're recognized for follow up so this on clear your I guess the bar association's position is that that basically equates to first on because there's more basically equates to a tax. Armey's lawyer unconstitutional when you're constitutional issue is. Your your your first point you made hello. The way this the act as it presently is present correct and I know that your position is that that basically acts as a tax and therefore no yes yes unconstitutional because the way we have at that tax that's correct your is that the legislation purports to make an oil and gas Leslie pay more than it is obligated to pay under its contract with its lessor. Yeah I understand that I'm just not I'm. I don't know. I understand what you're saying but where does the constitution talk about that. What about those about the legislature imposing a tax for the bill so that is what you're saying yeah I guess okay well let me notice of. I mean that's the I mean it would kind of have to be your. A point if you argue that is unconstitutional well it would also be exposed back to legislation the idea that you the the legislature can't change vested contractual rights after the fact okay you know and and it the taxation point you know the legislature can't pass a tax for the benefit of a private individual. Okay I'm trying to understand you're sure positions on the on Constitutional client thank you. And. The representative plant you're recognized for a question. So in the case where they the bill the lessor. Sales Gasper to twenty five. The lessee has a one eight. Gross. Please right. He gets paid it two dollars out this blended Fund the Gascony walks away with the other twenty five cents. And the and the landlord does not they did not let that is absolutely wrong well he sold it they do not get money for. One of the people one of the working interest owners who has a an interest in in the wealth and took the gas. Its share of the gas and sold it for two twenty five and they contributed one eight of the two twenty five one eight hundred two dollars and twenty five cents okay into the pool right right it got blended average so the royalty owners got one eighth of two dollars. Bill and gas company the lessee. Put one eight of two twenty five into the pool so they paid one eight of two twenty five. It's not their fault that the averaging requirements of the statute. And it resulted in its lessor only getting one eight three two dollars follow up. You're recognized for follow up so the person that benefits and is the gas company that sold at less than the blended average now. Some amount of money go somewhere I. I'm just telling you that that is the effective I know it's complicated that it's it is not obligated to meet somebody if somebody gets the money and the other person not all right I'm done. Representative Hillman you're recognized for a question. Okay I am I am I correct in assuming then that that one the what the real winner in this is the role of the owner that gets the one eight that that their company sold it for a dollar seventy five is to them get dollar seventy five they get two dollars because that's of limited amount and that's where the other twenty five cents goes that absolutely that is exactly correct it's not the industry that benefits its its winners the act creates winners and losers amongst the royalty owners. The the the net effect on the in the industry is is neutral. Are there any other questions represent a few banks you're recognized. Thank you madam chair so would repealing the nineteen eighty five statue to solve the issue we're dealing with currently yes absolutely positively without a doubt but you could still have landowners within the section receiving different amounts for the same one eighth or or whatever they're. Royalty percentage wise if you go back to the way it was before act two seven two was passed in nineteen eighty five. Every world the owner gets paid in accordance with their contract with their oil and gas company and yes that does mean that only gas companies never sell for exactly the same price of the would be neighbors would get different different checks for different amounts represent the backs of recognized for a follow up. So who would be who would object at this point to the repealing that nineteen eighty five statute no one. I can't think of any reason anyone would object to. And that would solve. And that would solve our current situation absolutely okay thank you. Are there any other questions thank you for your testimony. County judge. Heart would you like to come in the in the table. For the bill recognized tell us your name and I can tell us where you're from thank you with. Hunter I'm calling county judge Jimmy Hart not represent people Conway County. But manner day to say the same thing again. You know we talk about all leased it when I when I said it before and I will say it again. List leasing started back early and I thought of a deal but he's from in my twenty first year. All watch this baby be born got. It reminds you of the wild wild west. Put it in perspective. Thank lease land for twenty five dollars maker and one eighth that the bulk of it. And he gave it they leased land for twenty five hundred dollars an acre and a twenty percent gross the well had. I keep asking myself this question about the constitutionality but question I asked is what about the hundreds of thousands of leases a signed document or greater very much this and every this and the court houses in a failed bill shall area. And you know what I would say this there there are a lot of a lot of those leases are out of state leases means no question about that. But I think what representative back and I want to commend them here because it it takes a lot to do what he's done and he's not done that on his own he's done that because the people of this state of affairs the Shayla said Hey we've got a problem. A real problem because basically what they agreed to his eyesight was compared it was a race to the to the sections I call it no words you give this guy a good deal