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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Now they want FORCED POOLING written into the law. What next?
Isn’t it bad enough that they confuse and cajole landowners into doing things they don’t understand, things they regret later? What about the surface owners in all this?
We need to have large groups like IOGA and ONGA that represent West Virginia’s landowners and environment.
I woke up this morning thinking about the impoundment pits they bury and leave without markers. These pits need to be marked. Why aren’t we legislating that? What happens in 20 or 100 years when people forget where they are?
We are going to be showing up with cancers of all types and have no way to prove where they are coming from. And they can say it was all legal.
Tell your legislators to support West Virginia with clean energy jobs, not toxic gas development. It is time the State stops permitting these big projects that destroy the environment, giving the gas companies a red carpet to profit without being required to protect this land we profess to love.