A new bill is wending its way through the Commonwealth. This bill, sponsored by Representative Everett, (R - Lycoming) is, for the most part, even handed. It simply defines the minimum royalty provisions and Commonwealth law and allows various options. This bill passed the House June 11, 2013 and is now in the Senate. It has been referred to the Environmental Resources and Energy Committee, chaired by Senator Yaw (R - Bradford, Lycoming, Sullivan and parts of Susquehanna and Union Counties). In my opinion only, these are good legislators who are attempting to look out for their constituents.
There is one section, however, that is troubling. Most likely, this section was enacted for a good purpose. However, the unintended effects could be a problem for landowners. This section provides that "Where an operator has the right to develop multiple contiguous leases separately, the operator may develop those leases jointly by horizontally drilling unless expressly prohibited by a lease." Thus, if a producer has the right to oil and gas across multiple leases, the producer may horizontally drill under all the leases unless the lease specifically provides the producer may not. The Producer may gain other rights to produce by implication such as pipelines, compressors, dehydration stations and water use.
The problem is that there is no reference that this is prospective, and this was not the law in the past. So old 1930 leases can now, under color of Commonwealth law, be horizontally drilled across boundaries, even if the owners intended to keep those rights. Worse yet, applying the Belden and Blake principles, the landowner would be responsible for challenging the actions of the Producers. Of course, the Producing companies have the power, not a single landowner. So there is little chance that Mom and Pop will be able to stop or collect their due on an old lease.
If this section were limited to prospective leases, landowners would have the ability to contract as they see fit. If this section were not passed at all, such provisions would be up to the intent of the parties. Since 2008, who could seriously argue that a lease did not intend horizontal drilling? However, prior to horizontal drilling and hydrofracturing in the 1940's, extended to horizontal hydrofracturing of shale in Pennsylvania in 1995, how can anyone seriously think such rights were included in a lease?
The question here is an age old one. If a right of way is granted for a cartpath, the fact that someone now wants to drive a car is not an impermissible expansion of the right of way. It is, instead, a natural consequence, similar in nature. This is often expressed as the growing up of an elephant. If someone allows an elephant on their property, they cannot be heard to complain when the elephant grows up.
However, in this instance, the argument is that the nature of modern horizontal hydrofracturing of shale, accompanied by its huge requirements of using water, its larger infrastructure, the more permanent nature of the infrastructure, the dehydration facilities and compressors, are all of a different character and quality than oil and gas operations in 1930.
This may, or may not turn out to be the law. However, the Senate Bill essentially changes the status quo. Ultimately, this may turn out to be good policy. Again, in the future. But there are at the very least, issues that have not been determined. If you have any opinion on this bill, I urge you to contact your legislator and tell them what you think.
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