Force Pooling Law Boosts State’s Natural Gas Economy

By Adam Wilmoth, The Daily Oklahoman

Feb. 17–Some criticize the law and want it to change because they say it hurts negotiation prices.

IF Jim Allison wants to drill a well in Oklahoma, he doesn’t necessarily need all other mineral owners and operators to be in agreement.

Unlike Texas, Kansas and some other energy-producing states, Oklahoma’s force pooling law encourages drilling by prompting interest holders to participate in the well or sell out their interests.

“In general, I think force pooling is a good thing for Oklahoma,” said Allison, land man at Duncan Oil of Oklahoma City. “We have been on both sides of force pooling cases many times. I can’t think of a better system.”

Under Oklahoma law, producers who own the rights to even a tiny percentage of an acreage can go before the Oklahoma Corporation Commission and ask that the remaining operators and mineral owners be forced to either participate in the well or sell or farm out their holdings.

Through a hearing process, a commission administrative law judge determines fair market value prices for the lease, royalties and other drilling costs and operations.

“We believe it is a very efficient system,” said Michael Decker, head of the commission’s office of administrative proceedings. “It has created more wells in Oklahoma being drilled on a per-square mile basis than would be found in any other part of the country.”

While some parties would prefer minor changes to the law, even the state’s royalty owners associations credit forced pooling for allowing the state’s industry — and its economy — to flourish.

“I think it’s a good law,” said Phil Haught, chairman of the Coalition of Oklahoma Surface and Mineral Owners Inc. (COSMO). “It enhances drilling opportunities.”

While some mineral owners dislike the law because they say it hurts negotiation opportunities and can force mineral owners to accept lower prices, Haught said it also prevents a small number of royalty owners asking for unreasonable prices from halting drilling opportunities.

“As royalty owners, we support the oil companies and hope they do drill,” he said. “We can’t lose sight of the fact that if they don’t drill the well, we’re not going to make a dime and neither are the oil companies. Force pooling is a vehicle that brings parties to the table.”

Despite supporting force pooling in general, however, Haught said he would like to see some changes to the practice. One of his biggest concerns is that producers currently can force pool large sections at the same time. Also, he would like to see the statue more clearly define what costs can be charged to royalty owners.

Force pooling also has drawn support — and a few concerns — from the National Association of Royalty Owners.

“Pooling is the best method for dealing with small-interest owners,” said David L. Smith, president of the Oklahoma chapter of the royalty owner association. “It brings all parties together and gives us a sounding board and an opportunity to negotiate a good price.”

Smith’s concerns with force pooling mostly involve enforcing existing laws. He said producers often do not pay the pooling bonuses promptly or at all. Also, some producers tend to immediately turn to force pooling if mineral owners reject their first offer. Instead, he said, they should make a good-faith effort at negotiating a price before turning to force pooling.

The national organization also is seeking to require pooling companies to publish their proposed terms before the hearing.

“We don’t know whether we want to protest a pooling or not,” Smith said. “Why would I drive all the way to Oklahoma City if I don’t know what they’re going to ask for?”

Force pooling also has been credited with supporting many of the state’s natural gas production companies.

Tom Price, Chesapeake Energy Corp.’s executive vice president of corporate development, gave the state’s force pooling law much of the credit for helping Oklahoma develop its energy heritage.

The law allowed Chesapeake and other small operators at the time to force major integrated oil companies such as Exxon, Mobil, Conoco, Phillips and others to drill on their leased territory.

At one time, the majors controlled much of the land in Oklahoma, but some had relatively small drilling budgets dedicated to the state.

“If you had to get their permission to drill a well, gas might have had to be selling for $10 per thousand cubic feet or drilling costs might have had to be very small,” Price said.

“Force pooling is a vehicle to accelerate drilling activity.”

Now that Chesapeake has become the most active producer of natural gas in Oklahoma and the second-largest producer of natural gas in the country, the company has drawn some criticism for forcing smaller producers to sell their interests because they cannot afford to keep up with Chesapeake’s drilling pace. Price, however, said the active drilling is beneficial to the state.

“It can’t be our fault that other people don’t have the financial wherewithal to drill wells,” Price said.

“Now is the time to drill wells. We don’t know what’s going to happen with natural gas prices. If we had to be in a position to where we waited until everybody who had an interest had sufficient money to develop the assets, nothing would get done.”

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