By:  State Representative Garth Everett

My announcement that I intend to co-sponsor a bill dealing with what is called unitization or pooling of property for Marcellus gas development has sparked quite a bit of interest among the residents of Lycoming County and many others from across the State.  I am hopeful more detailed information on pooling and my intentions with respect to this legislation will defuse a bit of this concern and explain my interest in participating in the development of this legislation.

First, please understand that no legislation has been introduced with respect to pooling – this discussion is purely conceptual at this time.  Second, I am involved in this process to ensure that whatever pooling legislation is developed is “landowner friendly”, environmentally positive and fair to all those involved.  Finally, I have not endorsed any form of “forced or mandatory pooling” – all I have said is that I am willing to consider it in rare instances as part of an overall regulatory plan on how units are formed and operated.

As we have seen more units being established here in Lycoming County and in neighboring counties, I have had quite a few inquiries and complaints from constituents concerning how pooling or unitization is currently being done.  Unfortunately, at this time, Pennsylvania has little or no regulation over how Marcellus production units are formed.  As a result, the gas company which has the leases for blocks of contiguous properties can form those properties into production units pretty much any way the company chooses.

Here are some of my concerns about pooling that I believe need to be addressed as part of any pooling legislation:

            1.         That a landowner who has a lease with a company different than all his surrounding neighbors does not get “locked out” of being put into a unit simply because the property owner signed with a company that was unable to acquire enough property for a unit in the area in question.

            2.         That “small acreage” property owners get an opportunity to participate with the “big acreage” property owners in the financial benefits of the gas development.  That is,  that a company establishing a unit offer a fair market value lease to all property owners within the confines of a proposed unit, no matter how small their acreage.

            3.         That property owners be protected from having a very small percentage of their property placed in a large unit solely for the purpose of locking the entire property up for what amounts to perpetuity.

            4.         That the legislation ensures that units are put together efficiently to minimize the number of drill pads and pipelines necessary to access the gas resources in a given area and that no chunks of land get “stranded” in sizes that are not economically feasible for development.

            5.         That the unitization process be well defined, well regulated, open and transparent to both those within a unit and those with properties nearby or bordering a unit and that some governmental body be charged with the oversight review and approval of proposed units.

            6.         That property owners be provided with an appeal process for unitization, pooling and royalty calculation issues.

            7.         That setbacks from unit borders and/or un-leased properties for both vertical and horizontal wells be established to ensure that gas is not “captured” by a company from a property for which it does not have a lease.  Right now, either a vertical or horizontal well can be drilled virtually on the property line of a unit and, with the ability to hydro-fracture hundreds of feet out from the well casing, gas can be extracted from beneath property outside a unit or lease boundaries.

As I have said and will say again, I will not support pooling legislation that is not good for both the landowners and residents of Lycoming County – I have no interest in pooling legislation other than ensuring that all property owners get a “fair deal” and that we harvest this resource with the least amount of impact to the environment, landscape and beauty of northern-central Pennsylvania and the entire Marcellus development area of the Commonwealth.  I came out early as a “sponsor” of this proposed legislation because I want a “seat at the table” to make sure that this is done right, and that is what I fully intend to do.

I have no desire or interest in making it easier for a gas company to negotiate with private property owners nor do I intend to allow this or any legislation to allow the mandatory pooling of any property unless extraordinary circumstances exist.  The decision of whether or not to lease and the negotiation of the terms of a lease are the business of the property owner and the gas company.  I do, however, intend to ensure that the gas companies have to negotiate in good faith with all property owners, large and small, and that every property owner who wants to participate in Marcellus development gets an opportunity to do so.

With that said, allow me to provide some background on unitization and pooling and a bit of my current thinking on the very controversial subject of mandatory pooling. 

First, virtually all Marcellus gas leases allow the pooling or unitization (combining) of two or more leased tracts together into one “production unit.”  These units are necessary as a result of advances in both horizontal drilling and hydro-fracturing technology.  It is my understanding that currently up to 500 acres of land can be developed from a single five-acre drill pad assuming that 10 horizontal wells are drilled from the pad.  That means that a 1,000 acre unit can be almost fully developed from only two drill pads.  Not only is the development of fewer drilling sites economical for the gas developer, it means that with fewer sites there will be fewer pipelines and a drastically reduced impact on the landscape and environment.    

Many older or early leases specify production units of 640 acres, which happens to equate to one square mile which was a very common-sized unit in other gas producing states like Texas and Oklahoma prior to the development of advanced horizontal drilling techniques.  Some leases in Pennsylvania simply allow for unitization and do not specify a minimum or maximum size for a unit.

Some other major gas producing states have provisions in their unitization laws which allow for some method of bringing un-leased properties into a production unit.  Though actually used infrequently, this aspect of unitization law is certainly the most controversial.  Proponents of this method of bringing a property into a unit call it “fair-pooling” and those opposed to it call it “forced-pooling.”  Whichever way you view this process, the overall concept of mandatory pooling is that it is in the public interest to have the maximum amount of this valuable resource developed with minimum disruption to the surface and environment by reducing the number of drill pads and pipelines necessary in a given area.

Properties that a company may want to bring into a unit to optimize the use of a particular drill pad may not be under lease with the company proposing to form the unit for a number of reasons:

            1.         The property owner may have signed a lease with another company and the company forming the unit has been unable to negotiate a transfer of the lease.

            2          The property owner and the company forming the unit were, after good faith bargaining, unable to come to terms on a lease of the property.

            3.         The property owner, for whatever reason, may just not want to lease the property.

Whatever the case, properties un-leased by a company which are proposed to be added to a unit would only be able to be brought in under specific circumstances which would include that the company:

            1.         Already have a vast majority (maybe 90 percent to 95 percent) of the property in the proposed unit under lease.

            2.         Have made a good faith effort to execute a lease with the property owner(s) to be brought in under terms similar to the existing fair market value for leases in the area.

            3.         In the case of a property under lease to another company, have made a good faith effort to have the property’s lease transferred.

            4.         Be able to demonstrate to an impartial panel of individuals with knowledge and expertise in the field that bringing the property or properties in question into the pool is absolutely necessary for the efficient development of surrounding properties.

I think that an important point to remember is that a property brought into a pool without a lease would receive fair market value royalty payments for its gas but never, without the owner’s permission, have any type of surface development on it – no drilling, no pipelines, no roads, no disturbance of any kind.  All that would happen is that the company bringing the property into the pool would simply be allowed to harvest the gas underneath the property using either horizontal drilling and/or hydro-fracturing in return for paying fair market value royalty payments for the gas.

While I am very hesitant to require property owners to unwillingly participate in Marcellus development, because of the larger public policy concerns, I am willing to consider this minimal level of mandatory pooling so long as the pooling regulations also contain provisions which protect landowners.  To be clear, the only mandatory pooling that I am even willing to discuss is that which would allow for the most effective development of an area of land with the minimum amount of disruption to the surface and the environment.  I will not support any mandatory pooling for the purpose of simply making it easier for a gas company to form a unit or allow the threat of mandatory pooling to be used as leverage in lease negotiations.

I am hopeful this will help those who have expressed their concerns about this legislation better understand my position.  As we go through this process, I plan to have public meetings to gather input from the residents of Lycoming County and to explain the details of what is being proposed.  At the end of the day, if this legislation is something that does not benefit Marcellus landowners and the public, I will not only withdraw any support, but will openly and vigorously oppose it.