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WV — Don’t leap into pooling

EDITORIAL – Morgantown Dominion Post Newspaper, November 21, 2014

As heated issues go, most lie just below the surface — simmering — until they start spewing controversy. No one’s calling a proposal in the state Legislature on pooling mineral tracts to drill horizontal Marcellus wells an eruption, yet. But this issue will explode once the regular legislative session begins in January.

This legislation is only a proposal for now, and many of the lawmakers it was presented to this week during an interim legislative session will no longer be in office in 2015. Yet this bill will undoubtedly be on the front burner in what promises to be a turbulent session.

We’re not going to quibble over whether to call it forced pooling or fair pooling, for now. Obviously, where you stand on that detail depends on where you sit. Energy lobbyists, who had a front row seat while ironing out this bill’s specifics during talks among the state’s two major oil and gas industry groups, have gone so far as to deem this measure “fair to all parties.”

However, we are going to lock horns with this proposal on two substantive issues that bulldoze directly over the rights of mineral owners who refuse to participate in pooling projects.

The bill stipulates that the driller must have agreements with mineral owners who own 67 percent of the project’s acreage before it can apply to the state for a pooling order. That percentage is too low. Especially since it conceivably could allow just one owner of that percentage of a mineral rights tract unit to approve such projects.

It’s also conceivable that drilling projects could take a page out of politics’ playbook and gerrymander or manipulate and design project tracts to give drillers every advantage. We recommend raising that percentage to at least 75 percent for the time being, creating a tougher standard for pooling orders.

The issue of just how much is revealed to reach a market-based value vs. what is just and reasonable is also far from clear. More transparency about what other mineral rights owners are receiving and how those figures are reached is also essential to this process. Why not make the prices paid for all leases of mineral rights pubic information?

A final concern of ours is during interviews with legislative candidates this fall, some did note that the issue of pooling would come up in January. It already has and the energy lobby’s pressure on legislators will be relentless from hereon. Only a few candidates were knowledgeable about pooling, earlier. So we call on every lawmaker to do his or her homework and learn the particulars of this proposal.

But even more crucial is that the public also vent its concerns on this issue.


Gas Industry makes Pooling Proposal to WV Legislature

by Duane Nichols on November 25, 2014

Forced Pooling is like Eminent Domain

WV Lawmakers, interest groups leery of ‘fair pooling’ proposal

From the Article by David Beard, Morgantown Dominion Post, November 21, 2014

Charleston, WV — Horizontal gas well mineral tract pooling will be on the legislative calendar this session. Legislators and various interest groups have reservations about the pooling proposal presented this week. Leaders of the Independent Oil and Gas Association — West Virginia (IOGA) and the West Virginia Oil and Natural Gas Association (WVONGA) described what they termed a “fair pooling” proposal to legislators.

The purpose of the proposed bill is to enable industry to pool unwilling mineral owners into a production unit of combined mineral tracts. In its current form, it states that an operator must have agreements with mineral owners totaling a 67 percent supermajority of the unit’s acreage before it can apply to the Natural Gas Conservation Commission for a pooling order.

The operator must extend good-faith offers to unwilling leaseholders. Proposed compensation must be market value — current code says “just and reasonable.” Mineral owners who don’t reach an agreement can request a hearing before the commission, at which evidence of market values is presented.

Delegate John Shott, R-Mercer, was concerned about the transparency of the evidence presented regarding market value. Jim McKinney, with IOGA, and Kevin Ellis, with WVONGA, said the commission can compel the operator to reveal that information. Before that point, though, company landmen negotiate terms with the owners, based on a range of prices set by the company.Ellis likened it to a car deal. They’re not going to start with the high figure, and they’re not going to tell the owner what everyone else is getting.

Delegate Barbara Evens Fleischauer, D-Monongalia, also raised questions about that and asked about substituting “fair market value” for “just and reasonable” in the bill. “You’re taking away people’s private property rights, no matter how you sugar coat it,” she said.

McKinney disagreed, saying it’s not a taking, it’s fair compensation. And both leaders said industry thinks “just and reasonable” essentially means the same thing. After the meeting, Fleischauer remained skeptical about industry’s view.

Also after the meeting, Ron Hayhurst, with the West Virginia Royalty Owners Association, expressed some skepticism about the proposal. “What the bill does is give all the power to the commission with no parameters they can work within.” And the commission is largely industry-oriented, he said. He believes pooling orders will still include deductions off royalty, which can effectively reduce a 12.5 percent royalty to 6.5 percent.

“Hopefully, next month we’ll get a chance to talk about it,” he said. “We want wells drilled. We just don’t want royalty owners taken in West Virginia.” He noted that most of the major operators are based out of state and take their money there: Antero in Colorado, EQT in Pittsburgh, and Chesapeake in Oklahoma.

Tom Huber, also with the association, said he’s concerned about market-based values discussed in the proposal. In the real estate market, prices are on the deed and are public information, he said. “They’re adamantly opposed to revealing to the public how much they’re paying in any given area. That’s why they oppose fair market value. … We’re talking real estate here. This is not a car deal. … I think that was a little disingenuous.”

The industry presenters said that the hearing process is designed to be easy and friendly, and mineral owners shouldn’t need to hire lawyers. David McMahon, co-founder of the West Virginia Surface Owners Rights Organization, questioned that. “Forced pooling is highly technical. Anybody that goes into this ought to at least sit down with a lawyer and talk about what they need to say and what evidence they need to have.” Royalty owners don’t necessarily have representation on the commission, he said, and no one on the commission has expertise in property values. Another problem: The owner may not get to see the evidence, McMahon said.

McKinney and Ellis talked about the evidence being presented under seal, and it wasn’t clear if the mineral owner or only the commission would see it, or what kind of evidence would be presented. “That’s putting more trust in the commission than for any administrative proceeding that I know about.”

McMahon also questioned the market value terminology. Market value is what everybody’s paying, he said, which may not reflect the true value of the land. “Fair market value is what it’s worth to someone with a knowledge of what’s going on and access to the facts. … I think it ought to be based on what it’s worth to the industry.”

That, he said, is several thousand dollars an acre signing bonus and 20 percent total royalty.

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