Pennsylvania's Environmental Hearing Board on Wednesday ruled that it does not have "original jurisdiction" to approve orders for well spacing and drilling units -- or requests for forced pooling -- as they're referred to in the state.
The board's decision came after four months of deliberations and after what it called a careful review of arguments submitted by Hilcorp Energy Co. and the Pennsylvania Department of Environmental Protection (DEP), the state's chief oil and gas regulatory agency.
Hilcorp wants to establish a drilling unit by pooling property on a 3,267 acre stretch of land that straddles Lawrence and Mercer counties in northwest Pennsylvania, where the company has been aggressively leasing land. But it called upon a decades-old law, passed in 1961, to justify its request to drill more than 7,000 feet underground into a shallow portion of the Utica Shale, which is largely untapped in Pennsylvania where the Marcellus has captivated production companies instead.
If it is granted the request, Hilcorp would be the first company to use the law to facilitate horizontal hydraulic fracturing. The Oil and Gas Conservation Law of 1961, as it's called, applies only to the Utica formation. At the time it was passed, conventional drillers would rarely go that deep into the earth, and the law's provisions, such as those aimed at reducing surface disruption, have not yet been utilized, which created confusion over who would grant a request for unit operations.
When Hilcorp filed the request in July, in its reply the DEP wrote that "it did not have the authority to act on Hilcorp's application and that an application seeking an order for well spacing or drilling units must be submitted to the Pennsylvania Environmental Hearing Board."
The hearing board ultimately decided on Wednesday that the DEP would have to grant such requests, and only after it acts can the board hear an appeal to any decision the regulatory agency makes.
Just as in Ohio, which has a similar law passed in 1965, and referred to as "unitization," the idea of forced pooling has rankled some in the public.
Pooling allows an operator to gather landowners into a unit, in which they share royalties and production costs.
Proponents say pooling reduces surface disruption because operators can set up multi-well pads to maximize the amount of oil and gas produced. Unit operations also prevent a small minority of landowners who may be opposed to drilling in a certain area from preventing a majority of those who wish to capitalize on their mineral rights, proponents claim.
On the other hand, opponents of pooling say it gives oil and gas companies too much power over private property.
Ohio received its first unit request in 2011 from Chesapeake Energy. Regulators there have seen a steady influx of similar proposals from production companies in the last year or so, leading regulators to establish more stringent guidelines for the information a company must submit in order for its request to be heard.
Hilcorp's request in Pennsylvania will now be handed back to the DEP for consideration.