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Saturday, December 11th, 2010

Pennsylvania Representative Camille “Bud” George states this about Force-Pooling: “…Intrusive government would be depriving an individual’s property rights to benefit private companies.”

Oil and Gas Industry lobbyists have concocted another name for it:  “fair pooling.” There’s nothing “fair” about it; Force-Pooling is eminent domain in sheep’s clothing.

Let’s say a Force-Pooling  law is enacted in Pennsylvania, and, for whatever reason, you have remained unleased to any Oil and Gas Producer operating in the new Marcellus Shale play. Judging from 37 other states where Gas Producers have lobbied it into law, here’s how Force-Pooling would work in Pennsylvania:

UNBIDDEN, A GAS OPERATOR COMES TO YOU with a lease. You may chase him away, or make an attempt at negotiating more suitable terms. The Operator and his landman prove inflexible.  You are told if you don’t sign, you face subjection to the new Force-Pooling law; that, as a “holdout,” you’re in the way of the Operator’s plans to harvest gas from the surrounding countryside, thus threatening the correlative rights of the mineral owners already leased to him.

This means a yet-to-be formed PA State commission will hear your case, most probably assigning your property to that gas Operator. He has formed a more economical area to drill (it can be of any size, but it’s probably in the range of  640 to 1,000 acres)—say, a 640 acre UNIT containing  11 other owners. Of which you will now be a fractional part. To make it easy, let’s assume each of the other owners has an equal portion of the unit.

Your return will be 1/12 of the 12½% minimum State royalty unwisely agreed to months ago, and very early in the play, by your new neighbors. If monthly production from the 8 wells in the UNIT totals $80,000, you will receive only $833. (Had you not been Force-Pooled—giving up most of your production to your new neighbors—your property alone might have held one of the wells, providing you, initially, with about $10,000 per month.)

Force-Pooling might indeed prove an advantage to the neglected property owner watching his neighbors being drilled. Through an advisor, he wangles a meeting with the Operator and signs a lease on the Operator’s terms. The Operator gerrymanders this new parcel onto his approved UNIT, granting the neglected owner a generous signing bonus and a proper pro-rata share of unit royalties.

What that neglected property owner may not know, is that the Operator wanted him added to the unit in order to Force-Pool another holdout residing within the unit. (Blocking a horizontal drill path that has been quickly redirected into the neglected owner’s conveniently tacked-on parcel, the unleased holdout is now cited for interfering with the neglected property owner’s correlative rights, then Force-Pooled by the State into the Operator’s unit.)

But, just a minute…Pennsylvania doesn’t yet have a workable Force-Pooling law! Present-day gas comes from the Marcellus Shale which lies atop the Onandaga limestone…old Oil & Gas pooling laws DON’T apply.  Oil and Gas Operator lawyers and lobbyists are putting steady pressure on PA legislators to undo what they perceive as a limitation in the old laws and, furthermore, apply restructured Force-Pooling regulation to ALL new Penna. Oil & Gas wells—no matter how, where, or to what depths and stratas they are drilled.

Years roll by…. you wonder what might have happened had you been free to walk away from the whole mess, or at least negotiate a lease more to your liking—one that would have lent some control to a few developing problems:

  • You discover that gas wells decline in first-year production as much as 65%, then more gradually in following years until they expire. Shouldn’t you have been compensated with a higher royalty %?
  • Your well water may have turned brown, or have bacteria or chemicals in it that you are certain were never there. Is any redress now possible from the Operator or the State?
  • How about damage to your crops, road, woods, and piece of mind caused by the drilling of a vertical well on the surface (unexpected, when you were thinking horizontal) and the annoyance of service work going on near your outbuildings or home?
  • What about gas pipelines (the gathering system) and possibly well and frac-water transfer pipes buried atop those lines?
  • A compressor station within earshot might make sleeping difficult.
  • The resale value of your property plummets. You find your land is now “HBP,” or held by production; it will remain the Operator’s—until the unit wells are plugged and abandoned. Nothing seems to be as it once was. But you can’t leave—it’s your home.
  • Taxes rise on the yet-unproduced portion of your mineral wealth.
  • The Operator wants to drill even deeper and exploit the Utica Shale, 3,000 or more feet below the Marcellus. Will you receive  additional compensation? Do you have any say in the matter?

The Pennsylvania legislature has just pleased the Oil & Gas Industry by voting down a severance tax on gas production; will it next please the Industry by coming up with a new Force-Pooling act?

Those legislators who have chosen to support the passage of Force-Pooling into law must know they are on the edge of public defiance—the abrogation of Article 1- Section 1 of the Pennsylvania State Constitution, stating that citizens have certain “inherent and indefeasible (that which cannot be lost; inalienable) rights,” including those of “acquiring, possessing, and protecting property and reputation”; as well as Article 1 – Section 27, saying: “the people have the right to clean air, pure water, and to the preservation of the natural, scenic, historic, and esthetic values of the environment.”; and lastly, making a mockery of Article 1 – Section 10: “…nor shall private property be taken or applied to public use without the authority of law and without just compensation being first made or secured.”

Is your Pennsylvania State Representative or Senator on board with the Oil & Gas Industry — or YOU?   Better call or write them for an answer!


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