Presentation on theme: "Pooling in West Virginia A Historical and Prospective Analysis"— Presentation transcript:
1 Pooling in West Virginia A Historical and Prospective Analysis
2 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 formation:Lease ALease BWellUnit
3 What is Pooling?Pooling is the assembly of leases and pieces of leases to create a drillable site under state spacing laws, rules and regulationsNOTE: WV has NO spacing laws, rules and regulationsTHUS: There is NO “pooling” in West Virginia utilizing the standard, classical definitionBUT: Broadly used term anyway!
4 Unitization Unitization: joint operations on large scale – e.g. “unit operation”combines leases to develop entire reservoir or defined parts of a reservoirSelect Field Area – Operated as one unitBDGACFE
5 Unitization“. . . the joint operation of all or some portion of a producing reservoir.”Unitization is important where there isseparate ownership of portions of the rights in a common producing poolin 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
6 Types of Pooling and Unitization VoluntaryPure matter of contract between Lessor and Lessee (typically through lease provision or through lease modification)Usually a right granted to Lessee subject to defined limitationsUsually triggered by the recording of a declaration of “pooling and unitization”
7 Policy Behind Pooling & Unitization Encourages efficient land useEnsures mineral development for owners of small tracts whose minerals would not otherwise be developedEnsures that non-consenting owners cannot impede development of co- tenants’ or neighbors’ minerals
8 Pooling in West Virginia Statutory PoolingShallow WellsDeep Wells & Secondary RecoveryCoalbed Methane Wells
9 Pooling in West Virginia Shallow WellsW.VaDefined 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.”
10 Pooling in West Virginia Shallow Wells – Pooling Process** Not available generally **Was included in WVDEP Regulatory Legislation in 2011 Regular Session, but was not passedMarcellus “fatigue” prevented consideration in 2012
11 Pooling in West Virginia Deep WellsW.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.’”
12 Pooling in West Virginia Deep Wells – Pooling ProcessOperator must drill “discovery well” to establish poolApplication then filed by operator of well or other operator affected by a well in the poolNotice, including area to be covered by spacing orderO&G Conservation Commission enters order setting spacing and acreage for each drilling unitMust have lease/agreement on tract where drilling operations will be locatedOperator must have written consent and easement from surface owner of record identifying the well location
13 Analysis of 2010 – 2011 Proposal Senate Bill 424 Incorporated new pooling provisions for shallow horizontal wells into existing Deep Well statuteProvided for administrative pooling of leased and unleased tractsIncluded a fix to legislatively reverse the Tawney decision by authorizing deduction of PPEsPooling provisions were included in comprehensive regulatory proposal addressing development of Marcellus ShalePooling quickly became known as “forced pooling,” and was labeled a taking by critics
14 Observations – Why Pooling Failed in 2011 Regulatory Portion of SB 424 overshadowed pooling provisions and Legislature had not yet reached consensus on regulatory provisionsLack of unified position within industryCoalition of diverse, vocal opponents to development had platform to oppose bill from environmental, surface owner and royalty owner points of viewTawney fix portion of pooling provisions created additional challenges not squarely related to pooling conceptsCritics had defined public perception of industry leading up to 2011Industry had not adequately educated Legislature on topic
15 Path Forward Two options: pooling or lease integration? Expand Deep Well Conservation LawTraditional pooling for shallow horizontal wellsApply to leased and unleased tractsFollow current procedure established by the WV Oil and Gas Conservation CommissionWV Code Section 22C-9-1 and 39 C.S.R 1 and 2Create Lease Integration StatuteAuthorize integration of leased tractsCannot integrate unleased tracts or tracts controlled by othersLimited version of existing Deep Well Conservation LawLimit to shallow horizontal wells
16 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 pooling.Can seek order to integrate leases that do not have pooling clauses ifMineral interests are unknown or unlocatable, orHave 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.
17 Big 191H 62 acre lease tract Producer holds lease (lessee) No pooling clause in leaseThus, must modify lease to allow for pooling21 interest owners14 signed lease modification6 unknown / unlocatable1 refused to sign lease modificationCannot drill two laterals on BIG 191HOil and gas will likely be left in groundLateral shortened on BIG 190H H9 wellReserves will be left in ground
18 Oxford 152 Pad 200 acre lease tract Producer holds lease (lessee) No pooling clause in leaseNeed to modify lease49 interest owners47 signed lease modifications2 refused to sign0.0008% interest non-consentMust shorten 8 lateralsCan’t drill 1 lateralAcreage will be stranded and oil and gas will not be developedThe 2 parties that refused to sign lease modification wanted $50,000 each for the lease modification.
19 Successful Legislative Strategies Horizontal Well Control Act (Marcellus Bill)Special Session December 2011Only 5 “No Votes” out of 134 MembersProvided first step toward regulatory certaintyMine Safety Bill (Response to UBB Disaster)Regular Session 2012Unanimous ApprovalSufficient Compromise Achieved
20 Common Core Strategies Build consensus within the industry firstInvolve the interested parties earlyEstablish good rapport with Governor’s Office and legislative leadership in both HousesConvene working sessions with interested partiesWork with Chairmen and key committee membersMaintain consistent message and outwork opponents
21 Points to Take AwayLease integration is a good first step in an incremental legislative strategyWVONGA and IOGA must work togetherEnlist early support of Governor and legislative leadershipReach agreement on as many issues as possible with other interested partiesActively engage during legislative session, and remain agile in order to respond to unanticipated developments
23 Material DisclaimerThese 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 fact-specific, 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.