WV Legislator Offers Forced Pooling for Higher Severance Tax

In December of 2011, West Virginia passed new Marcellus Shale drilling laws raising certain fees and putting new requirements in place (see this MDN story). The drilling industry, while saying it was not a perfect law, in the end supported it. But there was on thing the new law did not address that the industry wants to see: forced pooling. That issue is once again being discussed for possible action in the legislature this year.

The issue of forced pooling can mean different things depending on whom you ask. In WV, forced pooling means there is a certain percentage of land leased in a “unit,” which is typically 640 acres or one square mile, but there are some landowners in that unit (a minority) that do not want to sign a lease. They can be “forced” to participate or “pooled” with other landowners to allow drilling under their property. There would be no surface disturbance, pipelines, roads, etc. running across the reticent landowner’s property. It would only be a drilled hole under their property—nearly a mile down. Landowners forced to submit to drilling would be given royalties on their percentage portion of gas.

There are strong arguments both for and against forced pooling. Those who are against it believe their property rights are being trampled. Those who support  it say that holdouts prevent drilling in some areas, that they prevent their neighbors who want to allow drilling from benefiting, and that it cuts down on the number of wells that need to be drilled.

House of Delegates member Tim Manchin, who served on the Joint Select Committee on Marcellus Shale, is willing to horse-trade on the issue of forced pooling. Manchin would support forced pooling in return for an increase in the severance tax from 5 percent to 5.5 or 6 percent, with the extra money going toward the state’s roadways and other infrastructure projects. The drilling industry likes the idea of forced pooling, but doesn’t like the idea of an increase in the severance tax.

"I don’t advocate a severance tax increase right now," said Manchin, D-Marion, who served as co-chairman of the Joint Select Committee on Marcellus Shale. "But I would propose (a severance tax increase) to get the industry what it wants."

Rob Alsop, chief of staff for Gov. Earl Ray Tomblin, made it clear, however, that there is no plan to raise any taxes during the upcoming legislative session. He said no legislation that would raise taxes will be offered by the governor.

Manchin stressed that under any forced pooling provision passed by the Legislature, gas companies would not be permitted to build roads or pipelines on properties taken to complete a unit, and they would not be allowed to drill wells on those sites.

He said the Legislature could provide a mechanism to require the industry to pay landowners that are forced pooled at the "top end" for the right to remove the gas and for production royalties.

Corky DeMarco, executive director of the West Virginia Oil and Natural Gas Association, acknowledged forced pooling is a priority for the industry, but he objected to any increase in severance rates as a way to make it politically feasible.

"Yes, it is necessary if we are going to get the best use of our acreage and maximize what we do," he said. "But can we get people on board?"*

*Parkersburg News and Sentinel (Jan 6, 2012) – Marcellus Shale talks continue