because what you want today he's a bigger landowner what you're after is a fifty one percent once you attain that fifty one percent this section you go full gas commission they're here Askam invoices search out there charge stake in integrate for Senator rate that that section. you know I'm gonna say it again I know when I when you sign a contract is a contract a legal binding document and I still do not to save may understand all a sudden we've got amnesia because it worked real well for ten years maybe more than ten the sign was born in two thousand and four. And now fast forward to the day and all the sudden you know what's what we don't like we don't like the way it works you know we just I'm just I'm just flabbergasted to say the truth you know when I say I heard that comment might it last hearing calls productions eighty eight cents thousand the problem is already put in in this line thirty three and a half billion dollars worth of pipeline in the ground and I get real dealers ask me this question. Okay thank taken the ducks out of our check sixty eight percent of my check and I get a a ten ninety nine this says I got twenty four hundred dollars when I got five hundred fifty that a rat. Something is wrong somewhere. We and it's up to you all your the people is rolled over the hundreds of thousands royalty owners you're the group they're looking forward fix this line. Are there any questions. Seeing no questions thank you for your. Against would be Mr MacCallum. State your name and who you're with please. Because we thank you madam chair my name is Mike Callan I work per Stephen production company in Fort Smith Arkansas I'm here on behalf of Stevens also on behalf of the multitude of a small working interest owners from the western Arkansas region One thing I'm going to promise you today as I'm not going to talk about gross and net I think everybody has pretty well flog that horse for for for the time being I do want to tell you that after watching the video I was not able to attend watching the video of the last hearing in and listen to representative back today I think I understand the problem that he recognizes or it's trying to solve their and you know I have I have no no comments on that what I will say is I took representative backs latest proposal and look at it from the standpoint of how it actually works in in the real world and I'm there's there's a handout coming to you and it's it's grossly over simplified but it goes a lot to what Mr hony mention balik about different working interest owners in this section selling their gas for different prices and thus ACT two seventy two came into being in order to put all that money into a pot and divided up equally among the royalty interest offers you know that first one eight. I look more at representative backs proposal from the standpoint of what it actually does do and what it does do is that it would you don't currently under Act two seventy two all royalty interest owners in the unit get the same price get the same amount on that on there the gas it is so. If you look at the flow chart they're showing you know from one well and showing the different prices that it would be so for if you look at the bottom you see the work I do that month those royalty owners got. Right at eighteen cents a unit. But if you look up above if if we had followed or if each of the companies had followed the specifically the leases in absence of back to seventy two. Those It green what made nearly nineteen cents and twenty five cents respectively those in red would have made twelve and a half cents and fifty cents respectively but by the blending of that those in the red they actually made more than their leases would have call for and those in the Green made less than what they're leases with a call for the legislature determined in nineteen eighty five that this was an acceptable arrangement. Now but what Mr what representative backs statute does especially with respect to the last page is. It then required as Mr hony described that the working interest owner now reach into his pocket. Or go get the money back from some of the royalty interest owners who are essentially overpaid according to the release and give that money to those working for those royalty interest owners who were essentially under paid because of the the result of of the blending of act two seventy two. There are a lot of working interest owners who are not big companies they're farmers ranchers businessmen who are working interest owners who the way this this bill this is proposed and I I think it's unintentional don't get me wrong I think we have a very complicated problem here and there's a valiant effort trying to come to a solution. But this bill will harm both working interest owners and realty interest honors because of the unintended consequences of the language of the bill. And some of these working interest owners who are businessmen you just decided to participate in a well as a working interest owner they will either have to reach into their pocket and come up with money that they don't under their contract or they will have to just walk away from the well and abandon their interest in it because the cost of staying in the way it would be cost prohibitive again I don't think this was an intended consequence of the drafting of the bill but it is certainly the effective consequence of the way the bill as currently drafted. there are numerous other problems in the drafting of the amended bill I I don't want to sit here and belabor those because I think Mr honey did a good job of describing with respect to the unconstitutionally issue and all that I will I will defer but I do recognize what this bill as drafted if if put into law would not solve the complicated problem that we have right now it would create more problems and it would financially damage a number of working interest owners and royalty interest owners and again I appreciate the committee taking the time to look at this and I appreciate the opportunity to address the committee and be more than