The first step toward creating a level playing field for mineral rights owners won a preliminary okay from the House Tuesday, but faces an uncertain future should it reach the state Senate.
It’s called “forced pooling.”
It works like this: an oil and gas company decides to drill for oil and gas in a large area that may be owned by multiple landowners, such as near a housing subdivision with hundreds of homes. The operator obtains consent to lease those resources from one of the landowners, but maybe the rest say no. So the operator goes to the Colorado Oil and Gas Conservation Commission (COGCC), which can then order the landowners to accept the lease, with compensation.
Democratic Rep. Mike Foote of Longmont calls forced pooling a form of corporate eminent domain. It’s happened to thousands of mineral rights owners over the years. Exactly how many is unknown; even the COGCC doesn’t keep track once they issue the order, Foote said.
In 2016, the COGCC granted 227 forced pooling orders, with each order covering hundreds of mineral rights owners. “These are mineral rights owners who are forced to lease their rights,” when they might prefer to hold out for a better deal or sell out at a later time. If they’re forced pooled, they’re forced to lease, Foote explained.
In the Wildgrass subdivision near Broomfield, 12 homeowners said okay. The rest of the subdivision homeowners, another 488, objected. No matter. The rest were forced pooled.
Under a bill sponsored by Foote and fellow Democratic Rep. Dave Young of Greeley, homeowners subject to forced pooling must receive a 90-day notice, rather than the 35-day notice currently required by law. The bill originally also sought to require a majority of mineral rights owners to agree to the lease, rather than just one. That’s similar to what other states require.
But under pressure from the oil and gas industry, Foote and Young agreed to amend the bill to go back to the original law on consent; instead of a majority, even if just one person agrees to the lease, the rest of the mineral rights owners can be forced to accept the leases.
Attorney Matt Sura has represented more than 600 homeowners threatened by forced pooling near Windsor. “No one disputes the need for forced pooling,” Sura told the House Transportation and Energy Committee last week. One holdout who refuses to sign the lease shouldn’t hold up the process. “But the process is being abused,” he said,and “used as a negotiation tactic to force people into leases or to cut out the competition that could allow for a better lease and better compensation.”
The rules are written in favor of the oil and gas companies, Sura said. And on behalf of the 600 mineral rights owners near Windsor, Sura was able to negotiate a better deal.
The bill, not surprisingly, drew strong opposition from the oil and gas industry. Ken Wonstolen, senior vice president for the Bill Barrett Corporation, refuted Foote’s claim that forced pooling is a form of eminent domain. Title to the minerals remains with the homeowner, he said. Once all the costs are recovered from a drilling operation, the rights revert back to the homeowner, he said.
Those in support of the bill claim the payouts are minimal and they fear damage to their homes from contaminated water, or even earthquakes from drilling activity beneath their homes.
Two neighborhoods, one in Broomfield and the other near Windsor, took center stage during the hearing. Ann Byers of Broomfield disputed claims by the industry that they want to keep the balance in the process, but that doesn’t exist, Byers indicated. Her neighborhood, in the Wildgrass subdivision, got one of the industry letters and was told to sign it within 15 days or be forced pooled. The mineral rights owners are also forced to accept liability for the well, in exchange for $500 and 15 percent of the profits. That comes out to about $6000 in the life of the lease, she said. “This is not Jed Clampett money and it’s not fair. We’re supposed to have due process.”
Kathy Mendt of Windsor explained that the legalese in the documents sent to homeowners defies ordinary understanding. Only after her neighborhood contacted an attorney was it clear what they were up against. She told the committee that “not all oil actors are good actors. We should have time to understand what we’re signing and what we’re signing away.”
During today’s House debate on the measure, Rep. Jon Becker of Fort Morgan pointed out that mineral rights owners should not be denied their right to sell their rights, an argument opposite to one advanced by the bill’s supporters, which is that mineral rights owners should not be forced to sell their rights.
The measure passed on a voice vote and will up for a final House vote Wednesday.
Photo credit: WildEarth Guardians, Creative Commons license, Flickr