Forced pooling

The Pa Shale Commission has recommended forced pooling for Pa, one of the few states that doesn't have it.  The Post Gazette ran an article on it here  http://www.post-gazette.com/pg/11219/1165798-503.stm which included two charts that were very dramatic in demonstrating the potential differences.

 

http://www.post-gazette.com/pg/images/201108/20110807pooling_b381.png

 

http://www.post-gazette.com/pg/pdf/201108/20110807pooling_a.pdf

 

Pa has forced pooling for the Utica which is huge for western Pa landowners but I do not know how the process works or which governmental agency controls it.

 

 

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Permalink Reply by cheliped on August 8, 2011 at 5:24am
those charts are interesting and seem to make sense.  also looks good for drilling companies.  So why is forced pooling bad?
Permalink Reply by craig on August 8, 2011 at 6:01am

I was under the impression that this was only a reccomendation by the Commision. We don't have forced pooling yet, and the governor said he would veto it. Maybe I'm missing something along the way.

 

Permalink Reply by Jim Litwinowicz on August 8, 2011 at 6:09am

There is and has been forced pooling for deeper strata below the Marcellus/Chert layers. I don't know how it works though.

 

The Shale Commission recommended forced pooling in its report. The Gov recently said he may consider it only for lands that are all under leases but with different companies that cannot come to an agreement. Ex; Company A has 70% of a township under lease, Company B has 15% and 10% are not leased. Company A wants to drill a couple of units but Company B will not swap enough property for A to establish economical units. The Gov says he may support a bill to force the leased lands into a unit but not lands not under lease.

 

lara;  Its a matter of ownership....does the state have the right to forcibly take one's property? People are afraid that this will be just the first step of a government power grab.

Permalink Reply by cheliped on August 8, 2011 at 8:41am
understand the goverment thing - however if most people in a 640 acre unit sign a lease and one person in the middle and one peson on either end can ruin it for everyone.  How many poeple are for drilling and how many against?
Permalink Reply by Ann Ticopa on August 8, 2011 at 4:12pm

It's a slippery slope when government starts allowing "the majority rules" and maximizing corporate profit to  over-ride individual rights.  If gascos are permitted to force pool, why shouldn't coal companies be able to longwall mine unleased property?

 

 

Permalink Reply by cheliped on August 9, 2011 at 12:02am
if 90% of the individual land owners agree - i do not see a problem.  this is the only way i see pooling used.  I do not think it is right for the government to allow gascos free range in areas where nobody signs.  I still dont understand why someone would not sign! especially with the Utica forced pooling law.  
Permalink Reply by Ann Ticopa on August 9, 2011 at 5:57am

What if the landowner is not satisfied with the terms of the lease the gasco is offering?   I'm in northcentral PA, where there was conventional Trenton/Black River development preceeding Marcellus shale development.  The initial offer in 2000 was a 10-year lease with $5/acre bonus.  In 2005, the bonus offer went to $50 and the lease term to 5 years, with the provision that all the leased acreage could be held past the primary term by including a portion of it in a declared unit and "initiating" development.   By late 2007, the bonus offer was $200 and in mid-2008 it jumped to $1500.

It's understandable that some landowners who signed for a low bonus are suffering from seller's remorse.  But it was their free choice to sign leases when they did ... or not.   Had there been forced pooling, force pooled landowners would have been denied the choice of waiting for a better offer.

.

Permalink Reply by craig on August 9, 2011 at 6:52am

Had the folks that signed up originally for $5/acre not done so, your area may have not been developed at all. Kinda a catch 22 situation. No one will pay top dollar for something that has no, as of yet, determined value. Waiting too long and asking too much will force the companies to move onto greener pastures. I've seen a few folks left out locally because they waited and waited and waited. Now they don't have to wait any longer, because they are not going to be leased, they are drilling right around them.

It is a tough nut to crack as when to lease. Do what you think is right, and  live with your decision.

 

 

Permalink Reply by cheliped on August 9, 2011 at 7:54am
still dont understand why someone would not sign?  couldnt a gasco drill in the utica wherever they wanted?  if they are told no in the marcellus they could just say we will drill the utica.
Permalink Reply by Jim Litwinowicz on August 9, 2011 at 9:30am

First, some people are against any drilling and wouldn't sign no matter the money. Second,the Utica is an unknown, unproven shale. No one knows for sure where the shale is productive and where it is of little value. They need to drill a lot of exploratory wells to determine the most productive areas.

 

Also, what lease terms are used when one is forced pooled? How would the financial issues be determined?  Would there be a Pugh Clause? What about deductions for process on the royalty payments? If a company applies for a Utica forced pooling, does that also grant them other strata that may be deeper?

 

And the Utica and Marcellus do not overlap perfectly.  Some areas of the Utica, especially in the eastern parts of Pa are assumed to be worthless because of their depth and age. Some areas of the Utica are dry gas which doesn't bring the premium they are after. Where the Utica seems best, the Marcellus is very thin.

 

Now if they gain the right, via forced pooling, to drill the Utica can they also drill the Marcellus?  I don't know for sure but I doubt it. They are 2500 to 4000 feet apart. Can't drill both from same well. And since the Marcellus can't be forced pooled....yet.....then it should be off limits even if the Utica rights are acquired by forced pooling. But that is a good question.

Permalink Reply by Ann Ticopa on August 9, 2011 at 9:28am
You're probably correct in the limited sense that there has been earlier drilling here because of existing leases than there would have been otherwise.  But it was primarily to hold the leases, not to market the gas.  The majority of the wells have been vertical and single horizontals, which were then shut in.  The more intense development activity has been in counties with thicker Marcellus Shale ... the "sweet spots".  

"Do what you think is right, and  live with your decision."
Forced pooling would over-ride the landowner's ability to decide if/when to lease. 

Understood that there is risk in waiting; like the stock market, prices go up/down.  But I don't buy that once a landowner is drilled around, he/she is toast.  The price of natural gas will trend higher.  At some point the gascos will return to areas with infrastructure in place to refrack existing wells and drill fill-in wells.  While I don't agree with some gasco tactics, I don't think the companies would pass up a chance to make $$ out of spite.
Permalink Reply by craig on August 9, 2011 at 10:06am
Only the future can tell us the answers.

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