By David McMahon
Forced unitization bills, often termed “forced pooling” bills, have been very controversial for years. West Virginia Surface Owners Rights Organization (WVSORO) has always said a good forced pooling bill would be a good thing because it lessens the number of wells and well pads needed to produce natural gas for whatever market there is for natural gas. It is just that in prior years we have never seen a good bill, just one that favors industry over surface owners and those of our members who also own some minerals.
This year’s bill, SB 694, is not quite a “good” bill, but because of all the good surface protections it contains, and because it is OK to most mineral owners, and because the industry dominates the Legislature and could do so even more after the next election, WVSORO thinks this bill is OK and told the Legislature so. To see a copy of the bill go here. It takes effect June 9, 2022 and we plan to have more information on our website by then.
Methane gas originates in shale formations laid down eons ago. Over the eons some of it creeps towards the surface and is sometimes trapped on its way upward in a porous and permeable sandstone formation that is topped with a denser cap rock formation above that keeps it from migrating further upward.
Until about 2008 almost all gas drilling was to the gas trapped in those sandstone formations. A vertical well was drilled through the formation and fractures were put into the formation for the gas to flow more freely to the well bore. Originally these fractures were created by nitroglycerine, but more recently by pumping water (and accompanying enabling chemical and sand) under enough pressure to crack and lift the above rock, and leave sand in the cracks! The gas then flows from the permeable sandstone into the fractures and into the well bore and up the well casing to the surface.
The limitation of this gas extraction using vertical wells was that the well bore exposed to the rock was only as long as the formation was thick. The other limitation is that the gas trapped in the sandstone formations was somewhat limited because whatever gas migrated upwards from the originating shale formation into the sandstone was a lot less than what was left behind in the shale. The shale formation contains much, much more gas.
Why didn’t drillers drill the shale if it had more gas? Because it has almost no porosity or permeability. In the amount of time gas will flow a kilometer through sandstone, it will only travel one meter through a shale. So putting a vertical well through the shale formation will get very little gas flowing out of the shale into the vertical well bore and to the surface and to market.
Drillers first tried to get more gas out of shale by increasing the volume of water used to fracture vertical wells. Instead of the conventional practice of using the amount of water that can be held in a tractor trailer tank truck of water, they started using enough water to fill several Olympic swimming pools. That worked somewhat better.
But then along came horizontal drilling. Techniques were developed to put the motor turning the drill bit boring through the well bore at the bottom, far end of the drill pipe instead of using a motor at the surface to turn the whole drill pipe all the way down to the bit at the end of the drill pipe. Also, highly accurate inertial guidance systems were developed to accompany the drill bit as it created the horizontal bore. Those two factors coupled with the new large volume fracturing techniques created a revolution, a tsunami, of horizontal drilling in shale formations like the Marcellus and the Utica and the Rogersville. These new wells cost several million dollars each to drill compared to several hundred thousand dollars it cost to drill a conventional vertical well. However, one of these horizontal shale wells produces 60 times the gas of a conventional vertical well, so they are much more economically efficient. You are unlikely ever to see a new conventional well drilled. (And the fact that many of the old wells as they play out will become orphaned is a problem to be discussed elsewhere.)
The most likely pollution problem from drilling a gas well occurs as it is first drilled vertically down through the water table. (Actually it’s second; the real most likely problem is spills on the well pads during drilling.) So if one well can serve to get the same gas as 60 wells, the chances of ground water pollution from this first step in drilling the well is reduced by 60 times.
Also, conventional vertical wells have to be spread out far apart, and there has to be a different well pad for each of those spread out wells. Several horizontal wells, however, can be drilled from one well pad — 6 or 8 or even more horizontal wells from one pad. So again, fewer well pads on surface owners (with the danger of spill prevention going bad also reduced). Of course that one pad is much, much bigger, but still it is a huge reduction in the total surface use and spill risk for the same amount of gas.
So the use of the drilling of horizontal shale wells has greatly increased. There would be even fewer of these wells drilled (and hopefully fewer well pads) if the horizontal wells could be drilled longer and longer. The greater the length of the bore exposed to the formation (and fractured) the more gas comes up out of one well.