happy to answer any questions are there any questions. Representative Bragg you're recognized for a question. Thank you madam chair do you agree that just doing away with the previous statute would solve this if the problem is I understand it is that the royalty owners want to be paid according to the terms of their specific oil and gas leases yes you've got to repeal act two seventy two because that the fact two seventy two the statute. And the individual leases to which there are hundreds of thousands of them they do not work together so if that is the goal is to pay according to the specific provisions of each lease ACT two seventy two needs to be repealed thank you. Are there any other questions seeing other questions thank you Sir thank you next we have Mr Dan Filmer I hope I said that right against the bill please state your name and who you're with for the record. Thank you madam chair and yes she does you to say that rides Dan Zimmer with merit energy company. there is a oil and gas producer recently entered the state of Arkansas about three years ago one of the top producers the fate bill shall we've also become a a a large producer if not the largest of the north northwest Arkansas as well as the arquebuses. what to take this opportunity today to to make a few comments about the proposed legislation here seventy twenty five I won't belabor some of the points I think Mr hony in Mr Callum before me did a pretty good job of addressing a lot of the points I agree wholeheartedly with all the points that were made earlier. the my biggest problem with the proposed bill is is exactly what Mr Kalen before me spoke about really this blended royalty pool if you if you maintain this blender royalty pool there's winners losers on the on the royalty owners side of it that's the way it was drafted that's the way that that was intended if we then if I as a producer then have to pay according to the lease terms to get everyone to make sure that they paid according to their lease terms then I am happy to come out of pocket and now all of a sudden I am not having I am paying more than what I'm obligated to pay according to the to the oil and gas lease the other question that came up earlier we can't remember what channel it was down here in the middle but with the question was is there a problem with the language of one eighth is the minimum payments In a similar fashion to the pricing there's also a a bit of a blending of of of the mineral ownership of the realty ownership itself there are some rare cases where a a realty owner will have less than one eighth now for the most part one eight is a minimum realty a stake here but but there are some cases especially some of the older leases we've got leases that date back fifty sixty years there are some cases where there are realty owner who chose to have a lower than one eighth ownership under the state's current statute those folks are paid and a one eighth so they're actually paying more at the again the paid more than what they're the weather on gas lease actually says that they should get paid if we were to repeal then they would get paid less than the one eighth however today they're paid at the one eighth again if I was that have had to pay according to their lease terms the that particular owner had actually been overpaid so there's a question of should I. Claw back money from that owner that would obviously cause a pretty big problem or do I have to come out of pocket to to supplement those those payments as well to to to to to get the other owners up to their lease terms I also agree with that I think is this calendar this is the the blended role to pull this is not the Senate quite consequence of seventeen twenty five it's just they're it is such a complicated issue is such a complicated calculation And it seems like it should be easy but clearly it's not where are all the parties in the room were having a walk through this multiple times even with and behind closed doors on our side we're having a kind reminder self no this is how it actually works of this is a complicated situation Because of that tweaking these these these this language even more really because is because a lot of problems and in my opinion the second piece on a touch on which the court determination for expenses expenses that are deductible you know in a perfect world I'd I'd I would love for us to be able to have this ability for a judge to say these are deductible expenses and these are not deductible expenses I don't know and and I know attorney I'm I'm an engineer but I don't know that there's a judge out there who would be willing to to rule upon which which expenses are deductible and which expenses are not deductible without even seeing the contract in. There are some similarities and some identical languages amongst the the actual and gas leases but they're certainly not all the same in the fate bill shall there are buckets and there's probably I I would guess four five six buckets of of leases so those you might be able to say okay well for this type of lease we can do this or for that type lease we could do that. In other gas areas especially in the northwest Arkansas area those leases are like I said some of the fifty sixty seventy years old. There's all sorts of different lease terms that exist out there and to think that the judge would be willing to sit down without seeing any of these contracts or just seeing a some sort of a a representative sample of these contracts to think that he would you know make a ruling put his name on the acceptable types of deductions that would be allowed under these leases which he has not seen I find that far fetched personally again I'm no lawyer and the judge but that that seems like a very complicated thing for a judge to do Certainly the same situation what would exist if it was a long **** Commission who who had to make that determination as well. So. As we've as I've said that nauseam this is a complicated situation a complicated method of payment merit along with the other one gas operators in the