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An
Overview of Pooling in
W.Va.
Pooling.
This word is on the lips of almost every
operator working in the Marcellus Shale.
Depending on where you stand on the issue,
pooling is either a necessity to allow for the
efficient recovery of the resource, or a
dastardly scheme meant to allow big operators to
run roughshod over small operators and small
mineral owners. To understand why there is such
a divergent view of the practice - and why the
opposition to it can be so vociferous - you need
to understand the history of pooling in West
Virginia and Pennsylvania.
At present,
neither West Virginia nor Pennsylvania has a
pooling statute that allows for efficient
development of the Marcellus Shale. As each of
these states consider bills that would establish
pooling provisions for horizontal wells, it is
an opportune time to take a step back and
understand the history of pooling in both states
and why neither have had pooling for horizontal
shallow wells before now. This month, we will
look at pooling in West Virginia and next month
we will do the same for Pennsylvania.
As
an initial matter, it should be noted that
pooling is usually a shorthand way to refer to
two related but distinct activities. Typically,
a drilling unit must be created before a "pool"
can be established in an unconventional
reservoir like the Marcellus Shale. This
drilling unit is the acreage that can be
efficiently drained by one well. After a
drilling unit is established, the various
working and royalty interests in that drilling
unit can be pooled to ensure that all persons
receive their proportionate share of the
proceeds from the well. When used properly,
pooling serves to protect the interests of all
parties by maximizing recovery of the resource
and minimizing impact to the
environment.
Although pooling is not
without opposition, it is important to note that
pooling is not a new concept in West Virginia.
Pooling and unitization provisions have been
applicable to deep wells in West Virginia for
many years. Similarly, when the Coalbed Methane
Act was enacted in the mid-1990s, the
Legislature included pooling provisions. Of
course, most operators and mineral owners are
not necessarily aware of this fact because both
coalbed methane wells and deep wells have
historically been small subsets of the overall
drilling activity in West Virginia. Until the
recent Marcellus Shale boom, oil and gas
drilling activity in West Virginia had been
dominated by conventional shallow well
development. These shallow wells have been
vertically drilled and drain limited areas of
various sandstones and other horizons that make
pooling unnecessary.
Opposition to
pooling has traditionally come from two sources:
small mineral owners and small leaseholders.
These groups typically view pooling as removing
the large operators' incentive to negotiate with
them for their mineral rights or working
interest rights. As such, they argue that
pooling forces terms and conditions upon them
that they might otherwise reject.
In West
Virginia, another layer of complexity is added
to the pooling debate by the relationship
between the coal and gas estates. Unlike other
states where pooling was enacted to maximize
recovery of oil and gas while minimizing surface
disturbance, in West Virginia the goal of not
rendering large portions of the coal estate
unavailable for mining is a driving concern.
Horizontal wells drilled in the Marcellus Shale
are shallow wells, which are subject to a
voluntary pooling procedure, under West Virginia
law. Under this voluntary process for shallow
wells, the owners of all coal underlying the
drilling location well must consent to the
proposed unit. As currently written, existing
West Virginia law gives the coal owner what is
in effect veto power over a proposed horizontal
well unit in the Marcellus Shale. As a
consequence, any pooling provision should take
the coal estate into consideration in order to
minimize opposition from the coal
industry.
However, horizontal pooling
legislation could provide benefits to coal
owners and operators. Pooling will allow gas
producers to concentrate horizontal well bores
on strategically placed well pads that will
minimize the effect on surrounding coal
reserves. The placement of such well pads within
a pooling unit will allow the maximization of
the natural gas resource, while actually
reducing the area of workable coal seams that
are disturbed by the well bores. A fairly
drafted pooling statute for horizontal wells in
West Virginia would ensure the efficient and
complete recovery of the Marcellus Shale gas
resource, while minimizing the potential for
conflicts between the development of natural gas
and coal.
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Legislative
Update: W.Va.
by
Andrew B.
