Forced Pooling: When Landowners Can’t Say No to Drilling

by Marie C. Baca, Special to ProPublica May 19, 2011

As the shale gas boom sweeps across the United States, drillers are turning to a controversial legal tool called forced pooling to gain access to minerals beneath private property–in many cases, without the landowners’ permission. Forced pooling is common in many established oil and gas states, but its use has grown more contentious as concerns rise about drilling safety and homeowners in areas with little drilling history struggle to understand the obscurities of mineral laws.

Joseph Todd, who lives in rural Big Flats, N.Y., wasn’t especially concerned when he learned in 2009 that his half-acre property had become part of a drilling unit. But when methane gas showed up in his drinking water well after the drilling began, he became outraged, describing forced pooling as “eminent domain for gas drillers.” “We never wanted to be a part of the drilling,” he said. “To have something like this happen is beyond frustrating.” Todd and some of his neighbors are now suing the company that is drilling near their neighborhood, even though no link has been proven between drilling and the contamination of their water.

People who see forced pooling as an infringement of property rights also tend to oppose the practice, including Pennsylvania’s Republican governor, Tom Corbett, who has otherwise been a staunch supporter of the drilling industry.“I do not believe in private eminent domain, and forced pooling would be exactly that,” Corbett told a group of nearly 400 drilling industry representatives and supporters last month. He also said he won’t sign pending legislation that would allow forced pooling for drilling in Pennsylvania’s gas-rich Marcellus Shale.

Forced pooling compels holdout landowners to join gas-leasing agreements with their neighbors. The specific provisions of the laws vary from state to state, but drillers are generally allowed to extract minerals from a large area or “pool”–in most states a minimum of 640 acres–if leases have been negotiated for a certain percentage of that land. The company can then harvest gas from the entire area. In most cases, drillers aren’t allowed to build surface wells on unleased land, so they use horizontal wells or other means to collect the minerals beneath those parcels.

Thirty-nine states have some form of forced pooling law. West Virginia and Pennsylvania each have measures that don’t apply to drilling in the Marcellus Shale, and proponents are trying to expand the laws in those states. (Check out our chart of forced pooling laws across the United States.)

In New York, the owners of 60 percent of the acreage in the proposed drilling unit must agree to lease their land before the state oil and gas board will consider a driller’s petition for compulsory integration, as it is known there. In Virginia, only 25 percent of the land must be leased. In all states with such laws, drillers must notify all the landowners within the prospective drilling area of their right to participate in a hearing before the oil and gas board, or whatever regulatory agency the state has set up for that purpose.

If the board approves the driller’s petition, holdout landowners typically have three choices: contribute to the cost of the well and share profits from the sale of the gas; don’t pay for the well and share the gas profits after a “risk aversion” penalty is subtracted, or receive a state-mandated minimum royalty payment. Landowners who choose none of these options are automatically enrolled in the last plan. Opting out is not a possibility.

Gas companies argue that forced pooling allows them to build fewer wells and harvest gas efficiently, creating tidy drilling parcels as opposed to a patchwork pattern of leased and unleased land.

Forced pooling is also supported by landowners who fear that drilling companies will place wells near their property and siphon off their gas without payment. Another group of supporters includes people who own the surface rights to their property while someone else owns the mineral rights–a situation known as a “split estate.” Although these landowners usually aren’t entitled to any payment, some forced pooling laws compel drillers to compensate them, too.

The complexities of forced pooling can be seen in Big Flats, a town of about 7,000 in Chemung County, in the southern tier of New York. Gas drilling has provided a huge boost to the county’s economy, said budget director Steven Hoover, bringing in $30,000 to $40,000 a year in royalties and more than a million dollars in bonus payments from land the county has leased to drilling companies. That money, along with savings in other areas, has allowed Chemung County to cut property taxes over the last few years, Hoover said.But Joseph Todd thinks struggling communities like his are too willing to accept the erosion of residents’ property rights in exchange for an influx of cash.

In 2009, he and his wife Bonnie received a letter from the state informing them that Anschutz Exploration Corporation would be allowed to extract gas from beneath their land.

At first, the Todds didn’t think much about it. No construction crews visited the modest ranch house where they had lived for more than 20 years. No heavy equipment materialized in their backyard. A horizontal well was built less than a mile away, but from the road its operations were almost invisible.

Then in September 2010 the couple discovered mud and methane in their private water well. Methane, the largest component of natural gas, isn’t toxic, but it can be explosive if it accumulates.

“We’ve lived in this house for 22 years without any problems, and suddenly the water turns dirty and fizzy and can be lit with a match,” said Todd, a firefighter.

After hearing about similar water problems near drilling operations in Pennsylvania, the Todds began to wonder if their dirty water–and the water problems that had simultaneously cropped up at nine neighboring homes–could be traced to the nearby drilling.

Denver-based Anschutz and the New York Department of Environmental Conservation both say the water problems aren’t related to drilling. But in February, the Todds and their neighbors filed a lawsuit in Chemung County State Supreme Court, accusing Anschutz and its subcontractors of negligence in the drilling, construction and operation of the wells, causing the families to be exposed to combustible gases and toxic chemicals, and reducing property values. They are seeking millions in damages.

Anschutz spokesman Jim Monaghan said the company abides by state law and has committed no wrongdoing.

