A program of the West Virginia Oil & Natural Gas Association

Companies "pool" for pooling legislation in WV

By Mandi Cardosi | February 6, 2015

It's inevitable lawmakers will take up controversial bills this session. Of course there will be discussion about fetal pain, prevailing wages and whether to vaccinate children. But amid those discussions, according to some, will be pooling, and they're not talking about the summer recreational activity.

Delegate Woody Ireland, R-Ritchie, is chairman of the House of Delegates Energy Committee. He said he has been working and meeting with energy industry representatives and those with a vested interest in pooling, which would allow gas to be extracted from certain areas even if some landowners object.

It's an issue bubbling up in Ireland's backyard. His native Ritchie County is in a mineral-rich area, and neighboring Doddridge County often ranks as the largest oil and gas producing county in the state.

Ireland said Feb. 3 his committee is drafting a bill related to pooling that he hopes will meet everyone's needs.

“Not everyone is going to be happy,” he said. “We are drafting a bill that will (likely) be introduced next week.”

 

Communities affected

 

Jim McKinney, senior vice president and general manager of Enervest Operating LLC, said pooling occurs in West Virginia for deep wells like those commonly drilled in Utica shale, but using pooling to drill for shallow wells is not allowed in statute.

“We have no pooling for shallow wells in West Virginia,” he said. “We've asked (Delegate) Ireland for a pooling bill to cover all horizontal wells, regardless of depth, excluding coalbed methane.”

McKinney said another concern among stakeholders is the conflict that occurs when some people want to let companies seek out the minerals under their property through horizontal drilling but the companies may not be able to do so.

That's where Mark Hickman comes in. He lives 10 miles east of Wheeling on a farm in Ohio County.

Chesapeake Energy drilled a well on Hickman's farm, but he isn't able to receive any royalties from his land's minerals. He says that's because even though the well is on his farm, some of his neighbors are holding out.

“The people here, locally, and in the community are not able to share in any of the gas exploration in our area,” Hickman said. “For royalty owners it has been great.”

Hickman also mentioned a Girl Scouts camp in Ohio County that could benefit from a lateral well reaching its property.

“We still have hold outs; it affects the community as a whole and the revenue that helps pave our roads,” he said. “I'd like to see pooling made improvements to this year during the legislative session.”

According to records filed with Chesapeake and the West Virginia Department of Environmental Protection, Hickman has had trouble receiving compensation for drilling being done on his property and minerals being extracted from under his land.

Hickman has lived on his farm his entire life, and has a surface disturbance from a well pad being excavated, but he doesn't mind.

“I kind of enjoy it, they've done a nice job of putting the road through our farm,” he said. “I enjoy seeing the equipment come and go.”

Hickman, a retired school bus driver and outdoorsman, is compensated for a well being drilled on his property; he said he doesn't even mind the road put in the middle of his farm. He said the drilling has not affected the wildlife.

“It's actually kind of improved,” he said. “To see the production, it's cool for us here because we haven't seen that before in the panhandle.

“I went to school with mud on my boots — people don't really have to do that here anymore.”

Although many are benefiting from the drilling in his county, Hickman said he would like to see some of his other neighbors share in the royalties, and he isn't pushing the issue for selfish reasons.

“There's a community close to me here,” he said. “They're my neighbors.

“There's a whole community, they're the salt of the earth working people, so for those folks, I just want to see them share in this prosperity.”

Hickman said although he can't give his neighbors money, he would hope those who are somewhat needy in the community who own land see the benefits the oil and gas exploration has brought to the panhandle.

 

Who owns it?

 

The cost to justify drilling a well pad is immense.

Before the technology for horizontal drilling, farmers settled with installing what are referred to as derricks, a lifting device composed of one tower, on the property. The derricks, or oil rigs, flooded hillsides in the entire state, but many extracted oil from underground without any hints about whose property it was actually coming from. Now, companies say rather than seeing those derrick farms on every hillside in the state, they are able to construct one well pad and drill underneath just as much land.

Kevin Ellis, director of business development and governmental affairs with Antero Resources, said the state is blessed with natural resources.

Ellis described how the situations typically played out before companies took over, with farmers dueling for oil under their property.

“I want to put it right there, my derrick will be touching the fence that separates our farms,” Ellis said as he pointed to an illustration of property boundaries. “You say, ‘Why'd you put that so close to my fence?' Your remedy: put a well on the other side of the fence.”

He said by constructing several oil rigs in one small area, not only would drilling wells waste money but if the wells were too close they would interfere with one another.

“It doesn't work,” he said. “To say you can't do certain things, we have to give you a tool. Pooling is one of those tools.”

Ellis said less wildlife is disturbed and fewer trees have to be cut down with horizontal drilling. However, the issue still runs into the same problem for mineral owners and oil and gas companies — who owns the surface rights?

In West Virginia, landowners might not necessarily own what's underneath them. Several generations ago, many farmers sold rights to companies, or a farm would be split in many pieces to be given to multiple children and family members.

The remedy for that? Legislation.

 

Companies: Change law

 

Those pooling for pooling legislation say state law has not kept up with technology.

Companies say not allowing pooling for horizontally drilled wells is an “arbitrary limitation that restricts the rational development of the Marcellus Shale in West Virginia.”

Advocates for changing the law, like Ellis, Hickman and McKinney, say it's also about fairness.

Oil and gas tracts in the state may be held by dozens of different owners, so each lease must be signed or modified by every fractional interest owner. Many mineral rights owners in West Virginia are unable to generate royalties from their natural gas because of a “small minority of fractional owners who cannot be located to sign a lease.”

Companies say the minority parties unwilling or unable to sign leases would be protected and treated fairly, but the hope with legislation would also be to allow the majority who wants to benefit from the minerals under their land to do so.

Advocates also say pooling laws promoting the efficient extraction of natural gas would increase the volumes of natural gas produced while limiting the number of pads, increasing production and increasing property and severance taxes.

Last session, House Bill 4558 would have provided for the “unitization of interests in drilling units in connection with horizontal oil and gas wells.” The bill did not pass, but it addressed oil and gas produced from horizontal wells, vertical wells and unconventional reservoirs.

Ireland said this time around he wants to make sure the legislation is properly looked at by all interested parties, before his committee tries to pass something.

Such a bill, he said, could be introduced as early as the second week of February. The last day to introduce bills in the House is Feb. 24.


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