Part I – How will North Carolina Handle Forced Pooling?

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By October 1, 2013, the North Carolina Mining and Energy Commission (“N.C. MEC”) must report its findings and recommendations for hydraulic fracturing to the Joint Legislative Commission on Energy Policy and the Environmental Review Commission. One of the issues being considered by the N.C. MEC is whether the state will permit forced pooling by oil and gas companies. So, what is forced pooling and where does it stand in North Carolina?

Forced pooling, sometimes referred to as “compulsory pooling,” gives lessees or landowners the right to consolidate adjoining tracts and drill within a producing unit with or without the consent of all landowners within the unit. Forced pooling is similar to eminent domain in that it permits a lessee to apply directly to the state or regulatory body to compel all mineral interests in a producing unit to participate. While the idea of being “forced” to do anything has many landowners up in arms, forced pooling has a positive side.
First, forced pooling produces gas in a more efficient manner by creating drilling parcels with fewer wells drilled as opposed to a patchwork of wells on leased and unleased land. This prevents environmental damages by minimizing the amount of wells and maximizes the recovery of gas.
Second, forced pooling is more economical for small mineral rights owners who will share in the drilling costs with the other mineral rights owners in the pooled unit.
North Carolina General Statutes § 113-393 already permits the state to force pool leased and unleased estates into a single drilling unit; however, the 1945 statute is outdated and was intended for vertical drilling as opposed to the horizontal drilling involved in today’s hydraulic fracturing. In developing a regulatory scheme, N.C. MEC is studying how other states handle forced pooling. Earlier this month, the Compulsory Pooling Study Group released its first draft rule and heard a presentation on proposed forced pooling in Pennsylvania.
With the deadline for its report only months away, the N.C. MEC has a lot to consider, including whether forced pooling will be permitted and if so, how a nonconsenting landowner will be compensated and what liabilities that landowner will incur. Stay tuned for Part II which will take a closer look at three approaches to forced pooling recently reviewed by the N.C. MEC.

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Topics:  Forced Pooling, Fracking, Mineral Leases, Minerals, Oil & Gas

Published In: General Business Updates, Energy & Utilities Updates, Commercial Real Estate Updates, Residential Real Estate Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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