Unwilling drilling: Mineral-rights owners opposed to extraction face forced pooling, few options

As low prices for crude and natural gas continue to hammer the industry, oil and gas companies are turning to a 65-year-old state law that allows them to extract minerals, often against the will of a landowner who has mineral rights.

Oil companies have been beating a path to the Colorado Oil and Gas Conservation Commission applying for permission to “force pool,” a process that allows operators to drill a well to access a pool of resources, often called a drilling unit, from under a parcel of land that has multiple owners with mineral rights.

It usually involves horizontal drilling, a technique that runs pipes underground at a depth of 2,000 to 7,000 feet from one well to capture resources in a pool area that can be as large as 640 acres — the equivalent of one square mile, a more economical approach than drilling an area with multiple vertical wells.

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“Forced pooling has skyrocketed since horizontal drilling began allowing for larger drilling units,” said Matt Sura, an oil and gas attorney based in Boulder who has clients in Northern Colorado. “Most people are unaware of this law even though it’s been around for a long time,” he said, leading to angst and confusion among mineral-rights owners.

What is it?

Forced pooling:  The act of being forced by state law into participation in an oil and/or gas producing unit. Pooling is a technique used by oil and gas development companies to organize an oil or gas field.

The forced pooling law

• Before you are force pooled, an oil company must follow good-faith efforts before being granted a forced pool order by the Colorado Oil and Gas Commission.

• The oil company must notify you with multiple certified letters of an intent to negotiate a lease.

• The efforts must be made in good faith and be in line with current market conditions.

• If you still resist the lease attempts, the COGCC probably will call you in to convince you to agree to a lease agreement in good faith.

• If you resist all good-faith attempts to lease, the COGCC may rule in favor of the oil company and force pool your minerals. If that happens, you will become a mineral interest owner in the well. You will receive a royalty of 100 percent of your mineral acreage/unit size of the oil from the unit only after 200 percent of the cost of the drilling has been recovered by the operating company.

— Doug Storum

Keeping track

The commission doesn’t track the number of forced-pooling order applications by month or county, but commission director Matt Lepore agreed that there has been an increase in applications in Northern Colorado, especially in Greeley and Windsor. “It’s hard to aggregate that specific data with our system,” he said.

Lepore said the uptick in applications likely is a result of the transition to larger units that will have more owners involved and because owners don’t always respond to operators’ request to make lease or working-interest ownership deals.

Oil companies are allowed to use forced pooling only as a last resort. They first are required to offer mineral-rights owners the opportunity to voluntarily lease their rights in return for royalty checks, or become a working-interest partner and pay a portion of production costs before realizing a portion of the well’s profit. There always is the possibility for an unprofitable well.

An offer they can’t refuse

Mineral-rights owners can say no to an offer to lease their rights to oil and gas companies. They can say no to the offer of becoming a working-interest partner in a well. But they can’t say no to forced pooling if the order is approved by the Colorado Oil and Gas Conservation Commission.

Once the commission declares an area is a pool or unit, oil companies can ask to force owners to participate in a well operation after they decline the first two options.

Some states require that oil and gas companies secure a majority of volunteer lessors for a designated pool, but Colorado has no such requirement, Lepore said. “All it takes is for the oil and gas company to own a portion of the pool. Operators tell us that they don’t get many responses to election letters.”

Such certified letters are required from oil and gas companies to mineral-rights owners, requesting to lease their rights or make offers to them to become working-interest owners in a well. Recipients usually find them hard to understand because they are filled with legalese.

At least a dozen oil companies in the past 12 months, led by Denver-based Extraction Oil and Gas LLC, have applied with the commission for forced-pooling orders in Northern Colorado.

Extraction Oil and Gas, which recently applied for 10 forced-pooling orders, declined a request to be interviewed for this story.

Earlier this month, the Greeley City Council approved Extraction’s request for permits for 22 wells within city limits, going against recommendations by the planning commission and opposition from some residents.

“Unfortunately, we don’t have anyone available to speak on the record w/ [sic] regard to pooling,” an Extraction spokesman responded by email.

Other companies applying to force pool include PDC Energy Inc., Synergy Resources Corp., Great Western Operating Co., Anadarko Petroleum Corp., Chesapeake Exploration LLC, Cub Creek Energy, Ward Petroleum Corp. and Kerr-McGee Oil & Gas Onshore.

Few applications denied

Lepore said the commission seldom denies an application for forced pooling, but it would deny an application if a mineral-rights owner goes before the commission and shows that the oil company is not offering a “fair market price.”

He said the commission approves “about 99 percent of applications. … We don’t get that many requests from people objecting to forced pooling to address the commission.”

Carl Erickson, one of the few who has testified before the commission objecting to being force pooled, said he feels oil and gas companies are making “low-ball offers,” treading on his rights, and that forced pooling is unconstitutional.

Mineral-rights owners can say no to an offer to lease their rights to oil and gas companies. They can say no to offers to become a working-interest partner in a well. But they can’t say no to forced pooling if approved by the Colorado Oil and Gas Conservation Commission.

The Colorado Oil and Gas Conservation Commission determines the “pool” area, which can have multiple mineral-rights owners. Because drilling in a pool drains the entire pool, all mineral-rights owners must be compensated. That works for willing mineral-rights owners who want to earn royalties, but it’s forcing unwilling owners to give up their mineral rights at the bequest of privately operated oil and gas companies.

“It borders on condemnation,” Sura said.

Erickson is the chairman of Weld Air and Water, a nonprofit that is an advocate for health and environmental safety, including issues surrounding oil and gas development in Weld County.

‘Dirty pool’

“I have been harassed by Mineral Resources and Extraction for several years, threatened with forced pooling, and when they figured they weren’t getting anywhere with me, they started sending the assignment of mineral-rights papers to my father,” Erickson said. “He’s been dead for five years.”

Erickson contended that oil companies have made “low-ball offers because they can always go to the COGCC and get an order to force pool. That is dirty pool! Forced pooling is taking my minerals by eminent domain. … My minerals are a part of my estate and, as such, are mine to sell or not, when I see fit. Until the industry develops a truly safe way to extract, my minerals should stay where they are. This is just good stewardship.”

Erickson is concerned about safety factors beyond leaks that could lead to contamination of water sources.

“It’s not only the leaks, it’s the allowable activities, like emptying tanks, opening thief hatches to check levels, purging valves, cleaning out trucks, overfilling and so on.”

Doug Storum can be reached at 303-630-1959, 970-416-7369 or dstorum@bizwestmedia.com.