Free Rider Problem: Fee Increases at the Oklahoma Corporation Commission

Oklahoma Oil and Gas Interest Owners:

The Oklahoma Corporation Commission (the "OCC") plays a large, but often misunderstood role in the Oklahoma oil and gas industry ecosystem. The OCC is the regulator of almost all (less Osage County) oil and gas production in the state. Jack "Show me the" Money (a name destined for fame on the business desk) at NewsOK wrote a column regarding the proposed fee changes at the OCC.

Malcolm Smith: Never heard him discuss Oklahoma royalties or the free rider problem, but man could he ride.

The processing time for final orders has increased over the past year as activity has increased in the STACK and SCOOP.  This slows down drilling activity in the state. If the OCC did not want to increase fees or negotiate for a larger budget to hire more folks, it would be different than every other government agency since the beginning of time. But, before an increase in fees is implemented, the state should conduct a study on what the different applications actually cost to process. For instance:

"Increasing the permit fee to drill a well. The permitting fee now is $175, regardless of the type of well. The new fees would range from $750 for a vertical well to as much as $3,500 for a multiunit, horizontal well. The commission estimates the cost to process applications currently ranges from $580 to $2,900, depending on the type of well involved."

Instead of "estimates," the OCC should have a dollar figure that represents the cost. And, if in fact a application does cost $2,900 to process, why should the fee be $3,500? Government entities should not be profiting from their operations. If anything, their revenues (i.e. fees and taxes) should cover the marginal cost of administration while the agency should always be attempting to lower their marginal costs.

Applicants and operators bear a majority of the burden of the fees at the OCC. While it is true that the applicant is the reason of the marginal labor expense at the OCC, the "benefits" of regulation accrue to all parties who own an Oklahoma oil and gas interest. One of the purposes of the OCC is to prevent economic waste and to protect correlative rights. While the applicant for an increased density application will have to pay the fee for the time of the clerks, administrative law judges, and commissioners to review, the Oklahoma mineral owners and the working owners in the offset wells are the parties who benefit from the OCC's technical and administrative review of the application. This is an example of a free rider problem. 

The solution to this issue would be some type of split to fund the OCC between both taxpayer dollars and fees from the applicants. Berlin can hears the shouts now "hey Berlin, this is how the OCC is already funded!" And Berlin knows that. She would just appreciate some data and logical reasoning before the public spends even more private dollars.

More to follow,

Berlin

PS: Please contact Berlin if you would like to sell any Oklahoma mineral rights. We pay top dollar to buy Oklahoma oil and gas royalties and will close quickly.