Forced Pooling and why we should all be against it.

I think most of us are also against forced pooling, but I choose to speak for myself here. We need to get on this and also oppose it because it DOES AFFECT ALL OF US. This also does not just involve the Utica Shale in PA. Trying to find out how many Marcellus wells are also permitted as Conservation Wells and will provide that later, but here's the skinny. Read the actual law below and tell me if you agree. The law states that they just have to penetrate the Onandaga Layer. A driller buddy of mine, who asked not to be named, tells me that the companies are chomping at the bit at this. He tells me all they have to do is go down and "penetrate" the Onandaga and the plan is to then back the drill off, plug that depth and drill the Marcellus and other layer they so choose. That means those of us who are pro-drilling are also screwed. Those who haven't leased yet and are haggling (for lack of a better word) for better bonus are screwed. (yes. that also is true for us in the Marcellus). All the driller has to do is say; "We tried. It's not our fault they won't accept $100/acre, so please give us their land, your honor". And your land will be theirs. It also hurts those of us that are looking at renewing lease. Same scenario. All they have to do is prove they offered us soemthing and the land is theirs.

Any well as deep as 3800 feet, they can now get from you for almost nothing.

Q. What is the difference between a “conservation” well and a “deep” well?

A “conservation” well is defined as any well penetrating the top of the Onondaga Limestone (or equivalent formation when the Onondaga is absent) and is at least 3,800 feet deep. This term is defined by the Oil and Gas Conservation Law. The Pennsylvania Geological Survey considers a “deep” well to be any well that penetrates the Middle Devonian Tully Limestone.

Additional Resource(s):


http://files.dep.state.pa.us/OilGas/BOGM/BOGMPortalFiles/LawsRegsGu...
OFOG 07-01.0

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Permalink Reply by John Harrison on March 16, 2014 at 5:12pm

My opinion is that the gas companies really don't want the pooling law in PA to cover the Marcellus.  As it stands now, production units can be formed in any way the company chooses and the 330 foot setback of well bores from the edge of the unit or from unleased acreage is zero feet instead.  In Bradford County it is common practice to declare four units for one well pad tying up over 2000 acres.  Also in Bradford County well bores are drilled within 50 feet of unleased land.  By diluting the production from one well site over 2000 plus acres hurts the royalty owners and I don't think any one thinks about this.

  I did a search for Hilcorp on line today and on Marcellus Drilling News the summary paragraph stated that the DEP hearing for the Hilcorp forced pooling application will happen on March 25 and 26 in New Castle, Lawrence County, PA.  There is more information in the article but I don't have a subscription.  It will definitely be interesting to see how DEP handles this political hot potato. My guess is that they will find some way to delay making any decision.

Permalink Reply by wyalusing jim on March 16, 2014 at 6:52pm

I know some people who would love to have forced pooling, as it stands, they are unleased and receiving no royalties, and are within the boundaries of a producing unit.

personally, I think it would be a great idea in pa, it would bring back competition for leases where currently there is none.

wj

Permalink Reply by Trapper on March 16, 2014 at 8:04pm

wj were these folks offered leases and refused them (hold outs), or were they ignored altogether?

Permalink Reply by wyalusing jim on March 16, 2014 at 9:11pm

there's actually several scenarios that come to mind.

yes, some are holdouts, some holdouts refused to lease earlier, and some don't ever want to lease. of course the ones who never want to lease wouldn't want forced pooling though.

just down the road from me is a couple who leased with one company, and another developed the unit. their lease was not bought by the company developing and so they get nothing.

there are also cases where for whatever reason, the landowners were never offered a lease and yet they are within the boundaries of a producing unit.

wj

0i7okn54zwbdoPermalink Reply by 0i7okn54zwbdo on March 16, 2014 at 7:48pm

I'll take the counter argument on this one.  Forced pooling is a net good to the majority of landowners.  It is a net good for the E&P companies (without whom we wouldn't have this forum or basically anything else in this country).  It screws the holdouts.  That is unfortunate but a necessary function of a broader, more robust marketplace where the very slim minority cannot act as a detriment to the vast majority.  Just as we must live with elected officials with whom we stridently disagree due to majority rule so must those forced into units live with the consequences of not signing leases at a fair market rate.

