Thrown into the Deep End of the (Forced) Pooling

Despite years of promises to the contrary by Governor Corbett and a clear lack of support from the public, a form of “forced pooling” is now the law of the land in Pennsylvania, which will have costly long-term repercussions for landowners in this region.  

Forced pooling, often referred to as “private eminent domain”, is the process where an oil or gas company is able to drill underneath your property even if you own the mineral rights and refuse to sign a lease. Companies form “units”, usually of about 100 acres or so, which would be optimal for their drilling operations. Once they get a certain percentage of the acres signed up to leases, the remaining acres are forced into the unit at a predetermined dollar value whether they’re willing to sign a lease or not.

Forced pooling is wildly unpopular with the public, viewed quite accurately as a major infringement on the constitutional rights of landowners. Even the most blatant pro-shale politicians realized how strongly the public opposed the idea of forced pooling. Speaking at a gas industry conference in 2011, Governor Tom Corbett said, "It's private eminent domain. I don't think that's right. I was made aware that it's on the industry's wish list, but I don't agree. If I see a bill that contains forced pooling, I won't sign it." 

Yeah. Sure. Sounded great right up until a few weeks ago, when Governor Corbett saw a bill that contained forced pooling and signed it anyhow.

In the annual rush at the end of the June budget cycle, the Legislature passed SB 259. Almost identical to a similar piece of legislation I personally wrote, the bill was designed to require gas companies to disclose the post-production costs they deduct from leaseholders’ royalty checks. The proposal had broad bipartisan support as a consumer protection for Pennsylvanians who sign a lease for natural gas drilling on their property.

But as the bill made its way through the legislative sausage machine, two sentences were inserted to include something called a “unitization clause”. This language, which had nothing to do with the underlying bill, allows a drilling company to combine leased parcels for horizontal drilling, unless explicitly prohibited in the lease. Although the language only impacts property already under lease, it includes old leases signed decades ago for shallow wells, long before anyone ever heard the words “Marcellus Shale”. 

In practical terms, under SB 259 the shallow lease is automatically converted into a lease for horizontal shale drilling without any right of the property owner to negotiate the terms. Previously the lack of a unitization clause in an old lease was the only thing forcing the drilling company to the negotiation table; now there’s nothing left to negotiate because the drilling company already has everything they want. According to experts, this provision will have the largest impact in Western Pennsylvania.

This provision is clearly about allowing drillers to increase their profits at the direct expense of the fundamental property rights of Pennsylvania citizens. It’s a cash grab, pure and simple.

So why was this language inserted into the bill? It’s hard to say because proponents of the amendment were suddenly nowhere to be found, which is odd in a Legislature where so many people are quick to claim credit for even the smallest accomplishment. The pooling provision seemed to materialize out of thin air, but the refusal to remove it is clear evidence it was put there for a reason.

Before the final vote, the PA Chapter of the National Association of Royalty Owners issued a scathing warning about the forced pooling language in SB 259. According to NARO VP Trevor Walczak, “This provision has no place in this bill. If the legislature wants to expand our antiquated and predatory pooling laws, we should be doing it in the light of day with the people who will be most effected, not behind closed doors with the people who will benefit the most by it. This is the fox watching the hen house. It’s bad business and bad politics."

I tried to stop the pooling provision of the bill on the floor of the House of Representatives by supporting a procedural motion to amend the bill and strip those two sentences out. Despite the warning that this was a vote for forced pooling, the attempt failed by 92-108, a vote pretty much along party lines with fifteen Democrats voting with the Republican majority to keep the language and sixteen Republicans voting to strip it out. The amended language passed the Senate by a vote of 48-2.

When Governor Corbett signed SB 259 into law on July 10, he issued a “signing memorandum” in a feeble attempt to argue the unitization clause was not a form of forced pooling. That’s absurd. If it looks like forced pooling, quacks like forced pooling and takes away your constitutional property rights like forced pooling, it’s forced pooling, and any attempt to argue otherwise is an insult to our intelligence.

I am currently drafting legislation to prohibit all forced pooling in Pennsylvania, including the kind permitted by SB 259, becausethe Constitutional right to protect and enjoy our property is fundamental and cannot be bargained away in a smoke-filled room as part of a political deal. I am actively seeking co-sponsors and plan on introducing the bill before the Legislature reconvenes in the fall.

Although the damage is already done, the backroom shenanigans surrounding SB 259 should give everyone pause to ask a very important question. When a lawmaker talks about being “pro-shale”, are they really “pro-shale leaseholder” or “pro-shale drilling company”? As Pennsylvanians just learned the hard way, those are two very different masters, and it’s often impossible to serve both.