area. Have have done our best to try to live up to it and and what that means is that we set up a lot of systems in place we've set up a lot of processes in place we put a lot of money into reviewing the only gas leases trying to get the system is working correctly this is a unique structure that doesn't you can't buy a software of the shelf to to to do this it takes a lot of work it takes a lot of effort and we gladly gone through that because we think it's worth it and and it has to to add a an additional layer of complexity on top of this which is what the proposed seventeen twenty five language does here I would again. Force us to go through a whole nother layer of let's tweaker software again we would have to have consultants and and I know the industry doesn't get much sympathy but I'm just letting you know this is where where where we would be at that we we would spend months and probably more than twelve months working with our systems thank you keeping in mind these numbers been mentioned that there are tens of thousands of leases possibly amongst all the companies represent here today there might be a hundred thousand leases that we're talking about certainly thousands or tens of thousands of of of of of of royalty owners that we're talking about here so there's there are a large number of of of leases to to deal with here we would have to build our system out to be able to do this additional step of the calculation we would certainly have to spend a lot of money more than likely north of a million dollars to to actually make these changes and to get this this process up and running like I said it would probably take us at least twelve months to do the the payments between then and now between now and then would certainly not be correct we would do our best that we could but but but there have to be a lot of corrections made after we got everything up and running so it. This decision should be taken lightly because it is a major implementation for for all the companies merits one of the biggest ones Mr Allen spoke spoke at very cognisant Lee of all the small and gas producers and I would certainly ask you keep those those folks in mind as well do a lot of those guys don't have access to to some of the resources that larger companies like Barrick does so so this is this is complicated for us it's complicated for the smallest operator out there represented Bragg you're recognized for a question. Thank you madam chair out of the cage which organization you're with you mention software who I'm just curious who actually makes the the calculation for that section of integrating the almost they said there's a number of a of of software that we actually use the the the two primary ones that we we use S. A. P. for accounting S. A. P. also has has has some land features that that are built into it our primary land software is called quorum supposed to kind of talk with each other and were able to keep our tax updated in quorum and SAP's able to pull up and then that information is distributed. For people that need to make that payment correct so in under the current system and under the under the seventy twenty five rice language the is there is by necessity there has to be a lot of good communication between between us and the other operators out there so so every month we make our payment to the operators of the wells that we that we own in and along with that goes comes information according to this is who who that money should be earmarked for okay thank you representive Eubanks you're recognized for a question. Thank you madam chair. Do other states have a similar statute dealing with this blended approach or do they just go straight to route what the contract says sure that's a good question Oklahoma has a similar statute to my knowledge that's the only other one there's probably other ones out there I'm not an expert merit operates in most of the only gas producing states in the center part of the country and most of the places we operate do not have this type of set up most of them just rely on the oil and gas leases its will against companies are used to dealing we pay off of the contract that we have in place so that's that's the most straightforward way to do it we would welcome that that that method as well but. You're recognized for the following and you may not be the best person to answer this but this is. This federal ruling does it apply to other states as well or just Arkansas I'm not the best one I I would assume any ruling to offer some precedence for other states but I'm not sure that I'm I believe the case the bloody the what was in that case only was referencing a lease in Arkansas so I would presume that it only applies to Arkansas but I'm not sure if it can be used in other states as well thank you are there any other questions saying nine thank you for your testimony thank you manager against the bill Jeremy Fitzpatrick. Please identify yourself and who you're with for the record and then you may proceed this man thank you madam chairman this Jeremy Fitzpatrick with flywheel energy the vice president of land legal and business development for I will. Thank you committee members for allowing me the opportunity to speak on behalf of fly will. You all have heard a lot of negative commentary about fly wheel over the last several weeks maybe even months I know I've heard it and I heard a lot last week in the hearing. It's it's it's bothered our employees and so I feel compelled to to take a minute to to mention that you heard that we are not following our contracts or that we're breaching our contracts in fact I heard that suggestion that we're committing fraud. that's a very strong word and I think it's important for us to clear that up. it is simply not true. you also heard that the nineteen eighty five ACT in the system had worked perfectly for thirty five years and everything was going fine and that the Whisenhunt case didn't really address this issue. that is false and within height as you've already heard from Mr hony today addressed this issue