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Pennsylvania Governor Signs Controversial Drilling Bill

Pennsylvania Gov. Tom Corbett signed 29 bills into law on Tuesday, including SB 259, which the state's chapter of the National Association of Royalty Owners (NARO) has derided as "a kissing cousin to forced pooling."

"Our intention in this whole fight was to pressure lawmakers into making better laws," Trevor Walczak, vice president of NARO-PA, told NGI's Shale Daily Thursday. "We understand that a rule like what was in SB 259 is not pure forced pooling like in the traditional sense, and we understand how forced pooling and pooling of this nature can be useful. To have development of an area, you may need to have a rule like this.

"But there needs to be rules. It should be very focused, with numerous protections for people that are pooled to ensure that these mineral owners are getting fair offers before they're just pooled. This was very vague, very broad and provided no protections."

Under SB 259, also known as the Guaranteed Minimum Royalty Act, "where an operator has the right to develop multiple contiguous leases separately, the operator may develop those leases jointly by horizontal drilling unless expressly prohibited by a lease," (see Shale Daily, July 5).

The law also stipulates that "in determining the royalty where multiple contiguous leases are developed, in the absence of an agreement by all affected royalty owners, the production shall be allocated to each lease in such proportion as the operator reasonably determines to be attributable to each lease."

Walczak said NARO submitted 12 pages of suggestions before SB 259 passed the legislature.

"This pooling law is two sentences...and both sentences are terrible," Walczak said. "There should absolutely be some re-visitation of this to either repeal it legislatively and start over, or just completely go back to clarifying it in a later bill. But it's a poor situation in Pennsylvania politics when you have to do that."

In a letter to state lawmakers on Tuesday, Corbett said he signed the bill because he wanted to add more transparency to the royalty process, and for leaseholders to receive more disclosures over how their royalties are calculated.

"I am aware of several questions and concerns which have been raised with regard to [SB 259]," Corbett said. "It is not my intention to alter or affect the common law Rule of Apportionment, or to alter or affect the agreed-to terms of any existing lease. I believe the Pennsylvania constitutional protections which guard against legislative impairment of contracts serves as an added backdrop to the concerns.

"Moreover, I do not believe anything in SB 259 expands the ability of an oil or gas operator to define the size of a drilling unit, or to expand the ability of any operator to hold by production any parcels of leased land."

Although the Republican governor has been a vocal opponent of forced pooling (see Shale Daily, April 27, 2011), Walczak said SB 259 allows the governor to "walk a very fine line."

"He can say, 'Look, I didn't go back on my promise, but this is something that we need,'" Walczak said. "We very well may need it. I think there's a lot of cases where possibly this would be better for Pennsylvania.

"But it needs rules. The terminology that was used to determine the royalties was very vague. How does that give us standing later? If we feel we're being improperly paid, how do we even know? There's no definition, no defining of terms, no defining of formula; this just completely leaves it up to the operators to do it. That's just bad law."

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