CHEYENNE – A group of landowners in eastern Laramie County filed a federal lawsuit this week against Anadarko Petroleum Corporation, arguing the oil and gas company violated antitrust and monopoly regulations by creating a noncompetitive market for minerals in the area.
The lawsuit, filed Monday in U.S. District Court of Wyoming, states Anadarko has developed a monopoly over oil and gas production in eastern Laramie County by obtaining an excessive number of drilling permits and raising royalty rates on mineral leases.
Anadarko, which was acquired by Occidental Petroleum Corporation earlier this year, has more than 2,200 drilling permits in the area, according to the lawsuit.
“The purpose and effect of Anadarko’s acquisition of these drilling permits have been to exclude its competitors from engaging in exploration and production and oil and gas leasing in the relevant market,” the lawsuit states.
The plaintiffs also argue the company hasn’t used any of the drilling permits, which are awarded by the Wyoming Oil and Gas Conservation Commission. In an interview with the Tribune Eagle, Bob Schuster, one of the attorneys representing the landowners group, said the way Anadarko is using the permits subverts the entire process.
“The permit application process is a very important and useful part of oil and gas development,” Schuster said. “But it is meant to be a process that is going to encourage development, rather than end development, and they’ve used it to end development.
“Right here, there’s no drilling, because Anadarko and Occidental have prevented it,” Schuster added.
Kimberly Mazza, spokeswoman for the Oil and Gas Conservation Commission, said the commission is near the end of the process to change some of its permitting rules.
“There’s some significant changes to the rule,” Mazza said. “That rule is addressing some of the concerns we have seen with the permitting process.”
One of the main changes would invalidate a permit if drilling has not begun in the permitted area two years after a permit was issued.
While meant to address some of his plaintiffs’ concerns, Schuster said the amended rules won’t change much. His main crux was the “first to file” rule, which means the first operator to file for a drilling permit gets it.
“(The rule change) just allows some future challenges based on some criteria that aren’t very effective,” Schuster said. “What really needs to be done is change that first-to-file rule.”
The other main point of the lawsuit centers on Anadarko’s high royalty rates for mineral leases. The standard market rate paid to property owners is between 18% and 20% of production income, but through two of its subsidiaries, Anadarko has raised the rate to 30% in the area.
In the lawsuit, the plaintiffs argue the strategy is meant to squeeze any potential competitors out of the market. There is no official regulation to keep the rates at standard levels, though Schuster said a different force normally dictates the rates.
“What is supposed to regulate it is the free market,” Schuster said. “In this case, they thwart that whole system by being a monopolist, and they can then do whatever they want to do.”
As of Friday afternoon, Occidental Petroleum Corporation, which owns Anadarko, had not responded to a reporter’s requests for comment.
Leaving potential drilling areas untouched has a substantial economic impact statewide, Schuster said.
“Because the development is ended by their actions, and Laramie County and the state don’t get the jobs, they don’t get the revenue. The state doesn’t get the taxes,” Schuster said. “It’s a very bad deal.”
More than 20 residents are listed as plaintiffs in the lawsuit, and Schuster said they are like many Wyomingites who have mineral interests.
“They simply want to be able, in a fair environment, to lease their minerals to good oil and gas companies who will drill, and then they will get their royalties back, which is the way the system is supposed to work,” Schuster said.
The plaintiffs are seeking financial compensation from the lawsuit, though Schuster added the lawsuit could also bring changes to the permitting process.
“One would hope that one goes with the other, that by showing this as an example of what shouldn’t be done, that maybe there can be some corrections in the system, too,” Schuster said.
Schuster estimated the case might go to trial in a year and a half or two years.