Forced Pooling in W.Va.: The Plot Thickens with Industrial Proposals
In a dramatic turn of events last year at the statehouse, a bill died on a tie vote during the last night of the 2015 legislative session. The issue was whether companies should be allowed to force mineral owners to sell their gas if the majority of their neighbors have already agreed to sell. Forced pooling. The topic resurfaced during interim meetings last month and is expected to be a priority this legislative session.
Death by Tie Vote
The controversial 2015 bill would have allowed drillers to force owners to sell their minerals if a company could get "80 percent of the net acreage proposed to be included in the horizontal well unit." The bill also specified that the mineral owners of the remaining 20 percent of property would still get paid for their proportion of gas drilled. The terms of the sale would be decided by the existing, but modified Oil and Gas Conservation Commission. A board comprised of industry, government, and community stakeholders.***
Industry representatives have been pushing forced pooling legislation at the Capitol since the Horizontal Well Control Act was passed in 2011. They say pooling is necessary to make sure gas resources aren’t wasted (§22C-9-6.). Opponents say it amounts to an illegal property grab. The West Virginia Royalty Owner's Association used to be the loudest of opponents, but Vice President Thomas Huber joined statehouse delegate Woody Ireland in promoting forced pooling legislation last year. Huber says he was involved in shaping that legislation.
“Those negotiations were tense, they were difficult,” Huber recalled, “but we actually came out of that with an impressive bill that protected property owner rights while giving gas companies the ability to efficiently develop the gas in this state.”
But that bill died during the last hours of the session when some legislators pulled support at the last minute, resulting in a tie vote.
Pro-Forced Pooling Bill
A revised bill has since been written, which Huber says is even better for surface and mineral owners than last year’s bill was. Huber organized and moderated discussions around the state over the past several months to collect ideas and discuss possible implications of new legislation.
The main thrust of his argument is that in exchange for providing companies with a legal pooling method, property owners get protections and rights to negotiate the terms of developing the gas.
“I think we want the minerals developed responsibly, efficiently, and with as minimal disturbance of surface property as possible, and the maximum amount of money coming back into the state in the form of royalties, severance taxes, and jobs,” Huber said.
But plenty of people still oppose the revised bill.
Anti-Forced Pooling Bill
“There are two basic groups. One that is opposed to developing natural resources and do not like the idea of oil and gas being developed and oppose it on any grounds, and then there’s a group who are opposing the forced pooling bill, of which I am one, because we feel it takes unfair advantage of property or mineral rights owners," said President of the Brooke-Ohio County Farm Bureau John Smith.
Smith campaigned hard against the pooling bill during the last legislative session.
“They have rewritten the bill. Two or three of the more objectionable things have been taken out, but there are still a lot of problems with that bill.”
Smith talks about tax concerns, constitutional and legal concerns, a lack of transparency and control regarding lease deals and restricted access to industry knowledge when he talks about the current draft of forced pooling legislation-- just to name some of the major issues he has.
Smith admits he’s not opposed to pooling altogether, but he worries that the legislative process may take what he considers an already unsatisfactory bill and make it worse.
But the number of those who oppose the legislation alongside Smith has dwindled some. That is partly because there’s talk now about completely different legislation that would, for all sakes and purposes, make forced pooling a much simpler matter.
EQT’s Pooling Bill: “Lease Integration”
“There’s a competing proposal from a single gas company - EQT - that they call ‘lease integration,’” said Thomas Huber of the West Virginia Royalty Owner's Association. “They passed this proposal in Pennsylvania in 2013 and it’s been pretty devastating for many mineral owners and surface owners alike.”
The language in the Pennsylvania bill is a brief paragraph (section 2.1). It essentially allows companies to pool gas without consent from mineral owners as long as some kind of lease already exists, and as long as that lease doesn’t expressly prohibit pooling. The paragraph doesn’t mention surface owners, and it leaves royalty payments to the discretion of drillers. Some Pennsylvanians say the law has become a tool companies use “to beat down non-consenting property owners.”
“Where an operator has the right to develop multiple contiguous leases separately, the operator may develop those leases jointly by horizontal drilling unless expressly prohibited by a lease. In determining the royalty where multiple contiguous leases are developed, in absence of an agreement by all affected royalty owners, the production shall be allocated to each lease in such proportions as the operator reasonably determines to be attributable to each lease.”
In a phone conversation with West Virginia Public Broadcasting, an EQT spokesman said lease integration is a different and more efficient approach to developing gas, and that lawmakers would be wise to consider it in these days of low gas prices as industry needs incentive to continue to develop gas in West Virginia.
***Editor's note: This graph has been modified from the original report to clarify that "80 percent" refers to a given land parcel, as opposed to property owners.