SB 694 on Forced Unitization Is OK

By Dave McMahon, Co Founder of WVSORO

Methane gas originates in shale formations laid down eons ago. Over the eons some of it creeps towards the surface and is sometimes trapped on its way upward in a porous and permeable sandstone formation that is topped with a denser cap rock formation above it to keep it from migrating further upward. Until about 2008, almost all gas drilling was to the gas trapped in those sandstone formations. A vertical well was drilled through the formation and fractures were put into the formation for the gas to flow more freely to the well bore. Originally these fractures were created by nitroglycerine, but more recently by pumping water (and accompanying enabling chemical and sand) under enough pressure to crack and lift the above rock, and leave sand in the cracks!

The limitation of this gas extraction method was that the well bore exposed to the rock was only as long as the formation was thick. The other limitation is that the gas trapped in the sandstone formations was somewhat limited because what gas migrated upwards into the sandstone was a lot less than stayed behind in the shale.The shale contains much, much more gas.

Why didn’t drillers drill the shale if it had more gas? Because it has almost no porosity or permeability. In the amount of time gas will flow a kilometer through sandstone, it will only travel one meter through a shale. So, putting a vertical well through the formation will get very little gas flowing out of the shalle into the vertical well bore, to the surface, and to market.

Drillers first tried to get more gas out of shale by increasing the volume of water used to fracture vertical wells. Instead of the conventional practice of using the amount of water that can be held in a tractor trailer tank truck of water, they started using enough water to fill several olympic swimming pools. That worked somewhat better. 

But then along came horizontal drilling. Techniques were developed to put the motor turning the bit drilling the well bore at the bottom, far end of the drill pipe instead of using a motor at the surface to turn the whole drill pipe all the way to the bit. Also highly accurate internal guidance systems were developed. Those two factors coupled with the new large-volume fracturing techniques created a revolution, a tsunami, of horizontal drilling in shale formations like the Marcellus and the Utica.

The new wells cost several million dollars each to drill compared to several hundred thousand dollars for drilling a conventional vertical well. One of these horizontal shale wells, however, produces 60 times the gas of a conventional vertical well, so they are much more economically efficient. You are unlikely ever to see a new conventional well drilled.  (And the fact that many of the old wells will likely become orphaned is a separate article.)

The most likely pollution problem from a gas well occurs as it is first drilled vertically down through the water table. (Actually it’s second; the real most likely problem is spills on the well pads during drilling.) So if one well can serve to get the same gas as 60 wells, the chances of groundwater pollution from this first step in drilling is reduced by 60 times.

Also, conventional vertical wells have to be spread far apart, with a different well pad for each. Several horizontal wells, however, can be drilled from one well pad – 6, 8 or even more horizontal wells from one pad. So again, fewer well pads on surface owners (with the danger of spill prevention going bad also reduced). That one pad is much, much bigger, but still it is a huge reduction in surface use and spill risk.

The drilling of horizontal shale wells has greatly increased. There would be even fewer wells drilled (and hopefully fewer well pads) if the horizontal wells could be drilled longer and longer. The greater the length of the bore exposed to the formation (and fractured) the more gas comes up out of one well. 

What has limited the full exercise of long horizontal well bore drilling technology is that the driller should have at least 640 acres of leased mineral acreage to drill these wells. If the driller can find one 640-acre mineral tract, that is all that is needed. But ownership of much of West Virginia, particularly in the area of the state being drilled by horizontal Marcellus Shale wells, is broken up into much smaller tracts. So the driller needs to get leases from the owner (or owners, there can be scores of heirship owners of a single mineral tract) of several separately owned, neighboring mineral tracts to put in a 640 acre “unit” for the drilling of the horizontal wells.

If the owner(s) of the mineral tract towards the end of a planned horizontal well bore will not sign a lease (or cannot be identified or located because there are so many heirs) then the driller has to make the horizontal bore shorter than the driller would otherwise make it. And remember the longer the bore the better, as noted before. So the driller wants to be able to force tracts into their units so they can drill longer bores. That is why the drillers want SB 694.  It allows a commission to force tracts into a unit for drilling longer bores.

WV Surface Owners Rights Organization (WV-SORO) respects the views of those who want to leave any possible stumbling block in the way of hydrocarbon energy production.  But our position has always been that, for the reasons above, as long as horizontal methane gas wells are going to be drilled, legislation that will allow longer bores from fewer wells to be drilled from potentially fewer well pads is a good idea. And the reality is that these horizontal shale wells are being drilled now and will be for the foreseeable future.  So a good forced unitization bill is a good idea. (Note that this is commonly called forced “pooling.” But variations of the root word “pool” are used for three different concepts in the existing statutes so we use the term forced “unitization”.)

The problem has been that the forced unitization legislation introduced in the past has done the good things such legislation can do for the drillers, but not done good things for surface owners, and has not been fair to forced mineral owners in determining how much the mineral owners will get paid up front and for royalties. SB 694 is far from the best possible bill, but it is OK, and does have some significant benefits for surface owners.

First, the driller will still have to get the permission of the surface owner to drill one of their big horizontal wells pads. Though the drillers would like that to be something that could be forced upon the surface owner, the bill does not provide for it. The driller has to get the surface owner’s agreement. And, we advise surface owners to ask for $640,000 from the driller to agree to the placement of the pad on their surface!

Second, remember how one tract of minerals can have the ownership shared by scores of heirs?  Sometimes it is not possible to find those heirs in order to pay them the royalty payments and signing bonuses. Under SB 694, if the mineral owners do not show up in five years, the surface owner gets not only all the back royalties for those five years, they also get title to that share of the minerals, plus all future royalties.

Third, there are legislative findings in teh bill recognizing surface owners rights added into the Code that can be used by courts in interpreting and carrying out the bill.

Fourth, about one-third of WVSORO members also own the minerals, or a share of the minerals, under their land. So if their minerals (but not surface) are forced into a unit they will get very fair royalties paid to them and they will get paid very fair up front money calculated off a weighted average of what the drillers paid to owners who did sign leases.  

That is not to say that SB 694 is perfect.  We could have drafted something even better in the devilish details. Considering the political climate at the current legislature, and the unpredictability of the future, we believed it was the wise thing to say that we were OK with this bill.

Update: SB 694 has passed the Senate, the House Energy and Manufacturing Committee, and House Judiciary Committee and is heading to the House floor.