exactly. and it affirms the practice that fly wheel employees in paying the first one eighth royalty. in fact the within her opinion was issued in two thousand sixteen somebody asked the question earlier so the case probably started in thirteen or fourteen the decision came out of federal court in sixteen. That's more than two years before fly wheel even existed as an entity. So the suggestion that fly wheel somehow came in and change the law. Or the fly wheel because this is simply not true and that can be determined easily by looking at the wasn't case that's XTO that was the practice they were employing they were challenging sued over it and they prevailed. And that was way before we existed so I I hope that that helps clear that up a little bit I'm not sure why fly will became the villain I do have I understand some reasons why because the way that we pay royalties as contrasted with the way our predecessor paid their different so the gross proceeds owners used to get checks from from swim. And they didn't have the ducks. Was that intentional was a by mistake I don't know we're not swim. There have been in all our several royalty litigation matters that have been resolved by the court and that are currently pending before Arkansas courts today in fact some of the witnesses you heard from. Last week and I have there were lots of suggestions that they didn't have any recourse other than for you this legislature to fix this. The fact is some of those people are named plaintiffs in cases pending against us today on this issue to the courts are looking at this and we continue to look at it and we're we're working through that you know the L. G. C. matter that was referenced earlier on this issue. So who is this nefarious flywheel energy fibrils formed in August of two thousand eighteen just before we bought these assets from our predecessor. In December of eighteen. Our CEO grew up on a dirt road outside Muskogee Oklahoma R. C. O. O. grew up in a town of about seven hundred people near Rolla Missouri. I grew up in a small farming community in southwestern Oklahoma and I could go on and on about the complexion of our management team and who we are. R. C. O. and C. O. O. proudly served in the United States Army led troops in Afghanistan and Iraq. the point is we have friends and family members and employees and their families who are royalty owners and we are sympathetic to that we understand the issue and we understand the apparent inequity here that how it looks to some of these gross proceeds owners when they get our check and has deductions and they weren't used to seeing those so naturally. It would it was understandable that they would say well somebody's doing something wrong here this is wrong it's been ten years in southwestern paid me the other way. For I will prides itself in doing the right thing doing as a team and getting results. In fact we have more than two hundred and thirty employees and their families that live and work in the finance bill shall area and they deserve to know that their company is not breaching contracts are committing fraud. We're not an evil force and we are proud of the energy we produce and deliver every day. In two thousand eighteen we made in nearly two billion dollar investment in this state the great state of Arkansas. In doing so we designed and implemented the various systems required to operate the business. When designing those accounting systems naturally we looked to the law in the state of Arkansas. In fact we hired local and national experts on the subject to advise and counsel us in this regard. Flywheels intentions were and have been to follow the law. During the legal review we were advised about ACT two seventy two of nineteen eighty five and the Whisenhunt decision. Which tells you exactly how you pay the first one eighth royalty it's prescribed method that the legislature came up with and it is exactly the way the fly will pays. the act does not say you may pay royalties this way it says shall. Shall so try to put yourself in flywheels shoes for a minute we set out to follow the law. We realize that the way our predecessor paid royalties was not in accordance with the law so we were faced with the dilemma do we continue paying that way not in accordance with the law or do we follow the law and we chose to follow the law that contrasting method led to the noise in the complaints that led us here today. Those are only as payments. They happen to be in favor of the royalty owners. For a good while. a windfall. In fact. Those mineral owners collectively received tens of millions of dollars. To which they were not entitled. So fly will is faced with the dilemma of either continue to pay that way the way our predecessor paid or to follow the law we chose to follow the law. The plaintiffs in these lawsuits in the gross proceeds owners you've heard from they don't like the way these cases are setting up And so there. Positioning this these amendments as a clarification type amendment. That's what they're asking you to do is to sort of issue to to put language in the clarifies the the statute says it was always that way and is that in fact it's not it's it's all it's change a final change. So despite the various claims of fly will is breaching its contracts or somehow committing fraud we know that we're following the law. And paying the first one eight rule to the way it was intended by the nineteen eighty five legislature the leases are subject to state and federal laws this is fundamental as the virtually all of the federal share leases would've been taken after nineteen eighty five. Also the statute specifically states and I'll quote Nothing contained in this section shall affect the obligations of working interest owners with respect to the payment of royalties overriding royalties production payments or similar interests in excess of the one eight. So it makes clear that they did not intend to affect anything above the one eight they were prescribing the message with respect to the first one eight. The legislature made clear