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Forced pooling bill providing oil & gas leasing protections passes legislature

Author: Mark Jaffe - May 4, 2018 - Updated: May 6, 2018

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A residential neighborhood is pictured several hundred yards beyond an oil and gas well located in Weld County near Erie. (Photo by Andy Colwell/Colorado Politics)

A bill giving Colorado homeowners more protections when oil and gas drillers seek to obtain their mineral rights has passed the state Senate, its final hurdle in the legislature, and now goes to Gov. John Hickenlooper.

Senate Bill 320 earlier was passed by the House of Representatives, with both the industry and environmentalists supporting it. The Senate late Thursday concurred with House amendments.

The broad support, which also included the Colorado Municipal League and the state Department of Natural Resources, came after the most controversial elements of SB  230 were removed.

The legislation, sponsored by state Sen. Vicki Marble, R-Fort Collins, passed the Senate Agriculture, Natural Resources, & Energy Committee on a 6-5, straight party-line vote April 11. It passed the House State, Veterans, and Military Affairs Committee Wednesday 8-1; the lone no vote was cast by Rep. Mike Foote, D-Lafayette, a strong critic of the oil and gas industry.

> BACKGROUND: The fight over forced pooling

“This is a bipartisan victory,” said Rep. Lori Saine, R-Firestone, the bill’s House sponsor, when he gained committee approval.

SB 230 revises Colorado’s “forced pooling” statute, which enables an oil and gas operator to get an order from the state consolidating private mineral rights into a drilling unit even if the property owner does not consent.

Forced-pooling laws are used in 34 state and are seen as a way of ensuring more efficient exploitation oil and gas fields and that everyone in the field share in the proceeds.

Tracee Bentley, executive director of the Colorado Petroleum Council

“Statutory pooling is a critical process that brings together mineral and royalty owners to ensure fair and even division of products and profits, without inhibiting energy development,” said Tracee Bentley, executive director of the Colorado Petroleum Council, a trade group.

The statute was last revised in 1951. “Industry understands the need to update the statute,” Bentley said in Wednesday’s hearing testimony.

The Colorado Oil and Gas Association, another major trade group, also supported the legislation.

Under the forced-pooling statute, a company must make a reasonable offer to lease the mineral rights in a drilling unit it is trying to put together. If landowners decline to sign the lease offers, the operator can request the Colorado Oil & Gas Conservation Commission to grant a forced-pooling order to consolidate the mineral rights.

SB 230 will:

  • Increase the time property owners have to respond to pooling orders to 60 days from 35 days,
  • Require they be given state information explaining the process,
  • And, and since under pooling they become fractional owners in the wells, it holds them harmless for operating spills and accidents.

“There is a lot of oil and gas activity in my district, and I have a lot of constituents asking what’s going on, how am I going to deal with this,” said Rep. Matt Gray, D-Broomfield, a co-sponsor of the bill. “This increases transparency.”

Removed from the bill was a controversial provision increasing the payment mineral owners had to make to the driller before getting their full share on the deep, horizontal wells that are producing most of the oil and profits in Colorado.

If a property owner is forced pooled, instead of getting a royalty, they become a fractional owner in the well or wells and are entitled to a fraction of all the profits. But under the law, before they can get that money, they must pay their share of 100 percent of the equipment and operating costs and 200 percent of the costs of the exploration and drilling.

This is done by the driller taking 87.5 percent of the property owner’s share. Landowners who are forced pooled get the other 12.5 percent. Once they’ve paid their costs, they get their full share of the wells, their payout.

The Marble-Saine bill initially proposed raising that so-called penalty payment to 300 percent of exploration and drilling costs.

Gray told the committee that the proposal was so controversial, it was decided to “walk away” from that part of the bill. “Let’s take that part away and leave the core of the bill,” he said.

The decision led to the legislation garnering the support of Conservation Colorado and the League of Oil Impacted Coloradans (LOGIC), an organization supporting community groups dealing with oil and gas issues.

“This is an important bill that represents a step in the right direction,” said Sara Loflin, LOGIC’s executive director.

Mark Jaffe

Mark Jaffe

Mark Jaffe has covered energy, environment and government issues for The Philadelphia Inquirer, Bloomberg News and The Denver Post. He was a Knight Fellow at Stanford University and studied environmental economics as a Nieman Fellow at Harvard. He is the author of two books, "And No Birds Sing, The story of an ecological disaster in a tropical paradise" and "The Gilded Dinosaur-The fossil war between E.D. Cope and O.C. Marsh and the rise of American science."