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hould the majority rule? Most
Americans would say, “Yes!” Yet,
the majority of mineral owners who
want to develop their minerals can currently
be prevented from doing so by a small
minority. For those who would argue from
the private property rights perspective, the
question remains: what about the private
property rights of the majority? We often
complain about the minority getting its way
and the majority being ignored all the time.
So, which way do we want it?
An effort to allow a more balanced
approach to this issue was attempted
recently during the West Virginia legislative
session. Sponsors and supporters of
HB 2688 hoped to address a number of
complaints held by both mineral and surface
owners, while still allowing West Virginia to
benefit from the oil and gas boom.
The facts are that a number of things
are misunderstood about current law.
First, “forced pooling” or “unitization” has
been in effect for the Utica and all other
deep formations since 1994. Existing
West Virginia law allows forced pooling for
deep wells such as Utica wells, with NO
protection for mineral or surface owners
(WV code 22-C-9-7). Current drilling
activity is mostly in the Marcellus, but
drilling in the Utica will be next. Why?
Because Utica wells have 4 to 5 times
more production than Marcellus wells. On
average, a Marcellus well (defined as a
shallow well by WV law) produces roughly
10 million cubic feet per day; a Utica well
produces 40 to 50 million cubic feet per day
(based on known wells in Ohio, western
Pennsylvania and Tyler County, WV).
Therefore, it is reasonable to conclude that
a majority of the drilling in the near future
will be in the Utica – which, again, is a deep
well according to the definition set forth in
West Virginia code.
So what did HB 2688 address? First, it
applied to ALL horizontal wells – deep and
shallow. It provided protection for surface
owners (whether or not they have mineral
rights) in that their surface could not be
disturbed by the drilling process (no well
pads, no roads, no equipment storage,
etc.) Those who owned 80% of the acreage
(note – not 80% of the owners, as there
can be dozens of owners of very small
parcels of land) had to agree to voluntarily
pool BEFORE anyone could be forced
to pool (no other state in the U.S. that
allows pooling has a higher percentage).
In previously proposed legislation in years
past, the industry had initially wanted
only 51% and later just 67%. HB 2688
required 80%. Also, the bill provided that
NO deductions could be taken from the
royalties of those who were forced in.
Under HB 2688, forced pooling could
ONLY apply to the target formation (i.e., if
a company wanted to drill in the Marcellus
and your property was forced, they could
not also drill other strata – that would have
to be done under a separate agreement).
HB 2688 also required that when the West
Virginia Oil & Gas Conservation Commission
(the body responsible for looking out for
the interests of “forced” owners) considers
compensation for those being forced,
they would have to take into account the
compensation offered in leases made in the
vicinity of the area being forced.
Unfortunately, there were major
misunderstandings about how HB 2688
addressed compensation. No specific
threshold of compensation was spelled
out in HB 2688, so that all parties would
be able to negotiate their best deal. If
thresholds had been stated, it is likely
that would be the best that would have
been offered by either party. The 1/8
royalty mentioned in the bill is royalty
West Virginia Farm Bureau News 9