I'll playing devil's advocate here, as I don't have strong feelings one way or another.  But that, I believe, is a good counter argument from which more discuss may spring.

Permalink Reply by paleface on March 16, 2014 at 8:28pm

 In my situation I'm leased to EQT and everyone around me is leased to Shell.The two companys can't come to an agreement so I'm a donut hole in Shells drilling area.If there were forced pooling Shell could drill under me after consent from PA. DEP and would pay EQT.and I would be in the Shell unit and probably a no surface.I can't find a down side to that. 

Permalink Reply by Ragnars Repo on March 16, 2014 at 9:24pm
I'll take a jump on the springboard. To what ends? As water becomes scarce in California, can the vast majority force pool my well water? As heating bills rise should the vast majority force pool trees on my property to heat their home? The only consequence of not signing a lease at a fair rate should be the loss of royalty income. I agree we are advanced due to E&P, but that does not entitle them to something they do not own.
We tread on dangerous ground if we claim private property for greater good. The Russians once decimated the Ukrainians by collective farming. What could be more noble than pooling property to feed a hungry population? I don't believe my examples stretch this original discussion. The further we get from the defense of individual rights the more we progress to no rights, or the rights the vast majority deem in the moment. Those brought us dark moments in history like slavery and Manifest Destiny.
Permalink Reply by David Perotto on March 16, 2014 at 9:29pm

I have stated in the past, on this site, that consider the anti-fracers in this equation. For an example, an O&G company wants to create a 640 acre unit and there is one anti-fracer  holding up the formation of the unit. Lets say they hold 10% (64 acres) and they cannot form the unit without these 64 acres. Should the 90% suffer because of the 10% opposition?

Furthermore, the states want the resource to be harvested in the most efficient manner and forced pooling allows for the recovery of minerals in the most efficient, inclusive unit placement as to not waste drilling opportunity. Acreage voids are eliminated and allows for drilling pads to easily line up.

Permalink Reply by Trapper on March 16, 2014 at 11:05pm
I can see where antis could cause a lot of problems with strategically located parcels. Food for thought.
What legal standing would the ignored landowners wj mentions have? How can they be included in a unit if they were never approached in the first place? Shouldn't they be afforded the same opportunity as those who were offered leases?
Permalink Reply by Andrea Richlin on March 17, 2014 at 1:00pm

Southwest Energy has drilled a conservation well this year in Sullivan County , Pa, Cherry Twnshp . This well is called Bohensky  William 2h  and is about a 1/2 mile from my property. It used to be the csb pad owned by Chesapeake until Southwest bought it this year and changed the name to the Bohensky Pad. I obtained the well plat to see if they would be drilling under my property and saw that they were permitted to penetrate the Onandaga at 9000 ft but did not know why until I read your post, Frank.  This is really an eye opener. I read the copy of the Conservation Well Law you attached. It does say that if a royalty owner in the production unit, that is not leased with the unit operator, cant come to voluntary agreement terms , the DEP will determine terms that are fair and reasonable at a public hearing.  Those "unknown"  final terms strike fear in my heart , but at least it does not seem to be completely up to the gas producer.  I appreciate that you have brought this info to my attention . I am not in that particular unit i mentioned, but could potentionally be in a unit made on the north side of that pad, and am leased with Chief Energy.

Permalink Reply by Frank Nesmith on March 17, 2014 at 6:47pm

You are welcome. The days of large bonus checks are over if this is allowed to come to PA. And, as far as negotiating if your lease is up, you can forget that, too. 

Another point. Are they force pooling for the Utica (as in this case), or are they stuck on giving away ALL the layers of shale to the gas company that files the unitization? We all know they are drilling in more than one layer of shale in PA today, so once we are all untized, do we automatically give up the rest of the layers that we could have bargained for our signing bonuses for? 

This could be most problematic for those that are in good producing areas like Susquehanna and Bradford and Washington Counties. The driller goes back to the DEP and says, "Hey, we tried to bargain with these people. We got a good part of what we need, but there are holdouts. How about giving us the rest?".

Permalink Reply by Samuel J. Orr on March 17, 2014 at 6:34pm

Very well said, and I agree with you 100%. Obviously nobody should sign a lease without some limitation on how large a unit can be, whether that be 640 or 1280 acres.

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