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Friday, July 9, 2010

On controversial Marcellus Shale issue, Pennsylvania may be jumping into the pool

Posted By on Fri, Jul 9, 2010 at 1:23 PM

Exactly a month ago, I wrote about the controversial subject of "pooling" -- a legal mechanism whereby natural-gas drilling companies may be able to remove gas from beneath your property without your consent.

The issue promises to be controversial in Pennsylvania, where gas deposits in the mile-deep Marcellus Shale are attracting considerable interest. At the time I wrote that post, no pooling legislation had formally been proposed in Harrisburg ... but apparently, it's on the way.

In states with pooling laws, once a supermajority of property owners in a given area sign drilling leases, gas companies are given drilling rights to the whole area -- with or without the consent of the people whose land they are burrowing beneath. Holdouts lose the ability to prevent drilling beneath their property -- though they are compensated by the gas companies for the value of gas. As an industry group says, such residents are assured of getting "a check in their mailbox each month" either way.

As an industry spokesperson told me last month, Pennsylvania is the only state with large-scale natural-gas drilling operations that doesn't have a pooling law. But that may change soon. I've received a partial copy of a letter dated last month from state representatives Marc Gergely (D-White Oak) and Garth Everett (R- Muncy), in which the bipartisan pair is seeking cosponsors for pooling legislation here.

To drill effectively, the letter asserts,  natural-gas companies "must be able to form effective and efficient drilling units" -- and those units "must include all of the mineral interests within the boundaries."

How might such legislation end up looking? Those concerned about pooling are circulating a copy of a proposed bill with the letter. I can't be sure if this is the exact bill Gergely and Everett are proposing -- the title is slightly different, for one thing -- but it is consistent with the goals they outline in their letter, and with the overall pooling concept. 

Under the terms of the bill, potential drilling areas will be divided up into "units." Most of these can be no more than 640 acres, and should be "configured generally in a regular square or other rectangular form."  The bill does allow some flexibilty, however -- a unit can be "any size or shape," for example, if the drillier "reasonably believes" the gas beneath it can be extracted by a single well pad. 

In any case, if a natural-gas company obtains drilling rights from three-quarters of property owners (or others with control over the gas) in a given "unit," that developer may gain the rights on "all interests owned and not owned or controlled by that person ... for the development and production" of Marcellus natural-gas reserves. (The emphasis there is mine.)

The bill would create an "Oil and Gas Fair Pooling Office," to monitor the creation and administration of these units, and to adjudicate disputes within them. The bill also protects property owners who don't sign leases from any surface disruptions of their property. In other words, you can have the gas drilled out from underneath you ... but you can't have a drilling well built in your backyard without your consent. 

Gergely and Everett's letter portrays all this as an environmental safeguard. If drillers aren't allowed to get at all the gas in an area, they argue, "[l]eaving recoverable gas in the ground would be a physical waste of the valuable resource. Worse yet, it makes absolutely no sense to require the construction of multiple well pads ... when a single pad may be sufficient." 

The letter also asserts that the law "Allows the greatest number of willing mineral interest owners to realize the value of their resource." (According to the bill, royalties for gas taken out of a unit will be paid "based upon the relative surface acreage of the interests in each unit.")

Folks in a "unit" who don't sign leases have a couple options: They can agree to be treated as if they had signed a lease, or they can elect to be treated as a "non-consenting party" -- in which case they get a share of the profits minus a "risk fee." But as near as I can tell, the drilling is happening with or without them -- right beneath their feet. 

I've got calls into Gergely's office, and will post updates here as events warrant. In the meantime, while I've seen little coverage of pooling from the local press, it has gotten some attention in recent days from media elsewhere.

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