Volume 43 - Issue 48 - November 28, 2024
State of Kansas
Governmental Ethics Commission
Opinion No. 2024-03
Written November 20, 2024 to Jake Eastes, Professional Geologist, Conservation Division, Kansas Corporation Commission, 500 E. 20th St., Hays, KS 67601.
Synopsis: A state employee whose job duties include regulating oil and gas wells for the Kansas Corporation Commission may create a Geological Evaluation and Prospect Business so long as the employee complies with the relevant state governmental ethics law. A state employee who creates Business A that transacts with Business B has a substantial interest in Business B if the employee is compensated by Business A with over $2,000.00 worth of fees or commissions associated with the transaction.
Cited herein: K.S.A. 46-229; K.S.A. 46-233; K.S.A. 46-235; K.S.A. 46-241; K.S.A. 46-286.
Dear Mr. Eastes,
In response to your October 21, 2024, letter, this opinion is provided by the Kansas Governmental Ethics Commission (“Commission”), concerning application of the state governmental ethics law, K.S.A. 46-214a et seq. The Commission’s jurisdiction is limited to applicability of this law. This opinion, provided pursuant to K.S.A. 46-254, does not address whether some other statutory system, common law theory, agency rule, or regulation applies to your inquiry.
Factual Statement
You state you are currently employed as a Professional Geologist for the Kansas Corporation Commission, Conservation Division and, in your position, you do the following:
- recommend approval or denial of various applications submitted by entities in the oil and gas industry, although final authorization is up to the KCC Commissioners,
- enforce KCC gas gathering and UIC/injection well regulations,
- review gas well test reports,
- monitor monthly production from the Hugoton/Pomona gas wells, and
- provide expert testimony for KCC hearings.
While working for the KCC, you would like to create a Geological Evaluation and Prospect Business where you would perform geological evaluations and then sell oil and gas “Prospect(s)” to entities in the oil and gas industry in exchange for a monetary fee and an Overriding Royalty Interest in the oil or gas produced. You presented the Commission with a Hypothetical Prospect Sale where you indicate your business would receive $2,500.00 with a 3% overriding royalty interest assignment to every barrel of oil or thousand cubic feet of gas sold from the target tracts of land outlined in the “Prospect.”
Questions
- May you, as a Professional Geologist for the Kansas Corporation Commission, operate a geological evaluation and prospect business while employed by the KCC?
- Additionally, may your geological evaluation and prospect business own overriding royalty interests in oil and gas producing wells that are in the State of Kansas?
Analysis and Opinion
- May you, as a Professional Geologist for the Kansas Corporation Commission, operate a geological evaluation and prospect business while still employed by the KCC?
The Commission first addressed this question in Advisory Opinion 2001-09. There are five state governmental ethics law statutes referenced in Advisory Opinion 2001-09 that apply. First, K.S.A. 46-233(a)(1) relevantly states:
No state officer or employee shall in the capacity as such officer or employee be substantially involved in the preparation of or participate in the making of a contract with any person or business by which such officer or employee is employed or in whose business such officer or employee or any member of such officer’s or employee’s immediate family has a substantial interest[.]
Further, K.S.A. 46-229(d) defines a substantial interest to mean, among other things, “[i]f an individual or an individual’s spouse holds the position of officer, director, associate, partner or proprietor of any business, the individual has a substantial interest in that business, irrespective of the amount of compensation received by the individual or individual’s spouse.”
As a KCC employee, you are prohibited by K.S.A. 46-233(a)(1) from being substantially involved in the preparation of or from participating in the making of a contract between the KCC and your geological evaluation and prospect business because you have a substantial interest in your business as its proprietor. However, the prohibition does not apply to contracts that are let after competitive bidding has been advertised for public notice nor does it apply to contracts for services or property that have the price or rate fixed by law. K.S.A. 46-233(d).
If the two outlined exceptions do not apply and you participate in the preparation or making of a contract with your business in your capacity as a KCC employee, then operating your business may violate K.S.A. 46-233(a)(1).
The next statute is K.S.A. 46-235, which relevantly states:
No state officer or employee shall accept compensation for performance of official duties, other than that to which such person is entitled for such performance . . . [and] [t]he receipt of wages or salary from an individual’s non-state employer during a period of service as a state officer or employee shall not be construed as compensation for performance of official duties.
So long as you are not being paid for the performance of your official job duties as part of operating your business, then operating your business would not violate K.S.A. 46-235.
K.S.A. 46-241 is also relevant, and it prohibits any state officer or employee from disclosing or using “confidential information acquired in the course of his or her official duties in order to further his or her own economic interest or those of any other person.”
If you have access to confidential information as part of your KCC employment, then you may not disclose or use that confidential information to further the interests of you. your business, or anyone else.
Finally, K.S.A. 46-286(a) should also be considered and it states: “No state officer or employee, in the officer’s or employee’s official capacity, shall participate directly in the licensure, inspection or administration or enforcement of any regulation of . . . any outside organization with which the officer or employee holds a position.”
To comply with K.S.A. 46-286, you must ensure that you are not directly involved in the licensure, inspection or administration or enforcement of any regulation of your business.
- Additionally, may your geological evaluation and prospect business own overriding royalty interests in oil and gas producing wells that are in the State of Kansas?
You also ask if the state governmental ethics laws prohibit your business from owning an overriding royalty interest in oil and gas wells in Kansas. Advisory Opinion 2001-09 does not address this question.
K.S.A. 46-229(e) defines a substantial interest to include:
If an individual or an individual’s spouse receives compensation which is a portion or percentage of each separate fee or commission paid to a business or combination of businesses, the individual has a substantial interest in any client or customer who pays fees or commissions to the business or combination of businesses from which fees or commissions the individual or the individual’s spouse, either individually or collectively, received an aggregate of $2,000 or more in the preceding calendar year.
Based on the hypothetical you presented in your request, your business (Business A) will be receiving $2,500.00 and a 3% overriding royalty interest assignment for every barrel of oil or thousand cubic feet of gas sold from the target tracts of land included in the “Prospect” purchased by the oil and gas company (Business B). The current structure of your hypothetical prospect sale will likely result in you having a substantial interest in every oil and gas company that your business enters a Prospect Sale Agreement with.
In the hypothetical, you would receive compensation from Business A which is a portion or percentage of the fee or commission paid to Business A by Business B in the sale. If the portion of the fee or commission that you receive as compensation from Business A’s transaction with Business B exceeds an aggregate of $2,000.00 per calendar year, then you have a substantial interest in Business B. Consequently, the state governmental ethics laws regulating the interaction of a state employee with entities in which the employee has a substantial interest apply.
Additionally, if you are required to file a statement of substantial interest annually with the Commission, then you should ensure you report your substantial interest in each applicable oil and gas company that you enter a Prospect Sale Agreement with. Specifically, this would apply to oil and gas companies where you receive an aggregate of $2,000.00 per calendar year in compensation from the fees and commissions generated by each oil and gas company’s respective Prospect Sale Agreement with your business.
Under the facts presented, the state governmental ethics laws would not prohibit you from operating your business so long as the statutes outlined above are followed.
Sincerely,
Nick Hale, Chairman
By Direction of the Commission
Doc. No. 052688
