Pooling study group releases draft policy

Mar. 02, 2013 @ 05:00 AM

Hydraulic fracturing regulations in North Carolina are now one small step closer to being finalized.

At a meeting of the N.C. Mining and Energy Commission study group focusing on compulsory pooling, Ray Covington unveiled a tentative policy statement that would allow compulsory, or forced, pooling of mineral rights but would require energy companies to sign an agreement with landowners before conducting any surface operations — even if the landowner doesn't own the mineral rights.

"The Commission in ordering pooling of mineral, oil, and gas interests shall not have the authority to grant an operator any rights to the surface property above any mineral, oil and gas interests compelled into a pool," the proposed policy reads. "Any access to surface rights above compelled mineral, oil, and gas interests may be obtained only through negotiation of a voluntary agreement between the operator and the owner of the surface rights, regardless of whether such surface rights are unified with or divided from the underlying mineral, oil, and gas interests."

Covington, the chairman of the study group, ran into some confusion when he tried to officially recommend the policy to the larger MEC board, which is the ultimate goal of the study group. The confusion was a matter of quorum — of the four voting members of the MEC also on the study group, only he and geologist Charles Holbrook attended the meeting. Jim Womack, MEC chairman and Lee County Commissioner, was at an economic summit in Sanford, and environmental/regulatory lawyer Charlotte Mitchell was not present.

Representatives from both the Attorney General's office and the Department of Environment and Natural Resources, which oversees the MEC, advised Covington to not try to make an official motion without the appropriate legal advice because it was unclear if a quorum for the group required 50 percent of voting members or more. So although the process was stalled, Covington said he has no plans to change the policy statement, even after it was questioned by two study group members.

James Robinson, research and policy associate at the Rural Advancement Foundation International (RAFI), asked why the group had considered so many other state's ways of handling compulsory pooling without ever having a discussion of whether it's even a necessary policy.

"We might have skipped a conversation," he said, to which fellow study group member Grady McCallie, policy director of the N.C. Conservation Network, said he agreed with Robinson and also questioned why solid minerals would be included in forced pooling laws, which are traditionally enacted in order to guarantee that drillers don't take — by accident or on purpose — amorphous liquid or gas from a non-consenting owner without paying.

Covington said the study group is tasked by the General Assembly to write the regulations, not to determine what should be regulated. However, he did concede that he would take those points into consideration, especially the one about necessity.

"It's not off the table," he said.

Pennsylvania, which is serving as the model for many of the case studies North Carolina is studying for various components of its own nascent fracking regulations, is also the only major natural gas-producing state that doesn't have compulsory pooling. But Brigid Landy, who works for the Pennsylvania Supreme Court and also hails from the state's most heavily fracked county, said there's a bill in the state senate (S-355) that would legalize forced pooling.

The two main arguments for pooling, Landy said, are to prevent waste and the proliferation of drill sites, as well as to protect people from losing valuable mineral deposits to drilling activity on a neighbor's property. McCallie asked whether someone would be able to challenge a pooling order by saying he or she wants to wait to drill until the market price for natural gas rises.

Landy responded that oil companies probably wouldn't drill in the first place if they thought prices were too low, so such a scenario is unlikely. Plus, she said, a lone mineral rights owner who holds out while neighbors are drilling might have a difficult time convincing a company to come drill years later because officials would know most of the gas in the area was already gone.

"The chances of someone coming in and drilling another $5 million well pad to drill that little patch of land is very small," she said.