Joseph Todd says he’s angry, not just about his contaminated well water but about the compulsory integration law that made it easier for drilling companies to move into his neighborhood. He said he has spent thousands of dollars on bottled water and laundromat fees–and that the royalty payments he’s supposed to receive, even as an unwilling participant in the nation’s natural gas boom, haven’t begun arriving yet.

ProPublica’s Nicholas Kusnetz contributed to this report.

Correction (May 19): This story has been corrected. It should have made clear that state regulations in New York and Virginia require drillers to lease a certain percentage of the acreage in a drilling unit before forced pooling or compulsory integration can occur, rather than a percentage of the landowners. May 20: This story originally said 38 states have some form of forced pooling law. Actually, 39 states do.

To read this article in full online, click here:

http://www.propublica.org/article/forced-pooling-when-landowners-cant-say-no-to-drilling

To read what Governor Corbett told the 400 drillers, click here:
To view ProPublica’s chart of forced pooling laws across the USA, click here:
To read the Marcellus Shale Coalition’s take on forced pooling, which they term “fair pooling”, click on these links:
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House Bill 2235

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The Pennsylvania House of Representatives will consider Rep. Vitali’s House Bill 2235 this week. The bill would place a 5-year moratorium on new leases of State Forest to natural gas drillers.  The five years would give DCNR time to study the impacts current drilling leases will have on the environmental, economic and recreational values of our State Forests.  After the moratorium ends, the bill would allow DCNR to lease further lands only if DCNR determines that such leases can be done without threatening water and air quality, habitat, ecosystems, recreational, social and asthetic values of the forests.

Call your PA Representative and ask them to
1. support the moratorium bill, and
2. vote against weakening amendments.

Find your representative’s contact information.  Just use box labeled “Find Members By” in the upper-right hand corner…

Background:

One third of our state forests are already open to natural gas drilling.  Without careful scientific study and planning, we can’t know what additional drilling, if any, can occur without harming our publicly owned forest’s environmental, economic and recreational values.  Our state forests are one of our greatest public assets, protecting our highest quality streams, providing public recreation, supporting tourism, and providing a sustainable timber supply.  As such, we should exercise balance and restraint when considering making additional lands available for drilling.

Several amendments have been filed which seek to weaken the moratorium proposal, mainly by shortening the moratorium to 1 year.  The moratorium needs to be 5 years to yield enough data to meaningfully understand the cumulative effects of drilling in our State Forests.  To date, there are only 9 Marcellus wells in production in State Forests; however, 2000 more are expected to be drilled in the next 5 years.

No private lands will be affected by the moratorium nor will any State Forest land already leased.

The moratorium would take effect after the additional leasing of state forests already planned by Governor Rendell for the 2010-2011 budget (which is expected to yield $112 million).

For more information, please call 717-230-8560.

PA Gas Lease site has great info!

I just found this site.

http://pagaslease.com/

It has a lot of great information about leasing your land to the gas industry. If you have time listen to the interviews with Sandal and his wife and hear about their experience, it is worth it. If you already have a well or are thinking about it this site might be a very useful tool to help you make informed decisions. It also has forums for discussion where you can ask your own questions of folks who currently have leases and pictures of the entire process.

A Tale of Two Cities

This is an article from the Star Gazette by Tom Wilbur that does a pretty good job of explaining or foreshadowing what could happen for many PA residents who are leasing their land to the gas industry. There is no way of knowing from the beginning what sort of troubles may arise, and in some cases people have had no problems what-so-ever and are very happy with their experiences. I am finding that some of these gas companies are better to work with than others. Most of the trouble we have seen reports on comes from the north eastern section of PA where Cabot Oil & Gas has created many catastrophes for residents with wells. At this point I’m not sure why you would sign on with Cabot at all. I am trying to do do some checking and researching on the gas companies that are drilling in PA and will see if I can come up with a list of the better ones (and the reasons why) for folks that are considering leasing land.

http://www.stargazette.com/article/20090919/NEWS01/909190346/Marcellus%20Shale%20%20A%20tale%20of%20two%20cities?GID=8kLy/Ugp5it1g9QfS1tH3gPDJ2FECM17pGWwoR/KHiQ%3D

Compulsory Integration?

I was wandering around a few of the websites I frequent for info about natural gas and came across this term. “Compulsory Integration”. I was completely unfamiliar with it so I thought I’d look into a bit and see what I could find, and if the findings were interesting enough, share them with all of you.

Compulsory Integration is what happens when multiple land owners in an area sign leases with a gas company and someone in the middle of this block chooses not to sign a lease. It is sometimes referred to as ” eminent domain”.  At this point the drilling companies are given the ability by the state to take the gas from under a plot of land that the owner does not wish to sell.

I found a lot on this topic for NY state but very little for PA. As far as I can tell from what I did read, eminent domain is not being used in the state of PA at this time, but it is in NY state. If anyone has more information about this topic, especially in regards to PA, please let me know. I did post a few links that had good info on the topic and land lease agreements below.

This link is to an article from a magazine that includes an interview with an agriculture expert in NY state. They discuss this topic a bit in the article.

http://magissues.farmprogress.com/AMA/AM07Jul09/ama008.pdf

This link offers a good overview of what the land leases may or may not include and concerns to think about and consider prior to signing a lease. It does talk about compulsory integration.

http://www.docstoc.com/docs/2133197/gas-leases