April 14, 2016
A North Carolina Department of Environmental Quality study released in November 2015 recommends a 60 percent forced pooling threshold and claims the State currently has authority to force pool landowners at much lower thresholds. A 2013 analysis by the Mining and Energy Commission clearly indicates such a policy would enable a handful of landowners to force fracking on hundreds in just a single drilling unit.
Forced pooling, known as “compulsory pooling” in North Carolina, gives states the right to compel non-consenting landowners into leasing their oil and gas rights. §113-393 makes forced pooling legal in North Carolina but does not detail when forced pooling may be employed. Most states require that a certain percentage of surrounding land be voluntary leased before forced pooling can take place. North Carolina’s statute sets no such requirement, nor does North Carolina’s statute detail the process for forced pooling, leaving landowners to wonder how their property could be impacted by forced pooling.
What Would the NCDEQ Recommendation Mean in North Carolina?
Even requiring a majority of the acreage in a drilling unit to be voluntarily leased would not protect landowners from forced pooling in North Carolina. The Compulsory Pooling Study Group of the Mining and Energy Commission studied forced pooling in 2013. The Study Group’s findings show that when 60 percent of the acreage in a drilling unit is voluntarily leased, more than 90 of the landowners in a drilling unit may still be vulnerable to forced pooling. Figure I serves as an example, highlighting a hypothetical 640 acre drilling unit in Lee County, North Carolina. In Figure I, only 10 landowners have voluntary leased and 133 landowners are force pooled into the drilling unit.
If the threshold were 90 percent of the acreage, then a minority of landowners would still be able to force pool a majority of landowners. Figure II illustrates a 90 percent threshold, a case in which 65 landowners are voluntarily leased and 78 landowners are force pooled.
The Compulsory Pooling Study Group used the hypothetical 640 drilling unit in Lee County both because it is in the Sanford sub-basin, an area of North Carolina where shale gas development is believed to be possible, and is fairly representative of any 640 area in Lee County. In other words, it is unlikely that creating another hypothetical drilling unit in Lee County would yield significantly different results.
Table I indicates the number and percentage of parcels that would be forced pooled under six different potential forced pooling policies. Only a policy requiring a 95 percent threshold prevents a minority of landowners from force pooling a majority.
Recommendation
Forced pooling should not be used in North Carolina’s unconventional gas environments where hydraulic fracturing, also known as “fracking,” may be used to extract natural gas. Such a prohibition has precedent in other states. Pennsylvania[1] and West Virginia[2] oil and gas laws provide no mechanism for companies to force pool landowners as part of forming a hydraulic fracturing drilling unit.
[1] Pennsylvania § 79.33
[2] West Virginia §22C-9-7