Pooling in WV - WVONGA is

Pooling in West Virginia
A Historical and Prospective Analysis
Overview – What is Pooling?
Pooling – the integration of tracts or fractional
mineral interests to meet state spacing
requirements—e.g. State XYZ requires a minimum
of X feet between wells drilled to the ABC
Lease A
Lease B
What is Pooling?
• Pooling is the assembly of leases and pieces of
leases to create a drillable site under state
spacing laws, rules and regulations
– NOTE: WV has NO spacing laws, rules and
• THUS: There is NO “pooling” in West Virginia
utilizing the standard, classical definition
– BUT: Broadly used term anyway!
• Unitization:
– joint operations on large scale – e.g. “unit operation”
– combines leases to develop entire reservoir or defined
parts of a reservoir
Select Field Area –
Operated as one unit
• “. . . the joint operation of all or some portion of a
producing reservoir.”
• Unitization is important where there is
– separate ownership of portions of the rights in a
common producing pool
– in order to make it economically feasible to develop
minerals at considerable depths.
• The best results in conservation can be attained
only by unitization.
• W&M Manual of Oil and Gas Terms
Types of Pooling and Unitization
• Voluntary
–Pure matter of contract between Lessor
and Lessee (typically through lease
provision or through lease modification)
–Usually a right granted to Lessee subject
to defined limitations
–Usually triggered by the recording of a
declaration of “pooling and unitization”
Policy Behind Pooling & Unitization
− Encourages efficient land use
− Ensures mineral development for owners
of small tracts whose minerals would not
otherwise be developed
− Ensures that non-consenting owners
cannot impede development of cotenants’ or neighbors’ minerals
Pooling in West Virginia
Statutory Pooling
1. Shallow Wells
2. Deep Wells & Secondary Recovery
3. Coalbed Methane Wells
Pooling in West Virginia
Shallow Wells
W.Va. 22-6-1
Defined as “any gas well, other than a coalbed
methane well, drilled no deeper than one
hundred feet below the top of the “Onondaga
Group”: Provided, That in no event may the
“Onondaga Group” formation or any formation
below the “Onondaga Group” be produced,
perforated or stimulated in any manner.”
Pooling in West Virginia
Shallow Wells – Pooling Process
** Not available generally **
• Was included in WVDEP Regulatory
Legislation in 2011 Regular Session, but was
not passed
• Marcellus “fatigue” prevented consideration
in 2012
Pooling in West Virginia
Deep Wells
W.Va. 22C-9-1, et seq.
Defined as “any well, other than a shallow
well, drilled and completed in a formation
at or below the top of the uppermost
member of the ‘Onondaga Group.’”
Pooling in West Virginia
Deep Wells – Pooling Process
1. Operator must drill “discovery well” to establish pool
2. Application then filed by operator of well or other
operator affected by a well in the pool
3. Notice, including area to be covered by spacing order
4. O&G Conservation Commission enters order setting
spacing and acreage for each drilling unit
5. Must have lease/agreement on tract where drilling
operations will be located
6. Operator must have written consent and easement
from surface owner of record identifying the well
Analysis of 2010 – 2011 Proposal
• Senate Bill 424
– Incorporated new pooling provisions for shallow horizontal
wells into existing Deep Well statute
– Provided for administrative pooling of leased and unleased
– Included a fix to legislatively reverse the Tawney decision by
authorizing deduction of PPEs
– Pooling provisions were included in comprehensive regulatory
proposal addressing development of Marcellus Shale
– Pooling quickly became known as “forced pooling,” and was
labeled a taking by critics
Observations – Why Pooling Failed in 2011
• Regulatory Portion of SB 424 overshadowed pooling provisions
and Legislature had not yet reached consensus on regulatory
• Lack of unified position within industry
• Coalition of diverse, vocal opponents to development had
platform to oppose bill from environmental, surface owner and
royalty owner points of view
• Tawney fix portion of pooling provisions created additional
challenges not squarely related to pooling concepts
• Critics had defined public perception of industry leading up to
• Industry had not adequately educated Legislature on topic
Path Forward
• Two options: pooling or lease integration?
