A program of the West Virginia Oil & Natural Gas Association

Campaign for forced pooling gets an early start

By Andrew Brown | The Charleston Gazette-Mail | August 30, 2015


TOM HINDMAN | Gazette-Mail file photo

A Marcellus Shale natural gas drilling pad in Marshall County. The debate about forced pooling among mineral rights owners will continue this week at the meeting of the National Association of Royalty Owners’ Appalachian Chapter.

It may be five months until the start of the 2016 legislative session, but the campaign to convince people of the need for forced pooling in West Virginia is already underway.

Several months after watching their pooling bill die in a last-minute tie on the House floor, the mineral owners associations, industry officials and politicians who supported the law that would allow gas companies to force holdout mineral rights owners to sign a lease are considering their next moves.

Since the beginning of August, the West Virginia Royalty Owners Association has been holding two meetings a week throughout the state to convince people to support a forced pooling bill in the upcoming legislative session.

The accelerated push for forced-pooling is also expected to be a point of emphasis at the National Association of Royalty Owners Appalachia Chapter meeting at The Greenbrier on Monday, where Delegate Woody Ireland, R-Ritchie, the sponsor for last year’s bill, will be speaking about the law’s merits.

And while the effort to win over the hearts and minds of state residents isn’t expected to be featured at the West Virginia Chamber of Commerce’s annual meeting and business summit, Ireland said there would most likely be a lot of “hallway discussion” on the subject.

Steve Roberts, the chamber’s president, has spoken out in support of the bill in the past, and many of the event’s sponsors are some of the state’s largest gas development and transmission companies, including EQT, Antero Resources, XTO Energy, Noble Energy, Chevron and Dominion Hope.

These proponents of forced pooling see their early advocacy efforts around the state less as lobbying and more as an education lesson for West Virginians. Many supporters believe the bill’s failure in March is less of a mark on the proposed law itself, which opponents railed against because of its effect on personal property rights, and more of an illustration of misinformation clouding people’s judgment.

“I wanted to get out early and get the ground fertile,” said Tom Huber, the vice president of the West Virginia Royalty Owners Association.

In their effort to bring people on board, some supporters are even hoping to change the semantics of the proposed legislation. Ireland and others would like to avoid the title “forced pooling,” which people have come to know, and are attempting to shift the nomenclature towards “fair pooling” or “lease integration.”

Unlike last year when the bill was unveiled only once the session began, Ireland said the Republican leadership’s emphasis on passing the bill in 2016 has allowed supporters to mount a larger campaign to convince state residents that the law is to their benefit.

Senate President Bill Cole, R-Mercer, and gubernatorial candidate has said that passing a bill in the future will be one of the Republican Party’s top priorities moving forward.

While much of the public discourse surrounding the law has focused on the ability of gas companies to force unwilling mineral owners to sign a lease, supporters of the law — especially members of the royalty owners associations — say other concessions in the bill that benefit mineral owners have gone unnoticed.

“It has been controversial. There are people who have very strong feelings both ways,” said Bob Hart, NARO’s president. “Even among our members, there are people who view it as an illegal taking of rights.”

Included in the bill were things like a minimum royalty rate of 12.5 percent, the requirement to have 80 percent of the mineral owners in a planned geographic area — a unit — leased prior to forcing the other 20 percent in and the banning of post-production costs — charges for things like trucking or pipeline installation that are often assessed to lease holders after a well is complete.

For people more concerned about signing a good lease and being fairly compensated for their mineral rights, advocates for the bill say there is little to worry about from the forced pooling statute. They also argue the bill would make gas exploration in West Virginia as efficient as possible, limiting the number of well pads that are needed and making sure little to no gas-rich acreage escapes the drilling rigs and hydraulic fracturing fluid that have opened up previously-unattainable shale formations throughout the country.

Opponents of the law argue that even if mineral owners are compensated financially, the bill removes their most powerful bargaining chip — the ability to refuse the gas companies. And when it comes to people who are opposed to drilling because of environmental or human health concerns, the bill’s authors admit there is nothing they can do bring those people on board.

“I think if people knew what the current law is and what this does, people would support it,” Huber said. “There’s going to be some anti-drilling people who are going to be against it, and we can’t solve that.”

At the West Virginia Royalty Owners Association’s informational sessions so far, Huber said the group has been able to attract 20 or more people each time — aside from a meeting in Charleston that attracted less than a handful of attendees.

“A lot of the people that we are getting are not members,” Huber said. “A lot of people are interested in learning more about the bill, or are angry about the bill.”

While the 2016 version of the bill is expected to largely mirror the legislation that failed earlier this year, Hart and Huber believe the law will gain more traction because supporters of the bill are emphasizing the current alternative to pooling, in which gas companies use partition lawsuits to sue partial mineral owners, forcing them to either sign a lease or accept a court-mandated buyout. Industry officials have said that process is far more unfair than a forced pooling law.

“You can see how that heavy-handedness really limits the royalty owners ability to negotiate,” Huber said. “We believe the bill gives mineral owners a backstop.”

Another point of emphasis, Ireland said, is the existing pooling statute for deep shale formations, which does not include the highly-sought-after Marcellus. Armed with an industry-backed study and news of recent test wells, Ireland said he expects to emphasize the industry’s interest in the Utica shale — a deeper formation that underlies parts of West Virginia — and the need to reform the deep pooling statute, something his proposed bill would do.

“If you look at what the industry is doing in the Utica, it mirrors what they were doing in the Marcellus five or six years ago,” Ireland said.

At this point, the Marcellus is still the most profitable shale formation in the state, and the vast majority of active Utica wells are in Ohio. Ireland is convinced the Utica could take off in the near future, and if it does, he believes mineral owners would be disenfranchised by the current pooling law for deep gas wells.

“It’s not going to be too far in the future where the industry is going to be drilling in the Utica,” he said. “In the current code,there isn’t many protections there for the mineral owner and the surface owners.”

Huber says his organization’s support for the bill is evidence of how far the legislation has come. He said opposing any type of pooling law was one of the seminal reasons the West Virginia Royalty Association was formed.

“Our foundation comes out of opposition to forced pooling,” Huber said.

But in the past year, Huber said the associations have been brought on board by Ireland, who has been the “referee and umpire” that has settled the differences between the industry-supported and mineral association-backed versions of the bill.

“Up until that time we were against any proposal because it was so detrimental, but the industry has come along way,” Hart said.

“It’s not going to be perfect. We know that, but what we came up with last year was way better.”

Reach Andrew Brown at andrew.brown@wvgazette.com, 304-348-4814 or follow @Andy_Ed_Brown on Twitter.

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