Production, development, and conservation of oil and gas resources are very important to the economic well being of a state and the nation.  Therefore, individual states have enacted laws for proper utilization of its natural resources.  In Montana, the Montana Board of Oil and Gas Conservation (Board) regulates the oil and gas industry. The Board issues drilling permits, oversees industry activity, and implements Montana’s oil and gas laws with a motive to conserve, and efficiently develop its natural resources.  It also seeks to prevent oil and gas operations from harming nearby land or underground resources.  Montana oil and gas laws are mainly found under Title 82 of the Montana Code.   Provisions relating to oil and gas conservation are provided under Mont. Code Anno., § 82-1-101 through Mont. Code Anno.,§ 82-11-306.

Board of Oil and Gas Conservations

Mont. Code Anno., § 2-15-3303 establishes the Montana Board of Oil and Gas Conservation.  The Board is quasi judicial in nature.  It consists of seven members.  Three of the members will be from the oil and gas industry with a minimum of three years’ experience in the production of oil and gas.  And two of the members will be landowners residing in oil or gas producing counties of the state but not actively associated with the oil and gas industry.  One of the two landowners will be a person owning mineral rights with the surface and the other will be a person who does not own mineral rights.

Powers and Duties of the Board

Mont. Code Anno., 82-11-111 provides temporary provisions relating to the powers and duties of Board.  Pursuant to these provisions, the Board will:

• adopt and enforce rules and orders to enforce oil and gas conservation laws and rules of the Board.
• make investigations necessary to determine whether waste exists or is imminent or whether other facts exist that justify any action by the Board.
• require measures to be taken to prevent contamination of or damage to surrounding land or underground strata caused by drilling operations and production.
• classify wells as oil or gas wells, class II injection wells, stripper wells, or wild cat wells.
• exercise exclusive jurisdiction over all class II injection wells and all pits and ponds in relation to those injection wells.
• conduct investigations relating to violations of permit conditions.
• conduct programs to make the general public aware of the importance of the state’s oil and gas exploration and production industry.   It may also make grants or loans and provide other forms of financials to qualified persons for research, development, marketing, educational projects, and processes or activities directly related to the state’s oil and gas exploration and production industry.
• adopt standards for the design, construction, testing, and operation of carbon dioxide injection wells and class II injection wells.

Pursuant to Mont. Code Anno., 82-11-121, oil and gas waste is prohibited.  To prevent waste, the Board will regulate the drilling, producing, and plugging of wells, the shooting and chemical treatment of wells, the spacing of wells, operations voluntarily entered into to increase ultimate recovery such as cycling of gas, the maintenance of pressure, and the introduction of gas, water, or other substances into producing formations.  It shall also fix, upon application made by any interested person after hearing, efficient gas-oil and water-oil ratios for any particular well or wells[i].

Exploration Permit

A person, firm, or corporation conducting seismic exploration within Montana individually or through its agents must comply with the rules of the Board. The Board may adopt rules designating areas where seismic exploration and activities may not be allowed, regulating the plugging and abandonment of seismic shot holes, and requiring identification of seismic exploration crews operating in Montana[ii].

Before starting an exploration, the person, firm, or corporation desiring to engage in geophysical exploration in Montana must file a notice of its intention to engage in the exploration activity[iii].  The notice must be filed with the county clerk and recorder in each county in which exploration is to be carried on or engaged in.

A permit will be issued to the person or firm intending to conduct the exploration only after the person, firm or corporation files a notice of intention to engage in the exploration, and a certificate or a copy of the certificate from the secretary of state[iv].  The certificate should certify the name and address of the resident agent for service of process for the person, firm, or corporation desiring to engage in the exploration.  It should also certify that the required surety bond has been filed with the secretary of state.  A geophysical exploration permit signed by the county clerk and recorder, or its deputy will be issued to the person, firm, or corporation only after meeting these requirements[v].

The permit must show the name and address of the person, firm, or corporation.  The permit is valid and effective for all geophysical crews of the permittee during the calendar year in which it is issued.  The cost of the permit is $ 5 per calendar year or any portion of the calendar year for which the permit is issued.  The person or firm or its agent conducting the exploration operations must carry the permit or a copy of the permit during the period of the geophysical exploration.  The permit must be shown upon demand of any county or state official[vi].

The county clerk and recorder of the county in which a permit for geophysical activity is issued must immediately forward the notice of the issuance of such permit to the Board.  On receiving the notice, the Board will notify the county clerk and recorder of the county if the person, firm, or corporation who has obtained a permit is not in compliance with any applicable requirement for engaging in geophysical activity within the state.  If the Board determines that a person, firm, or corporation has violated any provisions, the Board will initiate action to assure compliance[vii].

Before commencing seismic activity, the person, firm, or corporation conducting the seismic activity must notify the surface owner approximate time of the planned activity[viii].  Pursuant to Mont. Code Anno., 82-10-503, in addition to the requirements for geophysical exploration activities, the oil and gas developer or operator must give the surface owner and any purchaser under contract for deed written notice of the drilling operations that the oil and gas developer or operator plans to undertake.

Rehearing

Pursuant to Mont. Code Anno., 82-11-143, a person adversely affected by a rule or order of the Board may within 20 days after its effective date apply to the Board in writing for a rehearing. The application for rehearing will be acted upon at the Board’s next regularly scheduled meeting after filing of the application.  If the rehearing is granted, it must be held without undue delay.

Court Review

Pursuant to Mont. Code Anno., 82-11-144, any interested person adversely affected by any provision of the oil and gas laws or by any rule or order adopted can obtain court review and seek relief by a suit for an injunction against the Board as defendant.  Such suit must be instituted in the district court of the county where the Board keeps its principal office or in the district court of any county where the land involved or any part thereof is situated.

Appeal

Pursuant to Mont. Code Anno., 82-11-146, an appeal to the supreme court may be taken from any final judgment, decree, or order in the action, as provided in the Montana Rules of Appellate Procedure.

Penalty

If a person, firm or corporation fails to comply with the terms relating to geophysical exploration, it is a misdemeanor and is punishable either by fine or imprisonment, or both. The geophysical permit of any person, firm, or corporation convicted of a violation of the plugging requirements will be revoked.   The permit may not be renewed for a period of 2 years after conviction[ix].

Lease

Pursuant to Mont. Code Anno., § 82-10-201, the governing body of any county, city, town, school district, or incorporated political subdivision within Montana can lease any real property owned by it for oil and gas development purposes if it is in the best interests of the county, city, town, school district, or incorporated political subdivision. Such leases will be made upon the best terms obtainable, and will reserve a royalty of not less than 12.5% for a period not exceeding 10 years.   However, this section will not authorize the leasing of lands acquired by a county by tax deed.

[i] Mont. Code Anno., 82-11-124.

[ii] Mont. Code Anno., 82-1-101.

[iii] Mont. Code Anno., 82-1-103.

[iv] Mont. Code Anno., 82-1-105.

[v] Mont. Code Anno., 82-1-105.

[vi] Mont. Code Anno., 82-1-105.

[vii] Mont. Code Anno., 82-1-106.

[viii] Mont. Code Anno., 82-1-110.

[ix] Mont. Code Anno., 82-1-110.