Forced pooling to be tested in PA.

http://triblive.com/business/headlines/4828098-74/hilcorp-pooling-g...

Don't like this at all. Landowners are gonna take some hits if this becomes common.

Bob Svetlak has lived on his family's Lawrence County homestead since 1949, and none of it's for sale — not his house, not his trees and certainly not his gas rights.

But he may not have a choice about the gas.

Hilcorp Energy Co. has taken legal steps to access natural gas beneath the 14.6 acres Svetlak owns near the Ohio border without his consent, arguing a law more than five decades old gives it the right to combine his land with others into a drilling unit.

If Hilcorp succeeds, it would be the first time in Pennsylvania's shale boom that a driller used the tactic, and it could lead to more widespread use.

“I didn't buy this land to sell it,” said Svetlak, 73, of Pulaski. “I bought it for peace and property, like a lot of people in this country. I live here for the tranquility.”

Hilcorp is using a legal maneuver known as forced pooling, in which neighboring plots of land are combined into a single unit for drilling. In geologic formations deeper than the Marcellus shale, the 1961 law allows drillers to combine gas rights into pools, even if property owners oppose.

Any use of forced pooling likely will ignite a public outcry. Attempts to extend broad pooling powers to Pennsylvania's Marcellus shale drillers have been met with swift opposition — even Gov. Tom Corbett, a supporter of gas drilling, opposed the idea in 2011, calling it “private eminent domain.”

“I've kind of been waiting for this situation to come up,” said Ross H. Pifer, a Penn State University law professor who follows shale drilling legal issues. “I think a lot of people will be surprised to recognize that Pennsylvania does already have compulsory pooling.”

Svetlak's property is part of 3,267 acres in Pulaski and neighboring Shenango in Mercer County where Hilcorp wants to drill. The area has not attracted much drilling, but Hilcorp wants to tap the Utica shale, a geologic layer thousands of feet below the Marcellus.

The company acquired the right to drill on all but 35 acres, which includes at least four properties whose owners don't want to lease or who leased with another company, according to the Aug. 26 filing Hilcorp made to the state Environmental Hearing Board.

Hilcorp spokesman Justin Furnace declined interview requests. He wrote in an email that the company spent months negotiating and made “good-faith” attempts to lease every tract.

Kevin Colosimo, a lawyer for Hilcorp, said he anticipates no obstacles to Hilcorp's request that a judge in Pittsburgh will decide.

‘NOT ABOUT THE MONEY'

Hilcorp has its supporters.

Among them is Martin “Bruce” Clingan, 71, owner of the 200-acre Clingan's Tanglewood Public Golf Course. Clingan, whose home is on the Pulaski golf course property, said it's unfair for a few small-parcel owners to block him from getting the most from his property.

“I paid taxes on this property for probably 60 years,” Clingan said. “And I thought, ‘Well, maybe the ground owes me a little bit of something — moneywise — back.' If anybody tells you it's not the money, they're crazy.”

Clingan said he signed a deal with Hilcorp in 2010 for about $650,000 in upfront bonuses plus 18 percent royalties.

Colosimo argued in Hilcorp's complaint that pooling protects landowners from losing their oil and gas to neighboring wells that don't pay them. The holdouts would get paid an amount set by the court.

“It's not about the money for us. We want peace; we want clean air. And now (drilling is) going to be forced on us,” said Suzanne Matteo, 36, of Pulaski. “It's almost like Hilcorp is bullying me and targeting me and other landowners. It doesn't seem constitutional.”

The Matteo family has four acres of land on which they planted a small garden of corn, soy and sunflowers. They don't want the industrial work of a drill site with traffic, lights, noises and smells close to their home, she said.

Matteo said her family's property lies within the boundaries Hilcorp outlined in its court filing, but she said the company won't tell her whether it is indeed part of the drilling unit. If so, she wants to fight it.

THE ONONDAGA DIVIDE

Forced pooling laws of varying strength exist in nearly 40 states, according to a 2011 count by ProPublica, a nonprofit investigative news agency. Most laws were passed in the middle of the 20th century to promote conservation and end the days when derricks competed literally side by side to slurp oil from the same pool.

Hilcorp is targeting a rural area, far from hot spots of the shale gas rush. The Utica shale isn't as popular in most parts of Pennsylvania because of its depth and lack of liquid gases that bring in more money.

