Some Pennsylvania landowners have recently been approached by the companies they’re leased with, asking landowners to sign amended leases to allow cross-unit drilling. We personally know of one case in which a driller requested such an amendment in northeast PA. So it is with great interest we notice a new bill has been introduced in the PA House, specifically to allow cross-unit shale drilling.
What is cross-unit drilling? When Marcellus Shale drilling began to really take off about 10 years ago, a typical “unit” of land targeted by a well was 640 acres–one square mile. Over the years the horizontal length of wells (called the lateral) has grown, from a max of maybe one mile long to twice, even three times that distance! Today’s wells can easily drain more than 1,200 acres.
Leases that were signed and units formed years ago are now restricting new development. In the case we know about, wells had already been drilled under the landowner’s property, but the driller wants to drill new wells from a different location under portions of the same property, potentially targeting a different rock layer. Thing is, those new wells are in a different, adjacent unit. The driller wants to drill across the units, essentially forming a new “virtual” unit by combining portions of two existing units. To do so requires an amended lease.
The driller offered the landowner what appears to be a standard and acceptable lease. The landowner has had excellent relations with the driller over the years. However, following best practices, the landowner asked an attorney with experience in cross-unit leases to review the proposed amendment. The attorney tweaked the agreement, and the driller signed–a process that took several months. The landowner got some important new concessions to the existing lease as part of the negotiation process. That’s how it’s supposed to work–reasonable people offering and accepting a reasonable compromise.
Enter a proposed new bill, co-sponsored by PA Rep. Donna Oberlander and Rep. Jonathan Fritz. House Bill (HB) 247 would allow drillers to drill across unit lines without having to renegotiate leases provided they own all of the leases on the adjacent properties.
Here’s how the legislation is described by Oberlander and Fritz in their co-sponsorship memorada in early January:
In the near future, we plan on reintroducing legislation to maximize the benefits of recent advances in natural gas drilling technology and practices.
With the ability of the natural gas industry to now drill longer lateral well bores, surface impacts from drilling have been greatly reduced. This advancement means less well pads, less access roads, less truck traffic, less pipelines, and less surface disturbance altogether. It is a positive for landowners, the environment, neighbors, and our local governments.
This legislation will provide for a process and accounting mechanism to allow well bores to cross multiple units provided the operator has the right to drill wells on the units via leases with all landowners/members of the units. The operator is then required to reasonably and proportionately allocate the production across the various members of the units. The legislation does not impair any current contracts or leases, does not allow for any production from unleased land, and would not apply in cases where this practice would be contractually prohibited.
By enacting this legislation, we will be able to realize all the previously mentioned benefits as well as increase the tax revenue coming to the Commonwealth of Pennsylvania while at the same time reducing the workload on the Department of Environmental Protection and other industry regulators. (1)
They later introduced the bill:
The reason the bill is on our radar is because there will be a meeting of the House Environmental Resources and Energy Committee on March 19 to discuss it:
The House Environmental Resources and Energy Committee is scheduled to meet on March 19 to consider House Bill 247 (Oberlander-R-Clarion) to allow cross unit unconventional drilling.
“The legislation will provide for a process and accounting mechanism to allow well bores to cross multiple units provided the operator has the right to drill wells on the units via leases with all landowners/members of the units,” said Rep. Donna Oberlander, prime sponsor of the bill. “The operator is then required to reasonably and proportionately allocate the production across the various members of the units. The legislation does not impair any current contracts or leases, does not allow for any production from unleased land, and would not apply in cases where this practice would be contractually prohibited.”
The meeting will be held in Room 205 Ryan Office Building starting at 10:00. Click Here to watch the meeting online.
Rep. Daryl Metcalfe (R-Butler) serves as Majority Chair of the House Environmental Committee and can be contacted by calling 717-783-1707 or sending email to: [email protected] Rep. Greg Vitali (D-Delaware) serves as Minority Chair and can be contacted by calling 717-787-7647 or sending email to: [email protected] (2)
MDN’s concerns: We’ve met Jon Fritz. He’s a great guy. We trust him. But we have a concern with this legislation. It’s intent appears to be good–we’re not questioning its intent. The state has an interest in greasing the skids to make more drilling easier, with less paperwork. We’re sure drillers would love to avoid the months-long process of offering a lease amendment to hundreds or thousands of landowners, just to have them bounce back and forth between lawyers before a final agreement is reached. We believe this bill would eliminate that cumbersome process.
BUT, by eliminating the need to get the landowner’s signature, this bill takes away any chance the landowner has of winning new concessions, as happened in the case we know about. We don’t like that.
Money, at least up-front money, is not the concern with cross-unit drilling. Cross-unit drilling won’t pay new signing bonuses. Landowners will receive extra royalties if and when they get included in a new virtual cross-unit drilling unit and the well is drilled. But there’s no up-front money involved.
We think landowners can (and should) have the opportunity to review their leases as a part of this process, to ensure their leases are strong. Drillers want something–to extend units. Fine. Let them negotiate what they want in a fair transaction. They’ll get what they want (ability to cross unit lines), and landowners can get something in return too (better lease terms). We have a concern that HB 247 will short circuit that process of give and take.
It’s possible we’ve misunderstood this legislation. We expect we’ll hear in pretty short order if that’s the case and will come back to update this post.
In the meantime, we’ll be watching this issue closely.
(1) Pennsylvania House of Representatives (Jan 7, 2019) – House Co-Sponsorship Memoranda – HB 247
(2) PA Environment Digest Blog (Mar 14, 2019) – House Environmental Committee Meets March 19 To Consider Bill Allowing Cross Unit Drilling Under Several Properties
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