The House of Delegates has passed an important but controversial bill that provides a fair and equitable way for the natural gas industry and mineral rights holders to take advantage of the state’s massive gas reserves.
HB 2688 creates “lease integration” (or “forced pooling” as many call it) for deep and shallow wells. A driller who gets permission from the owners of 80 percent of the mineral rights on a tract of land can petition the seven-member Oil and Gas Commission to force the holdouts into the pool. Currently, a single holdout can block horizontal drilling into the Marcellus Shale.
The bill includes important protections for the holdouts.
The gas company must first make a good faith effort to negotiate with the holdouts. They must be paid “just and reasonable” royalties based on comparable payments in the region. The gas company cannot deduct any production and post-production costs from the royalties. (Those deductions are a sore spot with mineral rights holders.) There can be no surface disturbance on the forced pool tracts. Holdouts who are dissatisfied with the commission’s findings can appeal to circuit court.
The oil and gas industry has failed several times in recent years to pass forced pooling, but proponents took a different approach this year. Del. Woody Ireland (R-Ritchie), who has a long history of working with—and sometimes fighting with—the gas industry brought all the stakeholders together for meeting after meeting to reach a compromise.
The West Virginia Farm Bureau eventually signed on, saying the bill balances the importance of private property rights with the desire of farmers to capitalize on their gas and oil mineral rights. The West Virginia Royalty Owners Association, which historically opposed forced pooling bills, supported this bill. Spokesman Tom Huber says HB 2688 is a fair bill that “addresses both the needs of the oil and gas industry and the legitimate concerns of West Virginia property owners.”
Not everyone is happy. Among the 40 opponents in the House—the bill passed Wednesday 60-40—was a coalition of conservative Republicans and liberal Democrats. They argued forcing a property owner into a deal he objects to amounts to an illegal taking of property.
Historically, the courts have disagreed. Most states have some form of forced pooling law and the doctrine has been tested many times. An American Law Reports review of state and federal court rulings concerning laws in a dozen states found that “compulsory pooling… ordinances are valid” and do no violate due process.
The opponents to HB 2688 chose to ignore that West Virginia already has forced pooling for all deep vertical wells into the Utica Shale and the current statute provides little protection for those mineral owners. This bill provides assurances for them, as well as the rights holders of the Marcellus deposits.
The stakeholders worked long and hard to write a reasonable bill and it appears they have done just that.