A 4 Acre Mineral Owner Holding up Hilcorp--This is why forced pooling was invented
How would you like to own the lions share of minerals in this unit and have a 4 acre owner stop its' development. Welcome to Pennsylvania.
Jay
NEW BEDFORD, Pa. (AP) — An energy company is dusting off an old, unused state law that can force property owners to accept oil and gas drilling under their land, pitting neighbor against neighbor in a Pennsylvania community and raising the possibility that lawmakers will have to take sides.
Houston-based Hilcorp seeks to use a 1961 Pennsylvania law to drill under the property of four holdout landowners in New Bedford, near the Ohio border an hour north of Pittsburgh. The concept, known as “forced pooling,” means that people who don’t sign leases get bundled in with those who do, to make drilling more efficient and compensate all the landowners.
The stakes are high. Property owners can reap royalties totaling hundreds of thousands or even millions of dollars from drilling in the Utica Shale formation, which lies below the better-known Marcellus Shale.
Suzanne Matteo, one of the four who has refused to sign a lease, said she is furious that the company may be able to drill under her property without her permission.
“It’s un-American,” she said.
On the other side are many neighbors who have signed leases, such as Bruce Clingan, who owns the roughly 200-acre Tanglewood Golf Course with his wife, Jody. They signed a lease with Hilcorp a few years ago and received a signing bonus of more than $500,000, plus 18 percent royalties on future production.
“I don’t understand how people that own 4 acres of ground can hold up such a big thing. I don’t agree with that,” Clingan said.
Hilcorp said that 99 percent of the property owners in the 3,267-acre tract have signed leases, and that drilling would occur a mile or more under the surface of the holdout’s property. Invoking the old law, the company said, would ensure that “all participants, leased or unleased, are compensated for the minerals they own.”
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Replies to This Discussion
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Permalink Reply by 1kw6x71km1v37 on
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Nice to and E&P interested in compensating all interest owners unit wells. Notice, however, there is no mention of how much compensation unleased landowners would get under forced pooling in PA.
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Permalink Reply by Skip Peel - Mineral Consultant on
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Force pooling is a critical right that allows for efficient and beneficial production of minerals. Those benefits accrue to a wide range of stake holders and business interests. Although UMIs (Unleased Mineral Interests) represent a small minority of those stake holders they nevertheless deserve to be treated fairly. Louisiana's laws regarding the rights of UMI's should be a template for other states to follow.
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Permalink Reply by John Parker on -
Jay:
Hilcorp could have avoided that problem if they had leased TMS in Mississippi. LOL
Hilcorp must have overlooked that little hiccup during their Due Diligence when they went way yonder north to deal with them "Yankees". They should have stayed on down here with us friendly Southern Folks.
On a more serious note, yep that is too extreme to allow that small of a percentage to stop the project from moving forward.
~ ~ John
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Permalink Reply by Max on
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They should have stayed on down here with us friendly Southern Folks.
After I learned to read, I joined GHS and read a lot about Forced Pooling. The friendly folks down here didn't like it neither. They don't like anybody forcing them to do anything, no matter what that may be...
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Permalink Reply by John Parker on
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Max;
You are correct.
I was mainly referring to "friendly Southern Folks", in that Mississippi, Louisiana, Texas etc (Southern States) have had much more oil and gas development than some other states, and as such, the respective Oil & Gas Boards have already in place "Forced Pooling" provisions such that a small percentage as in the Hilcorp - Utica situation cannot stop the development.
Maybe I should have said "oil friendly Southern Politicians".
It is good to be friendly and pro active business. However, it can be too far friendly for business in some situations at the expense of others.
~ ~ John
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Permalink Reply by Skip Peel - Mineral Consultant on
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Or maybe we should cease using the word, "Forced". As Max says, "They don't like anybody forcing them to do anything, no matter what that may be...". "Friendly Southern Folks" might feel better if we called it "Compulsory Integration".
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Permalink Reply by tc on
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Lets not forget that without using force pooling, E&P companies have found a way to drill over 7,000 Marcellus Shale wells in PA. Maybe those "unfriendly" Southern companies, should just keep exploiting their Southern neighbors.
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Permalink Reply by Max on
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John, I agree with you, I just remember a lot of folks hollern about forced pooing back when the shale flu was spreading around here like wildfire.
Most of the people back then had just been introduced to how the gas business works and forced pooling was not liked by many people.
I see the need for forced pooling, but I don't like increased unit size.
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Permalink Reply by John Parker on
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Max:
I assume you are referring to the Haynesville which would fall under Louisiana forced pooling statutes which are much more mineral owner friendly than say Mississippi.
In Mississippi, you only have to lease 1/3rd and you can force integrate and pool the other 2/3rds. I have always observed that there is a balance in any facet of life that seems to work the most harmonious. The 1/3rd Mississippi rule is not in balance by any stretch of the imagination especially given those rules were written many years ago for conventional production that involved relatively small units compared to todays frequent 1,000 to 2,000 acre shale units.
However, there is a decent middle point somewhere that is fair to the mineral owners and industry. In the Democratic Republic that we live under 50% plus decides who leads us, yet the minority % is theoretically supposed to be protected from Mob Rule.
In Mississippi say you own 1,000 acres (100% minerals and surface). Your next door neighbor owns 500 acres surface but the mineral estate is severed and the mineral owners of the 500 acres are basically "crackheads" (for demonstrative effect) and they accept $50/acre bonus and 1/8 royalty from an oil company.
Oil company comes to you (1,000 acre surface and mineral owner) and offers you $50 bucks and 1/8th and you say no. Next thing you are noticed that a 1,500 unit is being formed, you have been offered the same deal as the 1/3rd "crackheads" in unit, you are informed by the State that if you do not accept the offer, which was the highest offer to any of the 1/3rd mineral owners in the unit, and shazzam you are force integrated with penalties.
I just don't see this as very fair, democratic and protecting the coequal rights of the majority. Especially when you are talking about two completely separate mineral tracts owned by different entities.
Just saying the above because that is the current environment a lot of mineral owners in Mississippi can find themselves in.
On the flip side, you got to remember that it takes a sizable, well capitalized and gusty oil company to come in an develop minerals thousands of expensive and risky feet down.
Informed, educated and fair parties on both sides is what it takes in the perfect world. Which we do not live in.
~ ~ John
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Permalink Reply by Skip Peel - Mineral Consultant on
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There is no minimum number of acres under lease required for a drilling & production unit application in Louisiana. Nor is there a minimum percentage requirement within the boundary of a proposed unit.
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Permalink Reply by John Parker on
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Skip:
With no penalties to an unleased mineral owner there is no need. That one single item, no penalties dictates the Operators calculations as to is it worth it based on what they have leased and don't. That is why the bonus's and royalty rates are more in line with true market value to the mineral owner in Louisiana.
The oil companies have no advantage or legal big stick to beat mineral owners into submission in Louisiana. It also is know as a more at "arms length transaction". In Mississippi, they can twist your arm so tight, your gonna say Uncle.
~ ~ John
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Permalink Reply by Max on
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John, I see your point about Mississippi's 1/3 rule. I would be upset if I found myself signing a lease because it's the best I'm going to get, due to unfair laws.
I feel that Louisiana has the best mineral laws concerning mineral owners. I like the prescription attached to minerals, which gives the surface owner the opportunity to fully own their "property".
I don't like Texas mineral laws. I own a small place in Texas and I will never own the minerals. I see this as unfair, but it's the law. I'm sure that some folks would disagree with me, those that own minerals under land they (or great grandparents) sold or inherited years ago.
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