Divided Opinions make for Tense Hearing on Unitization

Photo by the Texas Energy Museum/Newsmakers

The Lucas Derrick, named after Anthony F. Lucas, stands atop Spindletop Hill in Beaumont, Texas. Beaumont was the sight of Texas's first oil gusher January 10, 1901.

The House Energy Resources Committee heard hours of testimony on Wednesday on House Bill 100, also known as the ‘unitization bill.’

The bill, introduced to the Legislature by Representative Van Taylor, R-Plano, would legalize unitization of oil fields in Texas.

What exactly does that mean, and why is it garnering such a heated reaction?

It means that the Railroad Commission of Texas would be able to designate areas for drilling in which the holders of a majority of mineral rights in the area can extract oil and gas, even if a minority of the holders does not want to. That designation would be made at the request of property owners or companies that hold the leases to the mineral rights.

In Taylor’s bill, the number is split 70/30. That means if holders of 70 percent of the mineral rights in an area agree, drillers can move forward with “operations intended to increase the ultimate recovery of oil, gas or oil and gas from a common source of supply,” according to the bill, even if the other 30 percent are opposed.

Supporters say the new legal framework would ensure that the majority of property owners aren’t held hostage by the minority. The bill, they say, would encourage massive new investment in oil and gas drilling, and encourage greater investment in drilling for hard-to-reach oil and gas in existing fields where all of the easily accessible fossil fuels has already been extracted.

Opponents say the bill amounts to a framework for “forced pooling,” a process in which some lease holders can force drilling on land where property owners don’t want it. The bill is especially distasteful to some mineral rights owners who say it will damage their negotiating position with drilling companies. They say it could do that by allowing companies to apply for unitization, rather than paying more for leasing rights to land owners.

On Wednesday, after a brief hearing on H.B. 878, Committee Chairman Rep. James “Jim” Keffer, R-Eastland, joked that the committee meeting was over. But it was just getting started.

Rep. Taylor first introduced the committee substitute, or rewritten version of the bill, to the committee. He says the bill would not drastically change practices of oil production.

“There would be about 25 unitizations taking place per year,” he says. “The Railroad Commission would still have to bless the unitization practices.”

Taylor said Texas is the only oil production state without unitization.

“If Texas adopts this, it will be the best unitization in the country,” he says. “I’m not reinventing the wheel. The real testament to unitization succeeding in other states is that none of them are backing off of it.”

Morgan O’Connor with the Texas Land and Mineral Owners Association testified against the bill. She says that if the state currently produces oil successfully without the bill, there is no reason to pass it now.

“Our current system works fine. There is no reason to change it,” she said.

Jack Belcher, Vice President of Policy with the Consumer Energy Alliance, testified in favor of the bill. He said adopting the bill would be necessary for Texas’ future oil interests.

“This would allow us to take another step forward in the energy production renaissance,” he says. He said unitization, like hydraulic fracturing, would allow drillers to get oil previously thought to be unattainable.

Committee members, most notably Rep. Gene Wu, D-Houston, questioned many witnesses about the bill, including its relation to eminent domain and its effects on landowner’s rights.

The bill was left pending in the committee.