WV Farm Bureau Magazine April 2015 | Page 9

S 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