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Environmental court says DEP has to consider forced pooling request

A state environmental court ruled Wednesday that the Department of Environmental Protection must decide whether a drilling company can gather Utica Shale gas from Western Pennsylvania properties without all of the owners’ consent.

One of Hilcorp Energy Company's proposed Utica Shale drilling units in Lawrence County with an unleased parcel in the middle.

One of Hilcorp Energy Company's proposed Utica Shale drilling units in Lawrence County with an unleased parcel in the middle.

The decision helps clarify one of many questions about Pennsylvania’s 1961 pooling law – known as the Oil and Gas Conservation Law – which is being tested for the first time since the start of modern shale gas development in the state. The arcane 50-year-old law does not apply to the Marcellus Shale, but it applies to the deeper Utica Shale.
Pooling enables drilling companies to combine adjacent tracts of leased land into one unit from which they can drain oil or gas with the fewest wells. “Forced” pooling allows them to do that even if a property owner in the middle of the unit objects to signing a lease or has signed with a different company.
Forced pooling can be a poisonous topic among policymakers and the public. Companies and some landowners like the idea, which they call “fair” pooling, because it allows for efficient gas extraction and pays a stake to even uncooperative parties who might otherwise leave parcels stranded or blocked. Opponents of the idea include Gov. Tom Corbett, who has called it “private eminent domain.”
The Oil and Gas Conservation Law’s old age and disuse have left companies and regulators unsure how to revive it for the Utica Shale era, beginning with the first step: who decides whether to grant a company’s application to force parcels into a unit?

Hilcorp Energy Company asked DEP in July to declare Utica Shale drilling units for 3,267 acres in Lawrence and Mercer counties – all but 35 acres of which the company has under lease – but DEP said it wasn’t in its jurisdiction and directed the company to apply to the Environmental Hearing Board instead. In its opinion Wednesday, the hearing board said DEP – not the court – is the appropriate body to consider such applications. The hearing board can then review a case if DEP’s decision is appealed.
Calling it an “interesting and important legal issue,” the hearing board said DEP has the authority, technical knowledge and regulatory structure to issue drilling unit orders in a way that allows for public input and respects the legal rights of all parties.
“As the Utica formation is developed in the years ahead it is imperative that the regulatory framework is clear,” Chief Judge Thomas W. Renwand wrote. “We are hopeful that our opinion will clarify the law in this area and that the process will operate much more smoothly in the future.”
A DEP spokesman said Wednesday that the department had just received the decision and is reviewing its next steps.
Hilcorp spokesman Justin Furnace said the company looks forward to continuing the process at the DEP in accordance with the ruling. He said the pooling plan provides for the most efficient development of shale gas in the targeted area with the fewest surface disturbances. “It is also in the best interest of the over 98 percent of landowners in the two units who want this application to move forward in a timely manner,” he wrote in an email. (The Pittsburgh Tribune-Review spoke to landowners on both sides of the issue last month.)
The head of DEP’s oil and gas office predicted in September that Hilcorp’s application would cause a stir. Scott Perry, DEP’s deputy secretary for oil and gas management, said at an industry conference that he hoped the attention would prompt legislators to revise an outdated law that did not anticipate the geological formations or technological advances – horizontal drilling combined with hydraulic fracturing – driving the new gas boom. The Oil and Gas Conservation Law “simply is not crafted to adequately address horizontal shale gas development,” he said. “This is an area where the legislature, and the legislature alone, can act.”
In the meantime, the state has to work with the rules it has. Hilcorp attorney Kevin Colosimo said that with the ruling, “we’re one step closer to being able to utilize a statute that’s been on the books for 52 years.” He said the law gives the DEP 45 days to make a determination on the application.
In a lively concurring opinion issued with the board’s ruling, Judge Richard P. Mather Sr. pointed out that DEP has a whole chapter of regulations dedicated to implementing the Oil and Gas Conservation Law, but the department’s authority under the law has been used only rarely for decades and DEP “has little or no recent experience with its implementation.”
He said the department “attempted to ignore or rewrite” its 42-year regulatory history with the conservation law in a legal filing to the board “that I can only describe as Orwellian.”
“Rather than re-learning how to apply this longstanding but seldom used regulatory authority … to the new circumstances involving the development of the Utica Shale, it now appears that the department has decided to abdicate its authority to the board,” he wrote. He added later, “I cannot support such an abdication of regulatory authority.”

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