PA Gov Corbett Signs Back-Door Forced Pooling Bill into Law

lipstick on a pigIt’s sad for us to have to report this, but PA Gov. Tom Corbett has signed a bill into law that’s bad for PA’s landowners. MDN told you about Senate Bill SB259 last week (see New PA Royalty Bill SB259 Faces Opposition from NARO). While the bill has some very good things for landowners in it (more transparency with items deducted from royalty checks), there’s one last minute addition that’s a big problem: There’s language that allows landowners with older leases to be pooled with others, putting them at a disadvantage–they can’t renegotiate their lease for a better deal.

It’s a bad deal for landowners. No matter how much lipstick you put on this pig (see Corbett’s statement below), it’s still a pig…

Governor Corbett signed a controversial bill into law today, giving drillers the power to combine or “pool” leases for horizontal oil and gas drilling.

The legislation was originally promoted as an effort to bring more transparency to the deductions companies take out of royalty payments. Complaints over those deductions lead to a recent Senate hearing on the issue.

An organization representing Pennsylvania’s mineral owners was angered over language added later on, which allows pooling of some leases. They complained the measure sailed through the state legislature during budget negotiations and didn’t receive enough scrutiny.

“We are not pleased.” says Jackie Root, president of the Pennsylvania Chapter of the National Association of Royalty Owners (NARO-PA). “It is so vaguely written and so broad.”

The organization has argued the measure could adversely impact some people who signed contracts years ago and didn’t anticipate modern shale gas drilling. They say it leaves landowners at a disadvantage– hindering their ability to renegotiate old leases.

“This pooling language had no place in this bill,” NARO-PA vice president Trevor Walczak wrote in an email, ”If you wanted to address pooling, we should have been doing it in a stand alone bill we could debate, not hiding it in here and fast-tracking it through.”
Governor Corbett has said publicly he would not sign any legislation that allows “forced pooling” –which would give drillers the right to take gas from a property owner who has not signed a lease.

This bill only applies to existing leases. It allows companies to combine land parcels for horizontal drilling, unless it’s explicitly prohibited in the lease.

Sen. Gene Yaw (R- Bradford) introduced the bill. He doesn’t feel the measure is unfair to landowners.

“Remember, this land is already leased,” he told StateImpact Pennsylvania recently, “It just seems to be logical that if you can go on the land and drill horizontal wells out, [then] you could drill horizontal wells under it.”

Rep. Garth Everett (R- Lycoming) who sponsored the controversial amendment was quoted in the Pittsburgh Tribune-Review last week saying he wasn’t sure where the idea came from.

Corbett issued a statement today acknowledging the concerns over the bill. However, he contends the language will enhance the efficient extraction of oil and gas, while protecting the rights of landowners.

“I do not believe anything in Senate Bill 259 expands the ability of an oil or gas operator to define the size of a drilling unit, or to expand the ability of an operator to hold by production any parcels of leased land.”*

*Harrisburg/Philadelphia (PA) StateImpact Pennsylvania (Jul 9, 2013) – Corbett Signs Controversial Bill Giving Drillers Power To Pool Leases

Editorial from the Warren Times Observer:

Imagine for a moment that you own land you inherited from your parents, who inherited it from their parents, and so on, for a generation or two more.

Early on in that lineage one of your ancesters signed a lease with an oil company to drill a simple, vertical well to produce some of that fine parafin-based Pennsylvania-grade crude oil, and some natural gas to boot.

For some reading this, that’s not so difficult to imagine.

You hardly notice the bobbing jack, let alone the gas well that hisses softly in your meadow.

Then one day enough heavy equipment comes on the scene to make you wonder if a full-size model of the Hoover Dam is about to be constructed. The crews are laying the groundwork for a deep shale gas well.

As the lessor you may welcome the event, anticipating increased royalty payments when that well comes in, making the disruption of the surface and degradation of the subsurface of your property worth it.

Or, you could be incensed that your great-grandfather signed a lease for one thing and you are faced with something far different and perhaps unwanted.

Thanks to a bill that sped through the Pennsylvania General Assembly, heirs to drilling leases signed decades ago for traditional, shallow vertical wells could be forced to allow deep Marcellus Shale natural gas wells that include underground horizontal bores extending out thousands of feet, even under neighbors’ properties.

Originally, the bill had to do with “pooling,” and was intended to bring more transparency to the deductions companies take out of royalty payments.

At the last minute, and during those heated debates over the budget, language was added and hurried through with little notice.

Corbett contends the language will enhance the efficient extraction of oil and gas, while protecting the rights of landowners.

“I do not believe anything in Senate Bill 259 expands the ability of an oil or gas operator to define the size of a drilling unit, or to expand the ability of an operator to hold by production any parcels of leased land.”

The Pennsylvania Royalty Owners Association disagrees.

And, given those two views, we’re pretty sure the matter is destined for a legal challenge.*

*Warren (PA) The Times Observer (Jul 11, 2013) – Our opinion: Legislating property rights

Here’s the statement Corbett issued after signing the bill into law: