Sunday, July 21, 2013

Rep. Knudsen loses his job over bills that irked the oil and gas industry

Culbertson Republican Rep. Austin Knudsen lost his job at the O’Toole Law Firm in Plentywood last session in part because he sponsored two pieces of legislation that were opposed by the oil and gas industry.

Emails between Board of Oil and Gas Conservation administrator Tom Richmond and Dave Galt, executive director of the Montana Petroleum Association, indicate that Larry O’Toole, Knudsen’s boss, planned to fire the junior law partner due to Knudsen’s support of a pair of measures aimed at giving landowners and mineral rights owners greater protections.

The emails, which were obtained by the Montana Environmental Information Center, stated that Larry O’Toole was watching a House committee hearing on House Bill 406 and and House Bill 431 at the Board of Oil and Gas Conservation offices in Billings when he told board geologist Jim Halvorson that Knudsen, an attorney, may be looking for a new job.

In a Feb. 19 email Richmond wrote to Galt:

“Larry O’Toole sat with Jim (Halvorson) Friday and watched the law partner’s (Knudsen) performance during these two hearings on the Internet in Jim’s office….said law partner maybe hanging out his own shingle pretty soon!....Larry said almost all of the people testifying in favor were relatives of the Representative….O’Toole Law Firm not pleased.”

Richmond followed up later saying that Loren O’Toole, Larry’s father, called Larry during the hearing to tell him:

“he needs to fire Austin.”

O’Toole did not return phone calls seeking comment on the email exchange.

The O’Toole Law Firm is one of only a handful of law firms in the state that handles complex oil and gas cases before the Board of Oil and Gas Conservation. Knudsen said Larry O’Toole represents many clients in the oil and gas industry.

Knudsen confirmed that O’Toole asked him for his resignation shortly after the committee hearing on the two bills.

“The fact is I ran a couple of bills that were perceived as anti-oil industry and it upset some people,” Knudsen said.

Knudsen, seen by many political watchers as a rising star in the Republican Party, was elected to the leadership by his caucus and in January GOP leaders tapped him for the high-profile job of responding to Democratic Gov. Steve Bullock’s state of the state speech.

Unconfirmed rumors of Knudsen’s firing reverberated throughout the Capitol during the Legislative session, but the incident never made headlines.

Knudsen said he previously thought O’Toole asked him for his resignation because of the burden his legislative service put on the firm. Knudsen said he heard the rumors, but he said he didn’t know they were true until he learned last week of the email exchange uncovered by MEIC.

“Me serving in the Legislature for two sessions was very tough on the firm,” Knudsen said. “It was just Larry and I and when you’ve got me spending four or five months out of the year in Helena not doing work and doing legislative stuff, it’s tough on business,” Knudsen said. “As far as I knew that was the reason because that was the conversation Larry and I had.”

The two bills Knudsen sponsored had to do with oil and gas development impacts on surface rights owners and “forced pooling” of mineral rights holders.

HB431 would have required any damages from oil and gas development on surface owner’s land be calculated based on the “best reasonably available use” of the land. Previously most damage calculations were primarily based on agricultural uses.

The second bill, HB406, would have reduced the penalties and increased the royalty payments for mineral rights owners who are “force pooled.” Under Montana law mineral rights owners who are unwilling to lease their mineral rights are barred from preventing other mineral rights owners in the same tract from developing their mineral rights. Those who refuse to sign leases are “force pooled” meaning they are given an average mineral lease, and an eighth of the share of the working oil drilling operation’s royalties. They are forced to pay out of those royalties a penalty that helps cover part of the costs of the working interest.

HB406 would have reduced those penalties and increased the royalties for mineral rights owners who were forced into a pool. The measure would have made Montana law similar to current laws in neighboring North Dakota.

“There a lot of oil and gas exploration going on in my district. My family has had to deal with these issues. I’ve got neighbors and constituents who have had to deal with these issues. There gets to be a lot of tension and a lot of landowner problems,” Knudsen said. “Right now we’ve got statutes in place that protect those landowners and requires them to be compensated for damages, but the statute is very week and sometimes they are completely ignored by the companies.”

Both measures were opposed by the Montana Petroleum Association. HB431 was amended and eventually passed both houses and a conference committee before Gov. Steve Bullock signed it into law. HB406, which faced more vehement opposition by the industry, died in committee.

Galt said he worked with Knudsen to amend HB431, but he said the industry feared that HB406 would become an incentive for mineral rights owners to not sign reasonable lease offers from developers.

“It changes the whole economic well,” Galt said. “It was a big deal to us. These bills were huge deals and they were of great concern.”

Galt said he had nothing to do with Knudsen’s firing and he said he didn’t know anything about it until he received that email from Richmond.

“I did not have any conversation with the O’Tooles, Larry or Loren, and I do not know of anybody in the industry who did,” Galt said. “When I heard this happened I went and talked to Austin and I told him that. I thought it was an unfortunate situation. I don’t operate like that and I don’t believe that’s the right way to operate. I told him that.”

For his party Richmond said he regretted passing along the information to Galt via email. Richmond said the board did not take a position on either bill, but rather kept track of where various interests lined up in support or opposition. Richmond said he sent the email to Galt because it illustrated the heated passions on both sides of the issue.

“I think at the time we were just kind of concerned about where the bill was going, and who was supporting it and who was opposing it,” Richmond said. “I think it was a matter of passing the knowledge along so people would know where people stood.”

Richmond said it was “unfortunate” that O’Toole made the comments about firing Knudsen while in the board’s Billings office.

“It’s an unfortunate thing that that happened in our office, and I shouldn’t have spread the rumor any further than that,” Richmond said. “We were just trying to keep track back and forth who had a position and what their position was.”

Derf Johnson, MEIC’s assistant program director and the man who uncovered the emails through a freedom of information request, said he was deeply troubled to learn that a sitting legislator had lost his job because of his position on legislation.

Though MEIC supported HB431 and HB406, Johnson said the environmental group was not happy with Knudsen’s overall record on the environment. However, Johnson said Knudsen got a “raw deal.”

“It was incredibly alarming that the sponsor of a bill that would have impacted the oil and gas industry lost his job. That would be my most immediate concern with the emails,” Johnson said. “To me it suggests that there was some political retribution for stance he took at the Legislature and for supporting bills important to his constituents.”

Johnson said he requested the emails because he wanted to better understand the relationship between the Board of Oil and Gas Conservation and the industry it regulates during the legislative process. He said the 63 pages of emails demonstrates a maybe too-friendly relationship between the industry and its primary regulating entity.

“We certainly don’t have the kind of access to the Board of Oil and Gas that the industry does. I think these emails show that,” Johnson said.

Knudsen, who is working on his own and helping out with his family’s farm, said he is not surprised to learn that his dismissal from the O’Toole Law Firm was related to his support of those two measures.

“I knew there was going to be resistance to these bills, especially from the industry,” Knudsen said. “I’m not out to stick it to the industry, but these are issues I’m passionate about. I dealt with them it personally in my family and I’ve dealt with it with my neighbors and my clients. When you’ve got a section of code that’s meant to protect the surface owners and there’s no teeth tho it, well then I think we’ve got a problem. That’s why I brought the bill.”

Read the full email exchange in DocumentCloud online at

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