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Pennsylvania Judge Upholds Forced Pooling of Oil/Gas Leases

A Pennsylvania judge has ruled that a new addition to the state Oil and Gas Lease Act allowing forced pooling of oil and gas leases is constitutional. The ruling said EQT Corp. has the right to pool several contiguous leases in Allegheny County unless a lease specifically prohibits it.

Last July, Pittsburgh-based EQT filed suit against 69 landowners and a golf course for the right to drill for Marcellus Shale gas under the Bunola Storage Field, which an EQT subsidiary uses to store gas underground in Allegheny County (see Shale DailyAug. 6, 2013). In a 10-page ruling issued on April 8, Court of Common Pleas Judge Christine Ward sided with EQT.

"Though the leases may reserve certain rights, and the law may place restrictions on the developers' activities, [the] answering defendants present no support for their claim that they have implicitly retained the right to dictate the manner of EQT's subsurface development of its lease," Ward said. "So long as the lessors' rights granted by lease and law are not impinged upon, the lessee has broad powers to develop the oil and gas estate as it sees fit, including crossing property lines between contiguous leases while engaging in horizontal drilling."

According to court documents, the defendants in the case [EQT v. Opatkiewicz et al, No. GD-13-013489] are 57 landowners with contiguous parcels who leased their oil and gas rights to EQT. Forty-three of the landowners have been contesting EQT's right to force pool the leases.

At issue are 16 leases, 14 of which do not explicitly permit nor prohibit joint development with contiguous properties. Of the remaining two leases, one specifically allows for joint development while the other included language regarding joint development, but the language appears to have been stricken from the lease prior to execution.

SB 259 was signed into law in Pennsylvania last July and became effective in September (see Shale DailyJuly 5, 2013). Section 2.1 of the bill addressed apportionment and specified that "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."

Section 2.1 has since become Section 34.1 of the Pennsylvania Oil and Gas Lease Act. In her ruling on April 8, Ward said the new provision "does not create, abridge, or expand any rights but merely clarifies existing law."

EQT spokeswoman Linda Robertson told NGI's Shale Daily on Thursday that the company "values and respects the effort involved on all fronts when a situation such as this arises. From time to time, we must rely on the court to provide a decision, and we appreciate the time and thought put into the judge's ruling in this particular matter."

Dale Tice -- an attorney with the firm Marshall, Parker & Associates LLC and a member of the National Association of Royalty Owners (NARO) -- told NGI's Shale Daily that Ward's decision was worrisome for landowners, especially those with old leases.

"This decision really highlights the need for the legislature to repeal Section 34.1 and restore the landowners' ability to negotiate the addition of a pooling provision to these old leases that don't allow unitization and pooling," Tice said Thursday. "It's my impression that there are many leases in western Pennsylvania that were signed before the modern lease was really introduced, and that don't include a pooling provision. I'm concerned that this legislation and this decision will just allow the companies to develop the properties without any additional opportunity for the landowner to negotiate the addition of a pooling provision.

"I truly don't think that the majority of the legislators who voted for this really understood what this legislation was going to do, or was intended to do."

NARO had urged Pennsylvania Gov. Tom Corbett to veto SB 259. Previously, the Republican governor had been a vocal opponent of forced pooling, dubbing it "private eminent domain" (see Shale DailyApril 27, 2011).

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