• Expand Deep Well Conservation Law
– Traditional pooling for shallow horizontal wells
– Apply to leased and unleased tracts
– Follow current procedure established by the WV Oil and Gas
Conservation Commission
– WV Code Section 22C-9-1 and 39 C.S.R 1 and 2
• Create Lease Integration Statute
– Authorize integration of leased tracts
– Cannot integrate unleased tracts or tracts controlled by others
– Limited version of existing Deep Well Conservation Law
– Limit to shallow horizontal wells
WVONGA Decision
• Pursue Lease Integration legislation in 2013
• Proposed legislation provides that Lessee:
– Must own or control leases for 100% of mineral interests in tract.
– Must use reasonable efforts to obtain lease modifications to authorize
– Can seek order to integrate leases that do not have pooling clauses if
• Mineral interests are unknown or unlocatable, or
• Have obtained modifications authorizing pooling from majority (final
percentage to be negotiated) of mineral interest owners.
– Order will authorize the integration of the leases, which authorizes
pooling of the gas in the unit.
– Order will require the operator to pay the mineral interest owners a lease
modification payment, the exact terms of which are still being negotiated.
Big 191H
• 62 acre lease tract
• Producer holds lease (lessee)
– No pooling clause in lease
– Thus, must modify lease to allow for
• 21 interest owners
– 14 signed lease modification
– 6 unknown / unlocatable
– 1 refused to sign lease modification
• Cannot drill two laterals on BIG
– Oil and gas will likely be left in ground
• Lateral shortened on BIG 190H H9
– Reserves will be left in ground
Oxford 152 Pad
• 200 acre lease tract
• Producer holds lease (lessee)
– No pooling clause in lease
– Need to modify lease
• 49 interest owners
– 47 signed lease modifications
– 2 refused to sign
• 0.0008% interest nonconsent
• Must shorten 8 laterals
• Can’t drill 1 lateral
• Acreage will be stranded and oil
and gas will not be developed
Successful Legislative Strategies
• Horizontal Well Control Act (Marcellus Bill)
– Special Session December 2011
– Only 5 “No Votes” out of 134 Members
– Provided first step toward regulatory certainty
• Mine Safety Bill (Response to UBB Disaster)
– Regular Session 2012
– Unanimous Approval
– Sufficient Compromise Achieved
Common Core Strategies
• Build consensus within the industry first
• Involve the interested parties early
• Establish good rapport with Governor’s Office
and legislative leadership in both Houses
• Convene working sessions with interested
• Work with Chairmen and key committee
• Maintain consistent message and outwork
Points to Take Away
• Lease integration is a good first step in an incremental
legislative strategy
• WVONGA and IOGA must work together
• Enlist early support of Governor and legislative
• Reach agreement on as many issues as possible with
other interested parties
• Actively engage during legislative session, and remain
agile in order to respond to unanticipated
Thank You!
G. Kurt Dettinger
Charleston, WV
[email protected]
Material Disclaimer
These materials are public information and have been prepared solely for
educational purposes to contribute to the understanding of energy and oil
and gas law. These materials reflect only the personal views of the author
and are not individualized legal advice. It is understood that each case is factspecific, and that the appropriate solution in any case will vary. Therefore,
these materials may or may not be relevant to any particular situation. Thus,
the author and Steptoe & Johnson PLLC cannot be bound either
philosophically or as representatives of their various present and future
clients to the comments expressed in these materials. The presentation of
these materials does not establish any form of attorney-client relationship
with the author or Steptoe & Johnson PLLC. While every attempt was made
to insure that these materials are accurate, errors or omissions may be
contained therein, for which any liability is disclaimed.
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