Forced Pooling for Landowners in the Marcellus Shale Region

Forced pooling is the concept that forces landowners to allow drilling under their property if enough of their neighbors have signed leases. Many people (PA Gov. Tom Corbett and MDN among them) think it’s not a good idea—calling it the equivalent of “private eminent domain.” But the reality is, it does widely exist. In fact, forced pooling exists (by various names) in all of the Marcellus Shale states except Maryland.

In New York and Pennsylvania its called compulsory integration. In West Virginia its called mandatory pooling, and in Virginia its called compulsory pooling. So when you hear those terms bandied about, it means “forced pooling.” A special note: Forced pooling provisions in both Pennsylvania and West Virginia do not (yet) apply to Marcellus Shale drilling, but proponents are trying to make it happen in those states.

The ProPublica website recently published a story on forced pooling along with an excellent chart outlining the laws in the various states. From that article, some background on forced pooling for landowners:

Forced pooling compels holdout landowners to join gas-leasing agreements with their neighbors. The specific provisions of the laws vary from state to state, but drillers are generally allowed to extract minerals from a large area or "pool" — in most states a minimum of 640 acres — if leases have been negotiated for a certain percentage of that land. The company can then harvest gas from the entire area. In most cases, drillers aren’t allowed to build surface wells on unleased land, so they use horizontal wells or other means to collect the minerals beneath those parcels.

Thirty-nine states have some form of forced pooling law. West Virginia and Pennsylvania each have measures that don’t apply to drilling in the Marcellus Shale, and proponents are trying to expand the laws in those states. (Check out our chart of forced pooling laws across the United States.)

In New York, the owners of 60 percent of the acreage in the proposed drilling unit must agree to lease their land before the state oil and gas board will consider a driller’s petition for compulsory integration, as it is known there. In Virginia, only 25 percent of the land must be leased. In all states with such laws, drillers must notify all the landowners within the prospective drilling area of their right to participate in a hearing before the oil and gas board, or whatever regulatory agency the state has set up for that purpose.

If the board approves the driller’s petition, holdout landowners typically have three choices: contribute to the cost of the well and share profits from the sale of the gas; don’t pay for the well and share the gas profits after a "risk aversion" penalty is subtracted, or receive a state-mandated minimum royalty payment. Landowners who choose none of these options are automatically enrolled in the last plan. Opting out is not a possibility.

Gas companies argue that forced pooling allows them to build fewer wells and harvest gas efficiently, creating tidy drilling parcels as opposed to a patchwork pattern of leased and unleased land.

Forced pooling is also supported by landowners who fear that drilling companies will place wells near their property and siphon off their gas without payment. Another group of supporters includes people who own the surface rights to their property while someone else owns the mineral rights–a situation known as a "split estate." Although these landowners usually aren’t entitled to any payment, some forced pooling laws compel drillers to compensate them, too.*

*ProPublica (May 19, 2011) – Forced Pooling: When Landowners Can’t Say No to Drilling