McCallister
Executive
Editor & Senior
Attorney
As
the West Virginia Legislature passes the midway
point of the 2011 Regular Session, oil and gas
issues remain hot topics with several bills having
the potential to directly impact Marcellus Shale
operators. Perhaps most significant are two bills
(SB 258/HB2878 and SB 424/HB 3042) that would
substantially alter the current regulatory regime
for Marcellus Shale permitting in West Virginia.
Both bills would, among other things, increase
permit fees, require water management plans,
require disclosure of frac fluids and impose new
notice requirements before permits could be
issued. There are also three bills that have been
introduced to address the road use issues
surrounding Marcellus development (SB 314, HB 3026
and HB 3090).
On the economic development
front, bills to promote the use of natural gas in
vehicles and to encourage development of
industries that would use Marcellus Shale gas and
its byproducts as feedstock have been introduced.
As the Session continues, it will be interesting
to see which bills garner momentum and progress.
Check out this month's "Helpful Resource" -
Spilman's new Marcellus blog - for regular updates
on what's happening in the West Virginia
Legislature. |
Legislative
Update: Pa.
by Ronald W.
Schuler
Counsel According
to insiders, with regard to a Pennsylvania
severance tax, Governor Corbett will be holding
firm on "no state tax, no local fee," although it
is likely that the legislature will nevertheless
offer up a "local impact assessment" bill.
Governor Corbett will also soon be announcing
appointments for a Marcellus Shale commission to
study and make recommendations to the
administration regarding potential legislative
issues including pooling, water and environmental
matters, and safety issues. The committee will
likely be made up of both industry representatives
and environmental
leaders. |
EPA
Releases Draft Hydraulic Fracturing Study
Plans
by
Allyn G.
Turner
Member On
February 8, 2011, the EPA sent a draft copy of its
plan for studying the impact of hydraulic
fracturing on drinking water to the Science
Advisory Board for review and comment. As
proposed, EPA's plan would involve a "cradle to
the grave" study of the practice, from the impacts
of the withdrawals of water used to fracture a
well to the ultimate disposal of the frac water
flowback. The agency also plans to examine how
water - and wastewater - are managed before and
after fracturing occurs and how the industry
handles the chemicals that make fracturing
possible. As proposed, the EPA plans to undertake
two or three "prospective" case studies in various
parts of the country where it will follow water
from withdrawal to disposal. The agency also
proposes to study areas where contamination
allegedly linked to hydraulic fracturing has
occurred. The Science Advisory Board will
consider the draft plan during its meeting on
March 7th and 8th, and stakeholders are allowed to
submit comments at that time. Once the Board has
commented on the draft plan and the EPA makes any
changes as a result of those comments, the agency
is expected to move directly to beginning the
study with a goal of having initial results
available by late 2012 and a follow-up report
ready by 2014. |
Marcellus
Task Force
Formed
in W.Va.
Acting Governor Earl Ray Tomblin recently
created a 12-member team to help guide the state
in maximizing its return on Marcellus Shale
activity. Click here to read the full
article. |
Useful
Resource:
Spilman
Marcellus News Blog Our Marcellus
Team is proud to unveil "Spilman Marcellus News" -
a news blog updated as breaking news occurs
relating to the Marcellus Shale play. To access
the blog, click here. | | | |
Marcellus
Shale Team Member
Ronald
W. Schuler (Counsel)
Ron
began working with Appalachian oil & gas E&P companies
in 1990, assisting Sithe Energies in several acquisitions for
its oil & gas unit, PGMT Energy. When Sithe started
selling its divisions in 2003, Ron joined the management
buyout team, helped complete the purchase of PGMT Energy and
its 1300 oil and gas wells, and assumed the role of number two
executive. Since selling the company to EXCO Resources in
2006, Ron has been assisting companies in the Marcellus Shale
with joint ventures, M&A, financing, and numerous oil
& gas commercial issues. For more information, click here. |
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Please be aware that this email publication is
distributed with the understanding that the author, publisher
and distributor are not rendering legal or other professional
advice on specific facts or matters and, accordingly, assume
no liability whatsoever in connection with its use.
Responsible Attorney: Michael J.
Basile | | | |
