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Tuesday, June 8, 2010

Shale, shale the gang's all here ... whether it wants to be or not

Posted By on Tue, Jun 8, 2010 at 12:28 PM

As you might expect, the fact that there have been two gas-drilling mishaps in the past week are raising concerns about how wise it is to allow such drilling in more populated areas. Like, say, Lawrenceville or Lincoln Place ... where, believe it or not, people are signing leases allowing gas companies to drill. In tomorrow's paper, I'll have a column about that very subject.

In the meantime, a few words about a controversial topic that didn't make it into the column: the murky issue of "pooling."

Pooling came up during a discussion at last weekend's sneak-preview showing of the documentary Gasland. And concern about it has been simmering for awhile now. 

The idea behind pooling is this:

Currently, before a natural-gas driller can dig wells beneath your land, they have to get your permission. And gas in Pennsylvania's massive Marcellus Shale field is drilled horizontally: A well is sunk a mile deep, and then is drilled sideways, so the shale can be broken up with water and chemicals, releasing the gas.

For the gas industry, though, there's an obvious problem. Unlike a vertical well, horizontal wells can cross numerous property boundaries. What if some property owner doesn't want to sell you the rights to drill beneath their home? You could end up bypassing potentially lucrative gas desposits, or with unworkable, pretzel-shaped wells. 

Hence the concept that the gas industry calls "fair pooling" -- and which critics call "forced pooling." The idea is that if enough people in a community -- say, 60 percent of them -- agree to lease their gas rights, then everyone would be required to do so. They'd be compensated, just as if they had signed a lease voluntarily, but they wouldn't be volunteers. 

I wasn't at the Gasland preview, sadly. But my colleague Bill O'Driscoll was there, and says that during a panel discussion after the showing, the audience got a mixed message about whether Pennsylvanians could be forced to jump into a pool someday. There are no pooling provisions in any legislation currently pending in Harrisburg. But there are rumors that it won't be long. The fear is that state officials will engage in some horse-trading, agreeing to a "pooling" provision in exchange for a "severance tax" on the value of gas taken from Pennsylvania shale. 

The ways of Harrisburg are often a mystery to me. But what I can say is that the horse-trading scenario is eminently plausible. 

Kathryn Klaber, who heads an industry consortium called the Marcellus Shale Coalition, says the industry understands the need for a severance tax. The state's oil and gas law hasn't been changed for decades, she notes, and "modernization [of the law] needs to happen here." After all, she says, "A lot of other shale states have the severance tax."

But, she adds, states "with horizontal drilling also have some form of pooling." And it's a bit lopsided, she says, for Harrisburg to say "other states have a severance tax" while "ignoring the fact that they have pooling too."

In fact, the Coalition has its own fact sheet on the pooling issue.  It's sort of a remarkable document. On the one hand, it calls pooling "a tool that helps organize scattered parcels of land into efficient drilling units" -- something that clearly benefits the gas drillers. But the fact sheet also argues that pooling "ensures that those who want to lease their mineral rights are afforded the chance to do so," while "those who may not want to enter into a formal agreement with the company" can still "benefit fairly from new production instead of forgoing participation."

Well, that sounds just peachy, doesn't it? The gas company wins. So do the people next door. And you, lone holdout, get to benefit despite your own mule-headed insistence that you want no part of it! 

This seems like a surefire recipe for contentious block parties. On the one hand, your neighbor might really want -- even need -- a nice royalty check. If you and enough others hold out, though, the company may move somewhere else. Asserting your territorial perogative, then, may mean your neighbor can't reap some of the value of his land. 

On the other hand, pooling is pretty obviously a tool for stripping away property rights. If your community attracted the attention of a gas company, it wouldn't necessarily matter if you were, say, an environmentalist who worried about the damage drilling can cause. Your own property would be used by a gas company whose practices you despise.

The vast majority of folks wouldn't care, of course -- drilling that goes on a mile below shouldn't have any impact on the people above (unless they live near the actual well equipment itself). On the other hand, there is a principle at stake too. We lefties are, I think, used to seeing our warnings go ignored by our neighbors. Pooling, though, would mean we couldn't necessarily act on them ourselves. The lone consolation, perhaps, would be that you could contribute to the Audobon Society with your lease payment.

The funny thing is that generally, the gas industry portrays itself as a big supporter of property rights. I asked Klaber how the gas industry would respond if, for example, township supervisors voted to oppose any gas drilling within municipal limits. 

"In this country, we value the rights of property owners," she said.

Well, at least when those owners want to drill. If you want to prevent drilling, though, you may soon have very little ground to stand on. 

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