Hilcorp claims its target is more than 7,400 feet deep, a shallow part of the Utica. Its one test well averaged about 1.8 million cubic feet of gas and 33 barrels of oil a day for about four months this year, state records show.

Experts say forced pooling applies to the Utica but not the Marcellus in Pennsylvania largely because of history.

When Pennsylvania passed its law, the state's oil and gas industry rarely drilled below the Marcellus. Lawmakers chose the next layer down, the Onondaga, as a compromise to promote conservation in future drilling without upending industry practices, experts said.

But new technologies — sideways drilling combined with the rock-cracking hydraulic fracturing — changed drilling and revived a dormant industry, with target zones coincidentally on either side of the Onondaga divide. Hilcorp's Utica target lies 3,800 feet below the Onondaga.

State records show companies drill about 100 horizontal wells a month into the Marcellus. The Utica's depth in Pennsylvania makes it more expensive to reach, but it's rich enough with gas to make it potentially profitable.

“I don't see any logic in having pooling in one (formation) and not having it in the other,” said Louis D. D'Amico, a pooling supporter and leader of the Pennsylvania Independent Oil & Gas Association. “I think it's foolish.”

REVIVING A CONTROVERSY

Little attention has been paid to existing pooling laws, but when drillers wanted to extend them to the Marcellus formation, many people jeered the simple concept of giving up land for drilling against their will — even if they get paid. They found allies in some environmental groups eager to block drilling.

Rep. Garth Everett, R-Lycoming County, suggested a comprehensive pooling law in 2010 but backed off when he “got beat to death over” it by constituents, he said in a July interview.

The Hilcorp case could become a tipping point, spurring outrage or giving proponents a chance to show a well-run system can benefit drillers and landowners, experts said.

Hilcorp claims the hearing board, led by the Downtown-based Chief Judge Thomas W. Renwand, has until mid-October to announce a hearing date.

Getting money won't be enough to please Svetlak, a retired millworker. His house dates to the 1800s, and he doesn't want his fields or woods to change.

“I happen to like what I've got,” Svetlak said. “I don't want to look outside and see dozers and oil tanks. ... And I may have to someday.”

Timothy Puko is a Trib Total Media staff writer. Reach him at 412-320-7991 or tpuko@tribweb.com.



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Replies to This Discussion

Permalink Reply by Lance Nimmo on October 7, 2013 at 5:53am

What, trying to hold a property owner liable for not wanting drilled under doesn't fall under that classification? LMFAO

Permalink Reply by Dave on October 8, 2013 at 11:34am

I spoke to a pipeline worker about my area.  All my neighbors signed for 5750 a acre except one.  He turned down over a million dollars.  The pipeline worker called him a fool, I have to agree.  Eventually forced pooling will come into play.  It is called greed, but not on the part of land owners.  It will be greed from the govt. to get every penny they can from the land owners by starting forced pooling.  If people don't sign they wont be able to be taxed.

Permalink Reply by FairMktValue on October 8, 2013 at 12:46pm

Dave,

I believe you are correct -It will be greed from the govt....

But not to get every penny of tax money, but to get every penny of re-election contributions from the O&G companies. Landowners are a small part of the electorate and will not contribute anywhere near the cash that O&G can. Property rights will get stomped on just so long a Joe Politician can stay in office.

As for your neighbor that turned down a million - perhaps he is a fool. I respect his right to do what he wants with his property . This is the USA - we are free to be fools !!!   lol

Permalink Reply by Ragnars Repo on October 10, 2013 at 3:31am
You are correct sir. Is the collective more important than the individual? I certainly hope not. My right to swing my fist ends at your nose, I may not like my neighbors decision but its not my property. Oil and gas companies extract product in many complicated ways, you mean to tell me they are not creative enough to get around 17 acres? If fellow landowners do not like someones decision to hold out they could offer to purchase, at a handsome price, their neighbors land. This discussion should be at the forefront of this site as it is an incredibly important issue. Do private property rights exist or are they also looked at like a democracy? The majority has spoken.
Permalink Reply by Travis Keefer on October 8, 2013 at 3:20pm

