Forced pooling—or compulsory pooling—is common practice in states with significant oil and gas development. Forced pooling allows for adjacent parcels of land to be developed as one large unit so long as a majority of the lessors and surface owners agree to such development. Generally, pooling or unitization grants an operator access to hundreds of acres of oil and gas from one surface site. From a production standpoint, this approach is considered efficient and practical; instead of drilling multiple wells, operators can take advantage of the latest technology and stretch long “laterals” underneath adjacent parcels of varying acreage. The accounting is fairly simple—royalties are usually divided among the lessors according to their share in the acreage of the entire unit or provided for in an agreement between the owners.
Usually, pooling is provided for in a modern oil and gas lease. The pooling and unitization clause will either expressly grant or deny this method of development. In West Virginia, older leases that are currently held by traditional production or leases from forms that simply omitted the relevant language must be individually amended to expressly allow for pooling before the lease can be included in a unit.
On January 25, 2016, Senators Boso, Ferns and Maynard introduced Senate Bill 383 to the West Virginia Legislature. The stated purpose of the bill is to “promote efficient extraction of oil and gas resources and to prevent waste by authorizing the development of horizontal drilling of multiple adjacent leases held by the same operator.” The operative language to be added to §22-6-31 of the Code of West Virginia is as follows: “Where an operator has the right to develop multiple contiguous oil and gas leases separately, the operator may develop these leases jointly by horizontal drilling unless the development is expressly prohibited by the terms of the lease.” While this language is not representative of forced pooling in the classic sense, it creates a new default rule for oil and gas leases in the state: absent an express prohibition of pooling, an operator may pool contiguous properties so long as it holds leases to those properties.
The argument over the proposed language rests almost entirely on mineral interest owners’ negotiating power. There are thousands of acres’ worth of leases that are held by production from as early as the turn of the twentieth century. The clause “so long as [oil or gas] is produced in paying quantities” can actually stretch that many decades. When the Marcellus boom hit, these mineral owners’ only advantage in negotiation was granting permission for pooling and unitization. Otherwise, they received no bonuses and had no other terms re-worked from centuries-old leases while their neighbors received payments for as much as $5,000/acre up-front and up to 18% royalty interest.
From the industry perspective, pooling as the default rule would remove virtually all legal barriers between holding a group of leases and production. Other proponents of forced pooling involve the fugacious nature of natural gas and the rule of capture. If a mineral owner refuses to consent to unitization, and the operator forms a unit clear up to and surrounding that non-consenting owner’s property lines, the developer is likely extracting oil and gas from underneath the non-consenting owner’s land, but that mineral owner receives no royalties for it. While precaution may be taken to avoid such unauthorized extraction, natural gas does not respect property lines and will flow from wherever it rests towards the path of least resistance.
It is important to note that a default pooling rule is not the only way developers and lessors can achieve a unit, but it would be a far simpler one than what currently exists on the books. W.Va. Code § 22C-9-7(b) provides that in the event a cotenant refuses to consent to pooling, the consenting interest owners can appeal to the Oil and Gas Conservation Commission and request a pooling order. Such an order, if issued, provides the non-consenting owners the option to be bought out by the other interest owners or to participate in the drilling on a limited basis.