and prescribe that method notwithstanding lease terms to the contrary or the absence of lease terms all together. The statute is clear that the first one eight realty Cher should be uniform. An act to seventy to standardize this. To be clear the act requires fly wheel and other operators to pay owners with whom we have no contract. The act imposes an obligation on us that's what we pay everyone not just our lessors that's why merit pays everyone not just their lessor so the act doesn't just. Alter or amend or a bridge contract rights to gross proceeds owners with respect to deductions it means art we're parties to those contracts to and it make it imposes obligations on us that we don't have under those contracts so make sure that's understood in what's trying to happen here is we're gonna leave those in place so that all royalty owners get a check every month regardless of whether they're lessee sold gas or not and all royalty owners get a benefit of a blended price now some months as you know some royalty owners will get the benefit of the bin and price some months. They will be average down but over time the legislature said we want them all to be paid equally and uniformly as to the first one eight standard will take. the legislature could have simply use the term proceeds but it carefully tears the word net proceeds. If the goal is that everyone should be paid according to their contracts if that's the goal. Then the way to get there is to repeal the act as you for. You can't do both blend and then on to land on the back end it's a nonsensical circular way that just adds administrative expense and tons of opportunities for error and litigation so we're gonna blend it all and then on blended so everybody gets exactly what they needed under the contract you don't need the act. So I that's I hope I hope that helps clarify some If you gross royalty owners want their cake and eat it too they want to leave in place the requirement the fly wheel and others pay royalties to mineral owners with whom they have no contract and they want to continue to receive the benefit of a blended price. But they want this minority group of royalty owners to receive the benefits under the statute. But not compromise their leases to the first one eight when everybody else is contracts are compromised. Let us be clear house bill seventeen twenty five wore a repeal either one will have the same detrimental effect on the economic life of these wells. Either change will shift post production costs that are currently paid by all in those costs will now be borne by a lesser group with no corresponding increase in revenue so when you pay the same amount of cost but with fewer revenue dollars it shortens economic life of the asset it just will mathematically certainty. And so either one of these methods will do have that affect. This act in the beginning this proposed bill in the beginning might. Result in some of these gross proceeds owners receiving a little more money up front. But the end result is that all stakeholders the state of Arkansas the counties the royalty owners all of them. And our employees merit's employees others. Those all go away sooner tell revenue will be cut off. So either change will negatively affect the Oct economic life of the wells to the end of the gross proceeds owners receive a little more money up front. But they cut off till revenue to all stakeholders including themselves in the end. Again either changes effectively attacks on our business but unlike most taxes which take from the well to do and give to the committee this change will take from the committee and give to a few in the near term while negatively affecting the economic life of the wells for all this is bad policy and an especially troublesome change given the mature nature of these assets. It is quite late in the game to be changing the rules and we know that other businesses and investors will be taking note. Before making investment decisions when the rules to be changed after that sit at the investments made. Enclosing fly will respectfully request that this committee deny these changes to the act. And let the courts resolve the several pending claims which are currently being litigated. This legislature should not make this quote clarifying change to the statute in order to favor some plaintiffs and the A. O. G. C. and litigation that is currently pending before Arkansas courts. We thank you for your time and I will do my best to answer any questions that you may have thank you are there any questions. Seeing the questions thank you thank you for your testimony there's no one else I signed up to speak for or against so is there anyone here that would like to speak for the bill. Against the bill representative back you are recognized to close for your bill. Thank you madam chair. That was a lot. It was confusing appoint. Initially. Ice did say to this committee. That. Things were working fine before the change. Now. There's no doubt that things change and we we've we've seen people right now it meant to the change date that things did change people were paid one way that were paid according to their leases. And then all of a sudden. Because the court decision which I'm told was supposed to be appealed to the eighth circuit court and never was taken to the eight circuit court so therefore the thing was never settled it was settled out of court. I'm also told so that has no binding. Is not binding the legal thing to the state and that's by lawyers. You've also heard that there were people here that we're at the beginning of this thing And understood exactly what was going on. You heard that things were unconstitutional here. that we were somehow trying to put a tax on people this would be a tax on royalty owners. I don't see tax anywhere in this thing but but that maybe the if I'm losing it in the and the definition of the tax. As I told you earlier I. Was in contact with the legislators that the let's say that was involved with this now what everyone here seems to want to have you believe is that if we