What has limited the full exercise of long horizontal well bore drilling technology is that the driller should typically have at least 640 acres of leased mineral acreage to drill these wells. If the driller can find one 640 acre mineral tract, that is all that is needed. But ownership of much of West Virginia, particularly in the area of the state being drilled by horizontal Marcellus Shale wells, is broken up into much smaller tracts. So the driller needs to get leases from the owner (or owners — there can be scores of heirship owners of a single mineral tract) of several separately owned, neighboring mineral tracts to put in a 640 acre “unit” for the drilling of the horizontal shale wells.
If the owner(s) of the mineral tract towards the end of a planned horizontal well bore will not sign a lease (or cannot be identified or located because there are so many heirs), then the driller has to make the horizontal bore shorter than the driller would otherwise make it. And remember the longer the bore the better, as noted before.
So the driller wants to be able to force tracts into their units so they can drill longer bores. That is why the drillers want SB 694. It allows a State, legislatively authorized commission to force tracts into a unit for drilling longer bores.
WVSORO respects the views of those who want to leave any possible stumbling block in the way of hydrocarbon energy production. But our position has always been that, for the reasons above, as long as horizontal methane gas wells are going to be drilled, legislation that will allow longer bores from fewer wells to be drilled from potentially fewer well pads is a good idea. And in fact these horizontal shale wells are being drilled now and will be for the foreseeable future. So a good forced unitization bill is a good idea, but it has to be a good one. (Note that this is commonly called forced “pooling”. But variations of the root word “pool” are used for three different concepts in the existing statutes, so we use the word forced “unitization”.)
The problem with forced unitization bills introduced in the past years has been that the forced unitization legislation introduced in the past has done the good things such legislation can do for the drillers, but not done good things for surface owners, and has not been fair to forced mineral owners in determining how much the mineral owners will get paid up front and for royalties. SB 694 introduced this year is far from the best possible bill. But it is OK for WVSORO because it does have some significant beneficial provisions for surface owners.
First, the driller will still have to get the permission of the surface owner to put one of its big horizontal wells pads. Though the drillers would like that to be something that could be forced upon the surface owner, the bill does not provide for it! The driller has to get the surface owner’s agreement. And, we advise surface owners to ask for $640,000 from the driller to agree to the placement of the pad on their surface! See our website for more.
Second, remember how one tract of minerals can have the ownership shared by scores of heirs? Sometimes it is not possible to find those heirs in order to pay them the royalty payments and signing bonuses to which they are entitled. Under SB 694, if those mineral owners do not show up in five years, the surface owner gets not only all the back royalties for those five years, the surface owner gets title to that share of the minerals, plus the surface owner gets all future royalties! The surface owner has to bring a court proceeding to do that. Check out our website in a little while and we will explain how that is done — and when. You should wait a couple years after the wells are drilled.
Third, there are legislative findings in the bill recognizing surface owners’ rights added into the Code that can be used by courts in interpreting and carrying out the bill.
Fourth, about one-third of WVSORO members also own the minerals, or a share of the minerals, under their land. So if their minerals (but not surface) are forced into a unit they will get very fair royalties paid to them and they will get paid very fair up front money calculated off a weighted average of what the drillers paid to owners who did sign leases. The terms for forcing mineral owners into units whose with their minerals being held by production by leases that did not have pooling/unitization clauses, or with leases with old pooling/unitization clauses before 2008, are not so good unfortunately.
Fifth, the legislation adds a farmer and a mineral owner to the commission that determines whether to allow the driller to form the unit, and if so, how much the mineral owners should get paid.
So this is not to say that SB 694 is perfect. IF we could have drafted the legislation we could have drafted something even better in the devilish details. But what we got was good for surface owners. And with the political climate at the current Legislature, and the unpredictability of the future, we believed it was the wise thing to say that we were OK with this bill.
Note: This is from the West Virginia Surface Owners Rights Organization. Because of that, all reference to “us”, “our website”, etc. are to the West Virginia Surface Owners Rights Organization.