Study group greenlights forced pooling proposals

Aug. 29, 2013 @ 05:01 AM

On Wednesday, official policy recommendations for compulsory pooling took a step toward becoming reality.

Compulsory pooling, in which landowners who don’t want to lease their mineral rights to an energy company can be forced to do so if enough of their neighbors sign leases, has been legal in North Carolina since 1945. Updated guidelines for the controversial practice are one of several policy issues that state officials want addressed before lifting North Carolina’s moratorium on natural gas drilling.

The body in charge of making the policy recommendations for the General Assembly is the Mining and Energy Commission (MEC), and specifically the commission’s study group focused on compulsory pooling. It’s composed of four voting members — MEC chairman and Lee County Commissioner Jim Womack, study group leader and Lee County landowner Ray Covington, Moore County resident and geologist Charles Holbrook and Raleigh attorney Charlotte Mitchell — as well as about a dozen others from various special interests or areas of academia.

The recommendations approved included:

• At least 90 percent of the acreage — and preferably but not necessarily also including more than 50 percent of property owners — in an area must be leased before a pool can be formed.

• Non-consenting parties in a pool will receive one-eighth (12.5 percent) of the profits from the minerals under their land until all costs are recouped, after which they will receive 100 percent. Consenting owners can choose to share in the costs of the drilling operation, to surrender working interest “in exchange for reasonable consideration,” or to be charged a risk penalty of no more than 200 percent of the cost of the well.

• Consenting owners with fewer than 10 acres would not be assessed a risk penalty and could choose the same one-eighth system that applies to non-consenting landowners.

• Before a pool can be formed, there must be surface use agreements with all the landowners.

The above are just recommendations, which will go to the General Assembly for consideration.

A part of the meeting, held in Raleigh at the Department of Environment and Natural Resources, that generated controversy was exactly how much willing participation energy companies must get before they can force the remaining mineral rights owners into a pool. Study group members settled on a minimum of 90 percent of acreage, with no requirement for the percent of landowners. Mitchell supported 95 percent, but Womack, Covington and Holbrook all supported 90 percent.

Don Kovasckitz, director of Lee County Strategic Services, has developed detailed surface and sub-surface maps of Lee County, and he worked with Covington and others to study how drilling units and pools would likely come about locally. Hypothetical maps drawn over parts of Lee County show that the 90 percent acreage requirement would equate to 45-48 percent of owners consenting and the rest not consenting. Increasing the burden to 95 percent increases the percent of consenting owners considerably, from 67-69 percent.

Along with Mitchell, James Robinson of RAFI (the Pittsboro-based Rural Advancement Foundation International) argued for the 95 percent threshold, although he questioned whether North Carolina should allow forced pooling at all. He noted that a single landowner in a 640-acre potential pool — the average size nationwide — could only stop the pool if that landowner owned 32 acres or more.

But Covington and Womack both said many people own more than 32 acres — about 12 percent of parcels in the area likely to be drilled, according to Kovasckitz’s maps, are more than 30 acres — and they also noted that even if one person couldn’t do it, two or three easily could.

“As much as I want to see personal property rights preserved, and mineral rights preserved, you can’t make it too easy to shut [energy companies’ drilling efforts] down,” Womack said. “... I know this district because it’s my district where this is likely going to happen. And there are a lot of folks out there who still aren’t convinced.”

Earlier in the discussion, there was also dissent from study group member Grady McCallie of the North Carolina Conservation Network. Like RAFI’s Robinson, he argued that forced pooling shouldn’t be allowed at all.

“The notion that we would decide with 50 percent — or even a [67 percent] supermajority — what happens to a piece of private property ... is just not what we do in this country,” he said, to vigorous applause from the audience, many of whom have come to past meetings to oppose forced pooling as well as fracking in general.

Womack said he agreed in principle, but thought forced pooling — which actually began as a way to protect people from having their minerals mined without their knowledge and without being compensated — is necessary in that regard, but that it should be the state’s goal to try to form drilling units in such a way that forced pooling is a last resort, not a commonplace tactic.

“I find it abhorrent that a simple majority of landowners can dictate what you do with a private piece of land,” Womack said. “... The way you preserve that argument... is you have a systematic way of carving a drilling unit out.”

How to do that, he said, will be addressed in upcoming meetings of Holbrook’s committee on oil and gas administration. That group meets next at 10:30 a.m. Sept. 26 at the Archdale Building in Raleigh.