WHEELING — Natural gas royalty owners learned Saturday morning about a new leasing challenge enabled by ever-lengthening horizontal well laterals that may ooze its way into West Virginia.
It’s called cross-unit drilling. It’s underway in Pennsylvania and a bill to make it legal is in the works, they learned. It allows producers to drill new wells into an existing unit from and through a different unit without renegotiating lease terms.
The owners were attending the National Association of Royalty Owners Appalachia annual conference, called Fueling the Future, at Oglebay Resort.
Ohio-based oil and gas attorneys Sara Fanning and Tim Pettorini, who represent royalty and mineral owners – explained the problem.
Producers take the view, Fanning said, that they can do this without permission unless a lease expressly forbids it.
But Fanning and Pettorini both said they’ve never seen a lease address this, basically because no one ever contemplated it happening.
The bill in the works, Fanning said, is HB 247. NARO Appalachia President Valerie Antonette, who is also vice president of Bounty Minerals, explained the bill and how it could affect West Virginia owners.
Drilling units are limited to 640 acres, she said, but longer laterals allow drillers to now exceed that limit. So instead of modifying leases they just seek to just create bigger units. Under the terms of the bill, production royalties will be reasonably allocated by the operator.
The problem is, she said, that the operator could allocate payouts in a way most beneficial to itself. She said afterward it could be OK if the law would define allocations equitably based on the length of the lateral crossing the owner’s land and the owner’s contribution to the production.
The bill has had 54 amendments proposed, Antonette said, and is essentially dead. But it’s been introduced in the Senate, where supporters are aiming to fast track it without amendments.
If it passes, all three said, it could migrate to West Virginia and Ohio.
One of the royalty owners commented, “This bill would introduce a lot of mischief. … People’s mineral rights would basically be stolen from them.”
Pettorini cautioned the owners that although the bill is still in progress, companies are already overlapping units. “They’re trying to make what they’ve already done through the back door legal. That battle is already being fought.”
He also cautioned them that if they wait for governors and legislators to protect them, it will be too late. “You are the only guardian of your lease rights in the oil and gas world.”
The law should specify, he said, that cross-unit drilling should not be permitted in the absence of an express prohibition — a concept never previously contemplated — but only if the lease expressly allows it. Terms should be negotiated, not imposed by the operator.
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