FIX “FORCED POOLING”

1930s Colorado law needs update

Colorado’s “forced-pooling” statute — which enables oil and gas drillers to assemble large tracts of mineral rights — has been around since the 1930s. While it has served the state well, it is time to revisit and revise the rule.

Under the statute, an operator can gain access to a property owner’s oil and gas rights, even if that landowner is opposed to selling or leasing. As reported nearby in our pages, critics call forced pooling a form of corporate eminent domain.

Colorado and 32 other states, mainly oil and gas producers, have adopted rules on spacing wells and forced pooling to avoid drilling frenzies and ensure that all mineral rights holders are compensated.

But much has changed in the last 80 years. Oil and gas drilling in Colorado now relies on horizontal wells that can extend for two miles or more, sweeping up many more mineral rights holders, and drilling has come closer to Front Range suburbs where there are many more small landowners.

Some operators have used the statute to strong-arm small property owners, offering them low-ball leases under the threat of forced pooling.

State Reps. Mike Foote, DLafayette and Dave Young, D-Greeley, have introduced House Bill 1336 to address concerns voiced by homeowners. The representatives understandably want to level the playing field between oil and gas companies and property owners through due process and transparency.

The bill, which was passed Wednesday by the House Transportation & Energy Committee, would extend the time property owners have to respond to a forced-pooling notice to 90 days from the current 35 days and require that the notice be clear and concise — as opposed to dense legalese. It would have the Colorado Oil and Gas Conservation Commission keep public data of how many people are being forced-pooled.

Industry officials are opposed to the bill, saying the extra 55 days property owners would get will make an already long permitting process longer. The public database, they say, could undermine a company’s proprietary title and lease work.

The Foote-Young bill didn’t make it out of committee before bowing to industry lobbying. It was watered down by removing a provision that a company have leases for half the acreage in the drilling area before being able to force-pool, and by adding protection for industry proprietary information.

Pooling has been key in regulating drilling and assuring the efficient development of the state’s oil and gas reserves. It should remain in the industry’s toolbox. That said, Colorado’s pooling statute could be better — or least as good as other states.

Mississippi and West Virginia have longer notice periods than Colorado. Idaho and Kentucky require a driller to have more than 50 percent of the mineral rights before seeking a pooling notice. Ohio limits the number of pooling orders an operator can seek in a year.

And while Colorado only asks that an operator make a reasonable lease offer, Montana requires “good faith negotiation” before an order is granted. Surely, the Colorado oil and gas industry isn’t opposed to negotiating in good faith.

There are other elements that could be reviewed. For example, those who are pooled effectively end up with a lower royalty rate than those who sign leases.

There may be only a slim chance this controversial proposal will pass in the waning days of the legislative session. Still, we hope it sparks a discussion that ultimately leads to updating the statute.