Forced pooling maximizes natural gas production

By: | Times-Dispatch
Published: December 13, 2009

The goals of forced pooling are to maximize natural gas production and prevent the waste of gas resources. Virginia creates production units, generally a square containing 60 to 80 acres for coalbed methane wells, and then approves an application from a gas company to drill a well in that unit. Forced pooling is designed to prevent a scenario in which one person with a fractional interest in a unit refuses to lease his or her gas rights, denying every other owner in the unit the ability to receive royalties from gas production.

The process goes like this:

1. A gas well operator offers to lease the mineral interests of owners in a unit, then petitions the Virginia Gas and Oil Board to pool the interests it is unable to lease. The operator must have at least 25 percent of the acreage leased in a conventional gas unit, but a coalbed methane unit does not need any leases.

2. The board grants the pooling application, and if there are owners who are unknown or whose coalbed methane ownership is in dispute, establishes an individual subaccount in the escrow fund to receive proceeds owed to such owners.

3. The gas well operator sends a copy of the board's pooling order to mineral owners who have not agreed to lease and offers them 30 days to choose whether they want to participate in the well.

4. Force-pooled mineral owners have three choices: participate by footing their proportion of the well costs upfront, and fully share in the risk and net proceeds from gas sales; participate on a "carried basis," which means they receive nothing until the well has paid for itself twice, and then they share fully in their portion of the net proceeds; or receive a "bonus payment" of $1 to $5 an acre, and a one-eighth royalty from gas sales corresponding to their acreage, minus the costs of getting the gas to market.

5. If an owner makes no choice, the board deems the owner to have leased his or her interest at the one-eighth royalty. Owners who are unknown or unable to be located also are deemed to have leased.

6. The gas well operator files a proposed "supplemental order" with the board and states how each owner elected, and whether anyone is subject to escrow because of conflicting claims over coalbed methane, and/or the operator's inability to locate an owner. The supplemental order must be filed with the Division of Gas and Oil before the account can begin receiving monthly payments.

-- Daniel Gilbert