This thread is very interesting, Hilcorp has leased over 3200 acres and yet 35 acres are what they are attempting to force pool. 1%, and landowners on this site are going to bat for that 1% who are keeping the 99% of landowners from profiting from their perspective leases. Yet the 1%"Bureaucrats"in New York are constantly bashed on this site for keeping the 99% of New York landowners from being able to profit from the shale beneath their properties. Hmmm just food for thought, The math just doesn't seem to make sense to me, I for one don't believe a landowner with 4 acres should decide the fate for a landowner with 600, when that 4 acre landowner's property won't even be touched, to much like government for me

Permalink Reply by MJ on October 8, 2013 at 3:54pm

We are lucky that we can own the mineral rights at all in this country!  Governments in other countries "own" all mineral rights.  And Travis,  small landowners do not determine policy over larger landowners.  In most cases, forced pooling can only occur when 90% or more of acres in a drilling unit are already under lease by the driller - and has to be reviewed and approved by the ODNR or in this case - the DCNR in PA.  All this is IMHO.  No individual landowner is going to affect any other in this "play".  You own 1000 acres or 0.1 acre does not matter to the industry.  It only matters when they put a unit together.  I have seen landowners with less than 0.04 acre in a drilling unit. Again In My Humble Opinion

Permalink Reply by Travis Keefer on October 8, 2013 at 4:17pm

agreed, but when that 4 acres is in a unit of 600 and that landowner wont sign a lease for whatever their beliefs or intentions may be, i dont feel the other 99% of the unit should suffer because of a single less than 1 % hold out. force pooling is a double edge sword, which will undoubtedly be misused by some companies and needed by others. . . just saying it can be a good thing for the majority if all else fails

Permalink Reply by Thomas Lilli on October 9, 2013 at 12:34am
The way I see it, forced pooling really impacts the ability of individuals from negotiating leases. Why bother when they can tie up units with a fraction of bonus payments.

If royalty holders fear a very small minority halting production, Drilling companies can also exclude people from a unit.

I see far more damage to royalty holders ability to negotiate lucrative bonus.
Permalink Reply by lessor pa. on October 10, 2013 at 5:52am

Something to think about. A new well was proposed ( not drilled ) they formed a 640 acre unit. They forgot about 2 acers right in the middle ( me). When they found out they contacted me with a boiler plate lease. We talked they said they would make changes. They resubmitted the same lease to me again. After numerous contacts they seem to stop negoiating because I wanted the same protection as everyone else wants. I'm sick and tired of their threats to go around me etc...  Yes I want to drill as much as anybody else but no one is going to take from me what I worked so hard to get. A laywer told me .... you will spend all your time just trying to keep what you already have.

Permalink Reply by JamesG on October 10, 2013 at 6:20am

It is interesting to read hypothetical cases of forced pooling.  But the article cites a very small acreage (14.6 acres).  What happens in SW PA right now is if a small property is not signed the well bore just misses the small property but the frack will remove the gas or liquids from under the unsigned property.  This is the "rule of capture" in the state of PA.  This has been the law for +100 years. Then what happens is the extracted gas in the well from the unsigned property is distributed between the signed landowners and operator per their lease agreements.  So the net effect the unsigned landowner loses his property never to be compensated.  This is the most likely case for a small landowner who refuses to negotiate.  He just loses out.  It would be an unuusal situation where a small property is critical.  Most operators try to avoid this situation by offering a nominal lease.  "Holes" in a unit are a nuisance. As for future value of the gas in a small property surrounded by other property held by production by a single operator,  not too much.  No other operator can drill just holding a small property.  It may have some increased value in the future due to inflation and market conditions if the operator in the future develops another shale layer.  More likely any further future development will just avoid the sub surface property again.  As long as there is no surface disturbance, forced pooling for SMALL acreages could be view as providing some compensation for those that otherwise are just giving away their sub surface property.  I have had to deal with this issue.  The key to fairness is what are the minimum conditions the operator must have before forced pooling takes place (90% of acreage) and what is the fair compensation for the unsigned landowner.

Permalink Reply by Ragnars Repo on October 10, 2013 at 7:46am
The fair compensation in Mr Svetlaks case would seem to be that his property is un disturbed.
Permalink Reply by FairMktValue on October 10, 2013 at 8:35am

Completely undisturbed - no frack cracks!!!!    see below

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