Wednesday, January 26, 2011

New Version Of Administration's DEP Bill Includes Pooling For Shallow Horizontal Wells

The Tomblin Administration’s new version of its DEP regulatory reform bill includes a statutory pooling provision for shallow horizontal wells. The bill is largely based on the existing requirements for statutory pooling of deep wells with certain revisions. Under this bill, a slightly reconstituted Oil and Gas Commission shall decide pooling and unitization issues for shallow horizontal wells.

Under the bill, the operator having the majority interest in the unit may seek a pooling order after notice to the interested parties and a hearing. The operator shall be the person who controls 75% or more of the acreage in the pooled unit. If no one owns more than 75%, the commission will designate the operator. The bill places certain limitations on surface disturbances for unleased mineral interests.

Leased interest owners have no election rights and, other than the operator having the right to pool the interests, their interests shall be governed by the terms of the lease.

Unleased interest owners may elect as follows:

Option 1: assign an oil and gas lease ownership interest to the operator by agreement or, if no agreement, upon such terms as are established by the commission in an order; or to lease pursuant to the terms of the oil and gas lease submitted with the application; or

Option 2: to become a non-operating working interest owner by participating in the risk and cost of the well (net proceeds of sale of oil and gas multiplied by interest within the unit); or
Option 3: to participate in the operation of the well as a non-operating carried interest owner. A risk premium determined by the commission to be between 200%-300% of the carried well operator’s share of the operator’s actual costs for well development and operation allocable to the interest of the carried interest owner applies to this option.

Option 1 is the default election.

The bill also provides for the holding in a suspense account of any unlocated interest owner’s share of the proceeds until the owner is located or the property is deemed abandoned and disposed of in accordance with the provisions of the Uniform Unclaimed Property Act.

Lewis Glasser Casey & Rollins, and its GR affiliate, continue to follow legislative developments and advocate for a statutory pooling component as part of this bill, or as a stand-alone bill. Please call if you have questions or comments.