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 Ragnars Repo on October 10, 2013 at 9:10am
I would hope at this point rule of capture has been explained to him and others.
Permalink Reply by FairMktValue on October 10, 2013 at 8:32am

The "rule of capture" is another outdated law that certainly will be tested at some point.

If a well bore is very close to an unleased boundary how far do the frack cracks go?  This is important because I believe the "rule of capture" law was based on the fact that gas and oil will naturally migrate through the strata. 

Frack cracking under unleased property is not natural. IMHO the cracks are a form of trespass.

This one is gonna go to court someday also.

Permalink Reply by JamesG on October 10, 2013 at 11:34am

I know it sounds unfair but oil seeps from sands and forms pools.  I have had an oil well for the last 10 years 150 feet from my property line taking oil in a pool that is surely in part located underneath my property.  I cannot do a thing but drill another well and draw from the same pool.  Your point of naturally migrate sounds good but what is natural.  The best Marcellus wells in PA have natural existing fractures that feed the man made fracture network near the well bore.  Without these pre existing fractures the wells are not  very good.  They are referred to as joints and are largely responsible for determining the orientation of the well bores in PA.  A general practical setback would be difficult to determine.  Lots of money to be made arguing in front of judges with limited backgrounds. The simplicity of the rule of capture has significant practical utility.  Defining an alternative would be difficult. 

The idea of pooling is to minimize surface damage which is a good idea.  Look at oil field pictures from 100 years ago and the surface impact. 

The alternative to solve sub surface disputes is to have the government own the mineral rights and then nobody owns anything.   This eliminates the trepass issue.  The government will do with the property what and when it wants.  This could be accomplished by heavily taxing sub surface property and make it so no private person can afford the luxury of owning property a mile below the surface.  Be careful what you wish for in the form of regulation and ownership.  I vote for the status quo.

Permalink Reply by FairMktValue on October 10, 2013 at 12:30pm

James,

 A general practical setback would be difficult to determine

I disagree. A practical setback is already essentially in use by the industry right now in the form of lateral spacing of the bores. They are experimenting with tightening up this spacing but, just for the sake of argument lets say it settles out at 400 to 500 ft.

So set at 400 ft. Yes the natural cracks will still feed the man made ones, no problem. I just would not want the man made ones trespassing on my un leased property.

 The idea of pooling is to minimize surface damage which is a good idea

Don't think that really applies to the horizontal drilling now being done. One well pad can now cover quite a bit more ground than the conventional vertical wells.

Pooling itself is still not a bad thing - I just do not want to be forced into something that benefits a small number of people that have made a decision to lease their property . If my property stands in the way of their profit, they may have just made a bad decision. 

Forcing takes away what little leverage the landowner has.

Permalink Reply by JamesG on October 10, 2013 at 2:20pm

The lateral spacing will depend on the shale properties.  This varies considerably.  This is known to be dofferent between the shale plays in Texas and Pennsylvania.  Even within the Marcellus shale the extent of the frack varies considerably between well locations SW PA and NE PA.  The seismic signals show the fracks vary considerably within the same well along the lateral.  There is no value that can be universally applied.  Perhaps a "courtesy" value of 100 to 150 feet could be applied for the setback of the well bore for the property line.  The question is in the end what does this accomplish for the small property owner? Really not much just a feel good number.  I have observed well bore offsets of 150 feet in lateral plats in anticipation potential trespass issues although not required by law.  

 

Interesting discussion but I still think worrying about small properties a mile underground is a minor issue compared to other property rights including the surface infringed by zoning which can change by the whims of a few.  After all zoning is just eminent domain without the money.  Look at the number of landowners that would like to lease their property but the larger agendas of others are denying them hundreds of thousands of dollars.  Look at the landowners in NY next to PA as an example.  Getting off topic a little.  Just do not have a knee jerk reaction to "forced pooling" and the "rule of capture".  Know where the alternative may take you and be used by others with less noble agendas.. 

 

Permalink Reply by Jim Litwinowicz on October 10, 2013 at 3:06pm

FMV; actually forced pooling has a large impact on surface disturbance.Couple years ago the Pittsburgh PG did an article on it and had two maps of Washington County, one with 20% of the land not leased and one that showed the potential if forced polling was allowed and all land in the county was produced. The one with forced pooling had approx half the number of pads, pipelines, and access roads.

When there are holdouts that don't lease, it forces odd shaped units of varying sizes. These haphazard shapes leave a lot of leased land inaccessible, makes pipelines snake around parcels, and does not allow for a repeatable pattern of development. Mkaes a mess and drives up cost.

Permalink Reply by JamesG on October 10, 2013 at 3:45pm

Good points and you are correct.  That is what happens.  This is particularly true in PA where the land is quite hilly and does not follow anything close to rectangular shapes. 

Permalink Reply by Victoria Smith on October 10, 2013 at 3:56pm

A fair balance of all interests may be to respect the unsigned owners' positions, include them in the pool with a lease including restrictions including but not llimited to no pads, roads, lights, noise on or near the unsigned owners' property and also do not use the roads bordering the unsigned owners' properties for drilling related traffic.  I know the roads are public but, in the interest of meeting an agreement with everyone, the drillers could agree to the traffic restriction.    The unsigned owners are trying to be the best stewards of their land that they can be, but in response to the collective of landowners in their community, I think an agreement outside a court mandate would make for peace rather than a court forcing perhaps every party into a compromised position that is less than ideal for any of the parties. 

Permalink Reply by Jim Litwinowicz on October 11, 2013 at 2:22am

I don't agree with not using public roads but there are a few things that can be done to reduce impact. Limit hours of heavy truck traffic to 7 AM to 10 PM.  500' setback from any property that was force pooled. No surface activity on their property. (In return for a no surface lease, companies usually will pay a smaller bonus, often 50% of other leases. So people forced pooled should be paid 75% of the most recent bonus paid to others in unit) Multiple water tests after completion.....maybe quarterly for two years once well is in production. More tests if well is reworked.

Permalink Reply by JamesG on October 11, 2013 at 3:44am

If the setback of 500 feet appilies to surface activities, then what you describe is petty much what we now have in PA.  The PA Act 13 500 feet appiles to dwellings currently but not property lines.  The activity in our area is limited from 7 AM to 7 PM 6 days a week and none on some holidays.  No truck traffic within 15 minutes of any school bus travel.  Any change in well quality and quantity within a year is assumed to be the fault of the operator and must be replaced at operator expense per Act 13. Sound levels at any property boundary must be less than 60 db.  Sound studies are approved in advance before the start of pad construction.

 

This is what we now have.  I think it is difficult to ask for much more from the operators.  It is hard to think of other activities so controlled. 

I think your proposed lease terms with no surface activity would be accepted by most operators for small parcels  The trick may be obtaining details of the other leases that are not just rumors or bragging.

Again the issue of forced pooling is to some extent an issue to just stop drilling period and used to stir up landowners.  It is like a magic act that diverts the attention from the real agenda of those that wish to dictate and control energy policy for their own varied purposes.  Off topic but has some truth.

Permalink Reply by Trapper on October 11, 2013 at 10:43am

Interesting to see Ms. Matteo mentioned in the New Castle News today as being discredited for making false claims pertaining to drilling in Pulaski Twp.,Lawrence County,PA.............fractivist? One never can be too sure about some people's motives I guess..............

 

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