Here We Go Again
by Scott Windom
A couple weeks ago, Delegate Woody Ireland was a featured speaker at two “educational meetings” on forced pooling held by the WVU Extension Service in Ohio and Doddridge Counties.
The meetings were not the picnic hoped for by politicians carrying water for the oil and gas companies. Instead, members of the public asked pointed questions about why the last bill was so slanted in favor of the industry, and why did Del. Ireland and his fellow supporters oppose any amendments to protect the people’s right to have their cases heard in their own local communities.
This year the Marcellus Shale forced pooling bill (House Bill 2688) was defeated on a 49-49 tie vote in the waning hours of the session. It’s clear that industry supporters will try to pass forced pooling legislation again, either in a special session or during the next regular session.
We are in the midst of an energy boom. There is more Marcellus gas under our feet than we can ship to market. Untapped reservoirs of Utica Shale gas are anticipated to dwarf the hugely profitable Marcellus wells.
West Virginia has had a forced pooling statute for the “deeper” formations below the Onondaga Limestone for two decades. That law, which benefits only the oil and gas companies, requires hearings on forced pooling to be held before the part-time, politically appointed members of WV Oil & Gas Conservation Commission.
Last year, they held a total of three forced pooling hearings for the entire state.
By contrast, in the past three years in Ritchie and Doddridge Counties, more than 80 lawsuits have been filed by Antero Resources involving “unknown heirs” or the partition sale of oil and gas interests owned by folks who would not lease on the company’s terms.
If those 80 cases were sent down to Charleston for hearing before the O&G Commission, it would be completely overwhelmed. Add the other companies that routinely file such suits, like EQT, and multiply that by the number of oil and gas producing counties in the state. It becomes clear that the O&G Commission will be a full time job for anyone unlucky enough to serve there.
HB 2688 was a slick attempt by the oil and gas industry and its politicians to pull a fast one on the legislature and the citizens of West Virginia. It offered small concessions to land and mineral owners, but greatly favored the oil and gas industry. Why the rush to pass a new Marcellus forced pooling law?
Oil and gas exploration has slowed significantly in past months. Natural gas prices are down--due in part to the glut of gas from the last five years of drilling. Many companies are holding leases that will expire before they can be drilled.
Let’s step back and take a breath. Let’s look at the options. Let’s work on a pooling bill that works for everyone, and is fair to everyone.
Forced pooling lumps oil and gas owners into large tracts of leased acreage, which are organized into drilling units. Royalty is paid on the percentage of total ownership held in the pool.
For instance, if you own 32 acres of oil, gas and minerals, and your property is placed in a 320 acre unit, you would receive 10% of the royalty paid for the entire 320 acre unit--at whatever royalty percentage you negotiated in your lease.
But what if your 32 acres is not entirely within the unit? What if you only have 3 of those acres in the unit? Your other 29 acres are going to be drained by the wells producing the unit, and you will only be paid 1% of the total production while all of your oil and gas is being produced.
Then there is the issue of what royalty percentage is actually paid to the oil and gas owner. The old industry standard was a fractional 1/8, or 12.5% royalty.
In some old leases from the early 1900’s, gas wells paid a flat rate royalty of $300 per year. That was a nice royalty income when public school teachers made about the same in yearly salary, and nurses made much less.
In 1912, a Model T Ford cost less than $600. If you were a school teacher with a gas well on your farm, you could buy a new Model T every two years with your flat rate royalty payments. Today, that same $300 royalty wouldn’t fill your car up with gasoline for a month.
While HB 2688 attempted to place a floor on royalty payments, it also set an artificial ceiling on how much mineral owners could receive as well.
In any such legislation, royalties should be negotiated on what the market is currently paying for new leases. No calculation should include existing leases with a 1/8 royalty because, if you are forced into a pool, the companies should be required to pay you the best rate for what your oil and gas is worth. Anything less amounts to taking something for almost nothing.