Oil And Gas Industry Using 'Forced Pooling' To Force Landowners Into Signing Leases

We've learned the basics of fracking and the hazards of deepwater exploration, but there's a new oil and gas term on the block: 'forced pooling.'

Originally put into law in the mid-1930s (though it varies from state to state), 'pooling' allowed oil and gas companies to combine leases to drill on adjacent properties. In best case scenarios, 'pooling' multiple properties into one increases efficiency as extraction companies are able to tap into one underground reservoir. This results in less rigs and, ideally, less intrusion on landowners' property.

As ProPublica points out however, pooling can also take the form of 'forced pooling,' where landowners are coerced into a lease if a certain percentage of their neighbors have signed as well. The company can then harvest gas from the entire area, regardless of consent.

Oklahoma-based Chesapeake Energy Corp. has begun employing the 'forced' version of pooling in Colorado, according to the Denver Post. Property owners in Colorado's Elbert and Douglas counties have been told to sign leases allowing access or be forced into a pool, without any option to say 'no.'

Many contend this amounts to an abusive eminent domain law, though it was never intended to be used as such. Colorado state law allows for pooling 'to prevent or to assist in preventing waste, to avoid the drilling of unnecessary wells, or to protect correlative rights.' However, in the absence of voluntary pooling,

the commission ... may enter an order pooling all interests in the drilling unit for the development and operation thereof. Each such pooling order shall be made after notice and hearing and shall be upon terms and conditions that are just and reasonable, and that afford to the owner of each tract or interest in the drilling unit the opportunity to recover or receive, without unnecessary expense, his just and equitable share.

The law exists in addition to the 'Rule of Capture,' which allows oil and gas companies to extract gas that flows from a non-leased property into a property they already harvest from.

Comments

[realityCheckInTheMail]

05:05 PM on 08/15/2011

People that freak out over stuff like this remind me of people that buy index funds and then flip out when their investment drops 20% in value.

There is no such thing as 100% pure property rights. Your property and your neighbors property are intertwined. If your neighbors land suddenly becomes super valuable for drilling and development, you should expect your situation to change.

It's only an outrage when you don't get fair market compensation for the infrigement of your property and mineral rights.

If this is too painful to wrap your head around, maybe you shouldn't invest in real estate. It's a gamble - it's all a gamble.

[blakewelding]

03:21 PM on 08/15/2011

I was fortune enough to own my own mineral rights.

[chaz]

03:15 PM on 08/15/2011

Now you know why Reagan and the conservatives hate the government.

Keep voting for conservatives and keep getting screwed I mean pooled..

[Ron Booth]

11:21 AM on 08/15/2011

What many/most property owners in Colorado don't realize is that except in very rare instances when they buy a home, regardless of whether its in a rural, suburban or urban setting the deed and contract that accompanies the the sale of the home almost always conveyed to the new owner "surface rights" but specifically excludes "subsurface rights".

Way back when the West was first being settled primarily the railroads and the mining companies came in an for extraordinarily cheap prices bought up the "subsurface rights across much of Colorado and the West in general.

Beyond mineral rights, most don't realize that in Colorado (again with few exceptions) property owners seldom have any right to the water that may lay beneath their property and that in most cases in order to by a property with water rights that property has to be at least 40 acres or more.

[realityCheckInTheMail]

02:21 PM on 08/15/2011

Whether or not they realize it, these things aren't exactly "secrets". An hour of research online, or a 10 minute discussion with a knowledgeable real estate professional, will inform you of all these supposed "gotchas".

I believe the phrase is "buyer-beware". No one is forcing you to buy land in mining country, and no-one is blocking you from doing basic research. Of course, the people that do the former and not the latter tend to complain pretty loudly.

[Imagineer]

04:04 PM on 08/15/2011

These are not landowners who didn't research their property rights. If they didn't own the mineral rights, there wouldn't even be a discussion. But they DO own the mineral rights, and that's the problem with forced pooling.

The parties referred to in forced pooling cases are landowners who own the mineral rights under their property and are forced to comply with an oil or gas field pool. That's why it is called FORCED. Forced pooling is a legal instrument whereby the government can actually adjudicate property rights. The land owner will not only lose the right to choose what to do with their legally held mineral interests, but may also have little to no control over the impact of drilling on the surface of his property. So with a forced pool, a non consenting land owner has pretty much no choice but to either consent to leasing or selling their mineral interest, or lose everything they own in a years-long legal battle against an oil company with virtually unlimited resources.

The "gotcha" here is a government who basically takes away the rights of a property owner to be able to choose what they will or will not do with their own legal property.

This is eminent domain wearing a different suit - but without the same legal remedies for the landowner. It is a form of legal seizure. And yes, those who are victims of it have something to complain about very loudly.

[Ron Booth]

05:16 PM on 08/15/2011

I totally hear what you are saying but I've worked as a Realtor and still work closely with the real estate industry and issues of water rights, mineral rights, surface or subsurface rights are something that most Realtors don't give a second thought to or bother to discuss with their clients particularly in suburban or urban setting primarily because its something that nearly no client is even thinking and most clients don't care about because most are operating under the incorrect assumption that much like a car, if you buy the vehicle, the tires come with it so if you buy the property so does what ever is under it.

Like you say, it only takes a few minutes of research to discover some of these 'gotchas' but first it has to occur to someone that there might be an actual need to be concerned about such issues.

[Imagineer]

02:58 PM on 08/15/2011

Water rights have nothing to do with the size of property. It has everything to do with historical appropriation and its place in a priority system, referred to as "first in time, first in right". In my county there are numerous properties for sale at 10, 15, 20 acres that will convey historical water rights to the new owner as part of the purchase.

[Ron Booth]

05:02 PM on 08/15/2011

Well actually, you're wrong all you have to do is check Colorado water law. Yes there are a number of properties in Colorado that long before the 40 acre rule was put into effect quite some time ago whose deeds did in fact convey water rights as well and those were grandfathered in under the law. But also, and this is applicable to many properties like those you point out, often those 'historical water rights' you speak of can be and sometimes are separated from the 'surface property rights' and sold and deeded separately.