Natural Gas & Forced Pooling

The soon-to-be unbalanced FY 2010-11 state budget, included language that a severance tax on natural gas would be passed in Pennsylvania by October 1.

Many drillers would support a fair severance tax, as long as its among other changes to modernize regulatory obstacles in the state. Drilling here is already more expensive than comparable states due to the topography and regulations.

However, a proposed forced (or “fair”) pooling law is not a regulatory change Pennsylvania should adapt.

A pooling law would require landowners to allow a drilling company to capture the natural gas under their property (and receive payment), if a majority of homeowners in that area (“pool”) – a current proposal requires a 75% majority before forced pooling occurs – have agreed to lease their land. The law wouldn’t force homeowners to allow wells on their property, and it would ensures they receive royalty payments for the gas recovered. And while the gas industry is correct – pooling laws reduces drilling costs and the environment impact by increasing efficiency – it also forces individuals to give up their property rights.

Property rights should not be infringed upon simply for the sake of convenience or to save costs. Indeed, that is little different than abusing eminent domain to take homes to give to Pfizer.

Yet the regulatory framework for the drilling industry does need revamping to address the growing operation costs. Lawmakers should consider the higher costs of drilling in Pennsylvania – due to a lack of forced pooling, along with other barriers – when considering a severance tax.