Op-ed: ‘Forced pooling’ bills should be rejected
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In 1866 Gideon Tucker, a lawyer and newspaper editor in New York, famously wrote, "No man's life, liberty or property are safe while the Legislature is in session." This year the West Virginia Legislature is proving his point.
Our lawmakers in Charleston are considering HB 2583 and SB 538, bills being pushed by the big corporations in the oil and natural gas industry. If passed, they would allow "forced pooling" of shallow oil and natural gas properties. The property owner would be forced to accept the state's minimum royalty on horizontal wells--a paltry 12.5 percent. Most wouldn't even see that since the industry can deduct post-production costs from the total.
As written, these bills violate conservative principles so fundamental to Republicans that they are included in the West Virginia Republican Party's 2020-2024 platform.
The platform states clearly that West Virginia Republicans "[respect] all property rights of the landowners and mineral owners" and that "no statute will be enacted that would prohibit free market rate agreements for the owners of the surface or minerals. No statute should be enacted that would establish lease terms between a company and a royalty owner." It also states that there would be " no enacting of laws by any legislative body that would force our citizens to give up their Constitutional right of a trial by jury of their peers for the settlement of legal disputes."
See: https://wvgop.org/about/platform
These forced pooling bills go against these vary GOP principles, yet Republicans in both houses have sponsored these bills.
The legislature should not interfere with the rights of the mineral owners to negotiate their own contracts for royalties. In some areas of the state, an informed owner could get upwards of 16 – 20 percent in a gross royalty for their oil and gas leases. The amount should also be based on actual sales to independent third parties. The amounts of a fairly negotiated lease would be significantly higher than the meager 12.5 percent minimum, especially after expenses are deducted.
That's not what the industry wants though. They want to do whatever they can to increase their profit at the expense of the royalty owners. Take EQT. EQT Production sells its Marcellus gas to an affiliate, EQT Energy. The purchase price paid by EQT Energy is artificially low, and this results in a much lower price on which to base the landowner's royalty. Even worse, EQT takes deductions for post-production costs which results in an even lower "net" royalty that is actually paid to the landowner. I am aware personally of instances where the royalty was negative after deductions. In those cases, the owners owed EQT for the privilege of selling their natural gas!
Informed landowners would never agree to these minimum net royalties of just 12.5 percent. If legislators pass forced pooling legislation, however, landowners could be forced into a pool and paid that amount whether they agreed to it or not. It would significantly decrease the royalties paid to West Virginians, while increasing the profits of out-of-state corporations.
SB 538 and HB 2853 would also permit these out-of-state corporations to impose binding arbitration clauses in the landowners' contracts. These clauses not only violate a landowner's due process rights, but also their 7th Amendment right to trial by jury. Again, the West Virginia Republican party platform specifically opposes the enactment of laws that take away our Constitutional rights--but these bills do just that.
The truth is that forced pooling is nothing more than a form of socialism and corporate welfare at the expense of West Virginia property owners. They get to increase their profits at our expense. We lose our ability to negotiate fair lease agreements. We lose just compensation for our natural gas and oil royalties. We lose our rights of due process and jury trial. That's wrong.
As a member of the Farm Bureau and as an oil and gas property owner, I urge you to contact your legislators. Tell them to reject SB 538/HB 2853. These bills are bad for West Virginia property owners. They violate our conservative values. Stand up against socialism and corporate welfare and protect your property rights before the legislature gives them away!
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Scott Windom is with Windom Law Offices in Harrisville.