get rid of this nineteenth. This is what the contact to seventy two that the laces can be paid as for the time the laces. That's that's probably true statement. But there's other things are in this bill that that with the rain that act it was it set up time frames for things to be paid that so roll two hours would be paid on set times. There there also if you look in this thing some requirements that have to be met as far as a blending prices right now you've heard that this building prices really what we're doing here someone you know was getting less than if if company be was getting less and Company a you'd be penalizing them because you know they would have to they would have to pay this gross and somehow they paid into the net and at a higher rate and all that you've heard that. That's true. But it's true because the working interest. For whatever reason elected not to sell the gas maybe at the time when it was higher. But the opposite is true also. It's working this is where the held out for a for a larger amount than they would at the same time got a larger they would have benefited from that so there's really no justification to say that we're harming the working interest here by making them pay the contract that they agreed to pay. There is not. Meeting down through here. It was reference at the. The the property owners wanted more than their share are somehow what advocate needed to or something that fact. You heard the property owners come here and tell you exactly what they want they want to be paid by their ways. He also heard that things changed. At some point. Key on that things changed at some point all right. So. He heard several people tell you that and I'll. This act seventy two are two seventy two you just can't do this guys you just can't under this contract with the state because of the blending process a lot at Die Hard I have led were in same place what what but what you should ask yourself is what they're doing that before. They were doing that before and they were using the blender price they were using the blender price plus the repair and other saying that that the companies were actually so now paying more in the religion was receiving more than they should have. I obviously don't have. Axis of theirs to their information that but it was working. Now. I have agreed. And and talking with some some people none of them that are here but this is it but in other states of the good question is one made about the other states that. Is is is this act two seventy two the best possible system in the world. Now I've never I've never even indicated that I thought it was but it is a protection that to royalty owners have in this state right now. And if you just do away with it right now. Then those protections will go live with it and the bridge decking and all this stuff that there that you're hearing about will go away with it. And working with other people I've said. I'll gladly work to remove ACT two seventy two. But I'll do it in a way so the room. The royalty owners get. What they contracted to get. And that's or some oversight as far as net deductions to these wells. Thank you for that device there's not any judge that's going to. judge. As to what the. A proper deduction is all well are not in our proper deductions in the wells are not I thank I obviously can't say that but I don't think anyone else can either I think that. The the discussions I've had with a program I've constantly been told there's there's there's. So much case study site so so much case law that's drive around these net deductions that that bye bye trying to get into these contracts and saying this is what from this is not you'd be contracting deter their terms were they to be while operating contrary to case law that's already established in this state what if there's case law on this thing. What a judge use those that case law to determine what the net deduction should be. Then you would have a list you would have of for the most part you would you would not have ruled him or saying that that my deductions are much higher than they used to be I don't understand why. There is a lot of case law that's going on right now there's. The second turn my notes. There is a class action lawsuit hello there's a class action lawsuit that's that's. And some I don't know whether that's going to be settled soon our father but there is a class action lawsuit as I mentioned earlier that there. it is a fly wheel that has the oil and gas commission is gone the circuit court over night guiding a federal ruling and now telling that to the Arkansas Supreme Court and I guess you could say well again this led to the courts handle this at this point and things would be okay so how long are the royalty owners supposed to wait till they get their fair price the fair price that that they've been getting for years and. Have before this. At two seventy two. Has worked from nineteen eighty five to two thousand thirteen. Prior to nineteen eighty five who's in charge of how royalties were paid. What law was there. Good question and. What is a probably paid by. For the most part by the gas companies that came they paid in the way they wanted to they're actually right I'm told that that at that point there was there was a lot of confusion around when and when you're gonna get paid who's gonna pay how much they were going to get paid so at so so the act actually did try to address those issues. What I would suggest that we do is we pass this. And then work. Do you said. As low as it was intended from nineteen eighty five. To now to pay these places in accordance with A. should be paid. Then immediately if there's a question about whether or not we should repeal act two seventy two and go back to another system I as I said earlier I have no alliance to that I would more than I'd be more than willing to work with that as long as they need to to requirements that I think everyone in this committee would agree need to be met. Rorty honors should be paid according to their leases and there should be some overlook as far