When Will We Ever Learn in West Virginia?
The legislature is currently considering two bills, Senate Bill 538 and House Bill 2853, that are called “unitization bills” but are, in reality, bills that force non-consenting property owners into a natural gas drilling unit. We used to call this “forced pooling,” but I am sure some hotshot public relations consultant thought it was best to call it something else.
We currently have forced pooling for oil and gas below the Onondaga Limestone Formation, in what we call the deep well statute, but it does not apply to shallow wells like those in the Marcellus Formation. That law is controversial enough because it was originally enacted when all wells were drilled vertically to ensure all owners of the gas were compensated and essentially nullify the “right of capture.” Now, in the new era of horizontal drilling, it is a way to force owners into allowing drilling through their property without their consent.
This proposed forced pooling bill is the worst I have ever seen. There is no requirement for gas companies to negotiate in good faith and make reasonable offers with all owners prior to applying to force them, only that they attempt to lease them. It allows up to 35 percent of all the owners in a proposed unit to be forced in by the Oil and Gas Conservation Commission, which is made up of industry representatives and members of the executive branch. No landowner representative is on the commission.
A non-consenting owner who is forced in would get no upfront payment and a 12.5 percent production royalty, which most likely would be reduced by post-production expenses and artificially low affiliate sales pricing. The non-consenting owner would get a lease with terms presented to the commission by the gas company. Right now, in the best areas to drill, upfront payments are in the thousands of dollars per acre, and royalty rates range from 16 percent to 20 percent.
According to the U.S. Energy Information Administration, West Virginia produced more total gas than Ohio in 2020 for the first time since the shale boom began with West Virginia producing 2,592,429 million cubic feet to Ohio’s 2,408,741 million cubic feet. Since 2009 at the beginning of this boom, West Virginia gas production is up over 800 percent from 264,436 million cubic feet.
The other unsung story is natural gas liquids, or NGL, production. West Virginia produced more NGLs than Ohio and Pennsylvania combined, with West Virginia at 132,355,000 barrels compared to Pennsylvania’s 65,363,000 barrels and Ohio’s 36,551,000 barrels in 2019, according to the EIA.
Clearly, West Virginia is a great place to drill based on the numbers, and even with gas prices at record lows in 2020, our gross production grew while Ohio’s fell. That doesn’t seem as though droves of property owners are blocking drilling. Seems to me this legislation is not about that at all but about putting a gun to property owners’ heads so that gas companies can make more profit. I’d bet dollars to donuts that this legislation was written by GOWV, the oil and gas trade association in West Virginia, without input from stakeholder groups.
Instead of realizing we have something of value that other people want and reaping the benefits, passing this bill would give it away for next to nothing. When will we ever learn?
Tom Huber is president of the West Virginia Royalty Owners Association.