Pennsylvania Legislature's bill allowing easier pooling of gas well drilling leases draws criticism
Editor's note, July 31: Al Deynzer of Greene County received an improved gas lease for his Center property because his old lease expired, not because it did not contain a pooling clause. This story contained incorrect information about his gas lease negotiations. Deynzer later said he may have misspoken.
Al Deynzer used language in his old gas lease two years ago to renegotiate a better deal on his 58 acres in Greene County, upping his royalty from 12.5 percent to 18 percent, and getting a $145,000 signing bonus.
That probably wouldn't have happened had a bill the General Assembly passed this weekend been in effect. It empowers gas drilling companies to combine leases as long as their contracts don't prohibit it.
Deynzer's lease didn't mention that possibility, and that silence was golden for him, pushing his drilling company to renegotiate so it could add his land into a larger drilling unit common in Marcellus shale drilling, Deynzer said.
“The state might think they can do this, but my lord, what is a property owner supposed to do when this sinks them in deep water?” said Deynzer, 81, of Center. “Why do I want to own property if the government is just going to come in and seize it? It's dastardly.”
The bill sped to passage in the General Assembly and sparked widespread criticism this week. The House and Senate passed the provision as two sentences amended into a five-page bill about protections for royalty recipients.
It is a limited form of pooling, a law in which landowners who haven't signed off on joining a larger drilling unit get brought into one, legal scholars said. That's a common practice in nearly all oil and gas drilling states, but unlike with the Pennsylvania bill, it usually comes with a system of rules and independent oversight to make sure everyone gets a fair deal, experts said. “If I had a legislature doing this to me as a royalty owner and not putting in safeguards, then I'd think that's really bad,” said Jacqueline L. Weaver, law professor at the University of Houston.
Gov. Tom Corbett has 10 days to sign the bill and is evaluating it, a spokesman said Monday. One of his top aides and Republican leaders did help push its passage, said Rep. Garth Everett, R-Lycoming County.
Everett drafted the amendment and has — along with industry officials and Republican leaders in Harrisburg — tried to distance it from pooling law. This is different because it doesn't force people to have gas drilling if they haven't signed up for gas drilling, supporters said. It applies only to people who have old gas leases that are silent about whether their land can be combined with other land.
“We may deal with compulsory pooling some day, but that is not what this bill deals with,” Everett said. “These royalty owners are going to get integrated into a production unit ... they're going to get a check in the mail, and they didn't have to do anything. It's to their advantage to be integrated into a production unit because if they (don't) they're not going to get paid.”
As Deynzer's story indicates, it can, however, undercut a rare chance a few landowners may have to renegotiate better deals than what they had, critics have said.
It's likely to have a disproportionate effect in Western Pennsylvania, said Ross H. Pifer, a Penn State University law professor. The oil and gas industry started in this area, leaving a legacy of active contracts that don't detail any right to combine leases into one unit, he said.
Those landowners “had a tremendous amount of leverage in negotiating with the gas company who wished to develop the property for shale gas extraction,” Pifer said in an email. “The ‘implied pooling' provision in this legislation will shift that balance and remove any negotiating leverage held by the landowner.”
Corbett's Marcellus Shale Advisory Commission had recommended in 2011 that the state follow others and adopt rules for forced pooling. That type of law does force people to allow gas drilling under their land, but in turn the state ensures that people who want to drill don't get blocked by other holdouts. It sets up an oversight system to ensure drilling happens fairly with fair payouts.
But Corbett vowed to fight it, spurred on by small-government advocates and environmentalists who advocated local control. That appears to be haunting the state now as it seeks to encourage more drilling without a full-scale pooling system, said Bruce M. Kramer, an emeritus law professor at Texas Tech University who wrote the leading treatise on pooling law.
“You're leaving it up to the operator instead of the state agency to make” complicated judgments on fairness for landowners, Kramer said. “It is quite unique.”
It will put a legal burden on landowners to fight drilling companies in court whenever they object to the company's decision, experts said.
“They're rewriting contracts,” said Donald D. Saxton, a South Strabane natural resources attorney who represented Deynzer's neighbors. “He would have been blown out of the water if this statute was enacted then.”
Timothy Puko is a staff writer for Trib Total Media. He can be reached at 412-320-7991 or email@example.com.