as what is the accessible charging so well. Now. It is it is scary when someone comes out and says you know this is unconstitutional. This could be unconstitutional that's a scary thought and I know it takes a lot to vote against and I wish I was a of a lawyer and I could I could set you set your mind at ease but I had to do this look at what's happened things were going fine we decided to change the law based upon a federal court decision. A federal court decision when when when we were asked when they were **** would would that apply to all state federal federal court decision right and now it wouldn't it wouldn't. So with that said. I suggest that we take a look at this. And say to pass it pass it out the one eighth rule two was a minimum you've heard that from the people who initially wrote this it was never intended to be all that was paid on the first one night it was just the minimal with established that in here with staffers some oversight as far as lawful deductions and then we can work on this because quite honestly it'll probably be at least two years before we can get all everything worked at the tender green with their what I don't want to sure any of the the gas companies anything that that they deserve that but my first concerns make sure to royalty owners don't get shorted and with that I would. As for favorable while at a do pass. Thank you Committee what's the will of the committee. We have a motion of do pass. A from representative lance. Is there any discussion on the motion. Representative when you're recognized for discussion on the motion just like some clarification from the Committee so we've heard a lot of words today a lot of uh a lot of explanations and so I just want to see from this body here from processing this correctly it seems like the Whisenhunt case. Change the terms or change the definitions of the terms that were in the contracts to that point which resulted. In at least one company saying we're going to apply these new define terms which resulted in less money for the well owners. And so they're doing what they need to do which is coming to us for some redress. Is it that simple. Representive Bragg you're recognized. I've got to kind of make it simple. it seems like both parties want the same thing great is same thing of of paying what's fair royalties. I think the. Difference to me is how we get there and and I. I thank you any step we take may have unintended consequences I'm I'm concerned about. The unintended consequences of of this bill it seems like there's some consensus concerning the eighty five ACT the. Doing away with it. Would help I'm sure there's probably unintended consequences you know with that too and it would be much more complicated than just doing I think it's still whatever would replace that would still need to. Protect. Concerns it represented Beck has expressed so that's just I'm to the point I don't feel totally comfortable. With passing a bill now that might have unintended consequences and until we really have a good close look at at the alternative. Any other discussion. Represent Blanche you're recognized. So. So my thing is is I walked in and I bought your gas with a contract. And when I bought that gas I told you what I pay you. Nine. So the change occurred when a court case. And as Mister Beck says representative Beck says that allow court. So if you make a contract with me. I expect you to live up here contract that's my position. Sir any other discussion. Seeing no other discussion we have a motion of do pass on the table all those in favor say aye. Those opposed say no. I'm sorry representative back but your bill has died. Moving right along to House bills seventeen seventy three representive Hillman and you have a impact statement on your table for this bill. Thank you. Madam chair I have a number witnesses today that will come in and and speak for this bill and I'm sure there are some that are going to be against this bill so I would anticipate that when my daughter order in dinner tonight that's okay. Seriously I that I should have done that but I couldn't help myself of. If of it back in nineteen eighty five we passed a a water conservation tax credit available to farmers or heard anyone it implemented certain practices on their farm and currently that is that amounts to about less than a million dollars a year he it to the state budget because of that but one of the things that we did and that was we said a three year time period on that well I lease up projects they take they take more time than that that sometimes the starter project and you don't have the money you have a bad year have money to to finish it and so what they were doing was when they finish the project which is when they were supposed to they want to the state and they applied for a. Of their their tax credits. Some of the and that was that could have been two years three years four years five years up as long as five years everything was hunky dory because that was what federal lawsuit. That you had up to five years to to finish the project and that was when you could apply for the state tax credit that that all worked fine until this summer someone found in the statute that Arkansas allowed a three year created so a three year time so they they begin filing for the tax credit so they were denied because they had exceeded his three year limit what this bill does it allows the state. To accept up to five years just like the up that the federal government does that's all it does. Are there any questions seeing no questions is there anyone here to speak for the bill. Against the bill would you like to close for your bill yes it appears as if we have test site here for dinner after all I move do pass I have a motion to pass on the table all those in favor say aye. Those narrow congratulations your bill has passed we do have one announcmenet so we'll go back to Monday and Wednesday afternoons at two so what you're calendar because I know Monday at two we do have a meeting in here or after session. So to after session thank you.