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Bear in the Woods: Environmental Law Blog

Thursday, November 21, 2013

Playing ping pong with important issues: Where is Governor Corbett on forced pooling?

The Pennsylvania Environmental Hearing Board issued a decision yesterday rejecting the Corbett administration's attempt to have the EHB decide whether a gas company could use forced pooling in the Utica Shale formation.

Forced Pooling
"Pooling" enables companies to combine adjacent tracts of leased land into one unit from which they can develop the gas. "Forced pooling" generally allows a company to access minerals beneath private property even if the landowner opposes drilling, and without having to independently reach a financial agreement with a willing landowner. Many, including Governor Corbett, have described "forced pooling" as "private eminent domain" because it allows the company to forcibly take away one of the bundle of rights commonly associated with private property ownership.

The Pennsylvania Oil and Gas Conservation Law is a 50-year-old statute that was enacted before horizontal drilling made development of the Marcellus and Utica Shale economically feasible. The Conservation Law only applies to wells that penetrate the Onondoga formation - which lies beneath the Marcellus and above the Utica Shale. Before drilling a well that penetrates the Onondoga, gas drillers must obtain a permit from the Department of Environmental Protection (DEP). Once a well has been drilled into the Onondoga, the operator can apply for a well spacing order from the DEP, which has the ability to limit wells that will be located in the spacing unit within a ten-square-mile area.

The Conservation Law further allows that when a spacing unit includes multiple real estate parcels that are owned separately, the owners may voluntarily integrate their parcels for the purpose of developing the resources within the unit. But if the landowners do not reach a voluntary agreement, "an operator having an interest in the spacing unit" can apply for an integration order with "terms and conditions that are just and reasonable." In other words, for wells that penetrate the Onondoga such as Utica Shale wells, the Conservation Law seemingly allows companies to obtain government orders that require "forced pooling" of parcels within the unit.

DEP Sends Hilcorp To The EHB
One of Hilcorp Energy Company's proposed Utica Shale drilling units in Lawrence County with an unleased parcel in the middle.In July 2013, Hilcorp Energy Company submitted an application to DEP asking it for a well spacing order regarding the Utica Shale formation for 3,267 acres in Lawrence and Mercer counties – all but 35 acres of which the company has under lease. Hilcorp's request included a forced pooling order regarding the 35 acres of private property that the company does not have under lease. But the Corbett administration apparently wanted nothing to do with it, as its DEP directed the company to apply to the Environmental Hearing Board for relief instead.

The EHB Punts It Back To DEP
At DEP's direction, Hilcorp filed an application to the EHB either for a well spacing order under the Conservation Law, or an order requiring DEP to act on its application. On Wednesday, the EHB rejected DEP's arguments that it, and not the agency, had the responsibility for making forced pooling decisions. Judge Mather's stinging concurrence described the DEP's position as "Orwellian" and counter to the agency's forty-two year history of implementing the Conservation Law. Though the EHB directed Hilcorp to file its application with the DEP, it stopped short of an order directing DEP to act on the application.

Corbett's Next Move
It is understandable why the administration sought to avoid its responsibilities under the Conservation Law. Gov. Corbett has been, at best, inconsistent on forced pooling.  On the one hand, he made public statements opposing the very concept, calling it "private eminent domain." And yet, in July he signed a bill that allowed companies to force pooling on property owners where the companies hold leases that did not otherwise give them that right. In that instance, the administration seemed completely ignorant that the law takes away the right of property owners to negotiate a fair price for the company to pool the mineral rights - the very definition of "forced pooling."

So the question is, what is the administration's next move? Does it direct the DEP to do its job under the Conservation Law? Does it appeal the EHB's decision? Does it enlist the legislature to amend the Conservation Law? Or does it try to find another governmental agency other than the EHB that will make the decision?

Stay tuned. Forced pooling is back in the news and its not likely to go away anytime soon.

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