Industry Backed Bill Could Force Mineral Owners to Sell

As lawmakers return to town this week for their final interim session of 2014, they’ll learn more about a practice in the natural gas industry companies want them to approve through legislation: forced pooling.

Kevin Ellis, president of the West Virginia Oil and Natural Gas Association, explained to lawmakers during a November meeting, when companies prepare to drill a well they create a giant rectangle of land parcels and then negotiate with each mineral owner within that rectangle for their gas rights.

By pooling these owners together, companies can drill a well and then pay out mineral owners proportionally by land acreage for the gas produced.

But Ellis said there are two common problems companies run into when trying to negotiate well contracts. The first is missing owners. Companies research to find mineral owners, but sometimes they just can’t track them down. The second are owners who refuse to negotiate.

When either of those situations occur, a company’s only recourse currently is to go to court, but forced pooling would give gas companies another option. 

The bill Ellis presented to legislators for their consideration states if two thirds of the landowners within that parcel can be found and agree to the drilling, forced pooling would allow companies to take their proposals to a state review board for approval and, if they get it, allow them to drill without all of the mineral owners’ permission.

The companies would still have to pay those mineral owners, but forced pooling allows the gas company a way around a difficult negotiation. 

clearly from a time perspective, it’s always preferable to be able to reach contractual voluntary negotiations and agreements with land and mineral owners to do this work,” Ellis said, but it’s not always possible.

David McMahon, a Charleston attorney and co-founder of the West Virginia Surface Rights organization, will appear before the same group of lawmakers Tuesday to share his opinion on the bill.

McMahon said forced pooling isn’t always bad, but certain provisions must be contained within such a piece of legislation in order to make it viable for surface and mineral owners.

1. Forced polling should be part of a larger comprehensive bill that will address both environmental and health issues related to horizontal drilling. McMahon said lawmakers commissioned studies on both issues years ago, but have yet to address them.
2. Royalties from missing owners should be turned over to the surface owner of that parcel instead of given to the state as the industry bill proposes.
3. Surface owners may not be forced to have a well head located on their property if they refuse. McMahon said this provision is already in the industry bill.
4. The make up of the gubernatorial appointed review board should include a surface or mineral owner to protect their interests.
5. Companies should be required to pay mineral owners the fair market value price of the gas and be given access to information about how much their neighbors were paid in the negotiating process.

McMahon said such provisions help protect surface and mineral owners in a complicated negotiation process.