Forced Pooling: When Landowners Can’t Say No to Drilling

As the shale gas boom sweeps across the United States, drillers are turning to a controversial legal tool called forced pooling to gain access to minerals beneath private property–in many cases, without the landowners' permission.

Forced pooling is common in many established oil and gas states, but its use has grown more contentious as concerns rise about drilling safety and homeowners in areas with little drilling history struggle to understand the obscurities of mineral laws.

Joseph Todd, who lives in rural Big Flats, N.Y., wasn't especially concerned when he learned in 2009 that his half-acre property had become part of a drilling unit. But when methane gas showed up in his drinking water well after the drilling began, he became outraged, describing forced pooling as "eminent domain for gas drillers."

"We never wanted to be a part of the drilling," he said. "To have something like this happen is beyond frustrating." Todd and some of his neighbors are now suing the company that is drilling near their neighborhood, even though no link has been proven between drilling and the contamination of their water.

People who see forced pooling as an infringement of property rights also tend to oppose the practice, including Pennsylvania's Republican governor, Tom Corbett, who has otherwise been a staunch supporter of the drilling industry.

"I do not believe in private eminent domain, and forced pooling would be exactly that," Corbett told a group of nearly 400 drilling industry representatives and supporters last month. He also said he won't sign pending legislation that would allow forced pooling for drilling in Pennsylvania's gas-rich Marcellus Shale.

Forced pooling compels holdout landowners to join gas-leasing agreements with their neighbors. The specific provisions of the laws vary from state to state, but drillers are generally allowed to extract minerals from a large area or "pool"–in most states a minimum of 640 acres–if leases have been negotiated for a certain percentage of that land. The company can then harvest gas from the entire area. In most cases, drillers aren't allowed to build surface wells on unleased land, so they use horizontal wells or other means to collect the minerals beneath those parcels.

Thirty-nine states have some form of forced pooling law. West Virginia and Pennsylvania each have measures that don't apply to drilling in the Marcellus Shale, and proponents are trying to expand the laws in those states. (Check out our chart of forced pooling laws across the United States.)

In New York, the owners of 60 percent of the acreage in the proposed drilling unit must agree to lease their land before the state oil and gas board will consider a driller's petition for compulsory integration, as it is known there. In Virginia, only 25 percent of the land must be leased. In all states with such laws, drillers must notify all the landowners within the prospective drilling area of their right to participate in a hearing before the oil and gas board, or whatever regulatory agency the state has set up for that purpose.

If the board approves the driller's petition, holdout landowners typically have three choices: contribute to the cost of the well and share profits from the sale of the gas; don't pay for the well and share the gas profits after a "risk aversion" penalty is subtracted, or receive a state-mandated minimum royalty payment. Landowners who choose none of these options are automatically enrolled in the last plan. Opting out is not a possibility.

Gas companies argue that forced pooling allows them to build fewer wells and harvest gas efficiently, creating tidy drilling parcels as opposed to a patchwork pattern of leased and unleased land.

Forced pooling is also supported by landowners who fear that drilling companies will place wells near their property and siphon off their gas without payment. Another group of supporters includes people who own the surface rights to their property while someone else owns the mineral rights–a situation known as a "split estate." Although these landowners usually aren't entitled to any payment, some forced pooling laws compel drillers to compensate them, too.

Corrections

• Correction

  May 19, 2011: This story has been corrected. It should have made clear that state regulations in New York and Virginia require drillers to lease a certain percentage of the acreage in a drilling unit before forced pooling or compulsory integration can occur, rather than a percentage of the landowners. May 20: This story originally said 38 states have some form of forced pooling law. Actually, 39 states do.