The Problem with PA SB 259

SECTION 2.1. APPORTIONMENT.

WHERE AN OPERATOR HAS THE RIGHT TO DEVELOP MULTIPLE CONTIGUOUS LEASES SEPARATELY, THE OPERATOR MAY DEVELOP THOSE LEASES JOINTLY BY HORIZONTAL DRILLING UNLESS EXPRESSLY PROHIBITED BY A LEASE. IN DETERMINING THE ROYALTY WHERE MULTIPLE CONTIGUOUS LEASES ARE DEVELOPED, IN THE ABSENCE OF AN AGREEMENT BY ALL AFFECTED ROYALTY OWNERS, THE PRODUCTION SHALL BE ALLOCATED TO EACH LEASE IN SUCH PROPORTION AS THE OPERATOR REASONABLY DETERMINES TO BE ATTRIBUTABLE TO EACH LEASE.

From Marcellus Shale Law Monitor

My concern is that section 2.1 may be construed to allow these old leases that don’t have a pooling provision (but don’t expressly prohibit it) to be included in a pooled production unit that will be developed with horizontal drilling – without the lessor’s agreement to amend the lease to allow Marcellus pooling. If this legislation becomes law with section 2.1 included, the result may be that the legislature will have effectively eliminated the impacted landowners’ ability to negotiate landowner-friendly terms or a higher royalty into a lease amendment. This would be a terrible result from the perspective of NARO-PA.

In addition, the verbiage in the last sentence of the section providing that production shall be allocated “as the operator reasonably determines to be attributable to each lease” appears to be deliberately vague and has the potential to invite abuse.

I don’t believe this result was the intention of the state legislators who voted in favor of SB 259. Admittedly, the language in section 2.1 is somewhat confusing. The title notwithstanding, I don’t see the focus of this section as “apportionment”.

 

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Permalink Reply by Joseph-Ohio on July 9, 2013 at 6:47am

Similarly, in Ohio, the ODNR has authorized 'Forced Pooling' of old leases and even as we understand it, un-leased properties into a Utica Class long horizontal bore drilling unit.

What can Ohio landowners do ?

Who can we contact to avoid this becoming S.O.P. in Ohio ?

Regards,

J-O

 

Permalink Reply by Frank Walker on July 9, 2013 at 7:37am

Thank you, Keith.  This bill is a disaster for us landowners:

Attorney Dale A. Tice pulls back the curtain on SB 259

The only people posting here in support of this legislation are working overtime for the gas companies.

Permalink Reply by Mark McGrail on July 10, 2013 at 3:14am

Keith,

I hope you are correct that the intention was not to erode land owner rights.

So we must write all those who voted for this and explain the problem we perceive.

The we should ask that the language be modified.

This just occurred in Ohio. Section 1509.28, Unitization, appeared to give companies carte blanche to force  certain land owners into drilling units. This was due to it's ambiguous language.In fact it had been by a company used successfully , more were lining up to use it.

However, through a grassroots lobbying effort we were able to get clarification.

We did not get the wording of the law changed, we were able to get the ODNR to issue rules of clarification as to how unitization may be applied.

The same should occur in PA.with regard to SB 259. At first we could ask legislators to pass the language  in the form of legislation. At the same time we could lobby the DEP to issue the rules as part of the permitting process.

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