Colorado’s Forced Pooling Laws May Get A Major Overhaul. Here’s What Might Change

Article By: KUNC

A bill making its way through the state Legislature is challenging several long-standing practices within Colorado’s oil and gas industry, including “forced” or “statutory” pooling.

That’s when companies can drill in a certain area without consent from all associated mineral right owners. The practice has been around for decades, but is facing fresh criticism as Colorado’s population balloons and oil and gas development creeps closer to neighborhoods north of Denver.

Here’s the Colorado Oil and Gas Conservation Commission’s definition:

Pooling is the joining together of various mineral interests into one large “drilling and spacing unit” in order to drill a single well to drain a large area of oil and gas, with each person who owns a mineral interest in the unit receiving a share of the proceeds.

Simply put, Senate Bill 181 proposes raising the threshold a company needs before it can pool an entire group of mineral owners. The bill would require at least 50 percent of owners within a “drilling unit” to lease their rights in order do that.

Right now, that number is far less — just one willing mineral owner is needed to start the pooling process.

SB 181 also proposes raising a nonconsenting owner’s initial royalty rate from 12.5 percent to 15 percent.

Homeowners are split on the issue. Some don’t mind leasing their mineral rights.

Others, like Lizzie Lario, a health coach and Broomfield resident, say mineral right owners don’t have enough say in the process.

“I would like the state and the COGCC to understand what an antiquated, old statute forced pooling is and how it needs to be brought up to speed and brought into balance,” Lario said.

She, along with other residents in the Wildgrass neighborhood, have been trying since 2016 to stop the development of dozens of wells nearby.

In February, a Denver judge delayed a decision on a lawsuit involving Lario and other members of the Wildgrass Oil and Gas Committee. The suit challenges the constitutionality of forced pooling.

Another hearing is tentatively scheduled for late March.

Colorado adopted its current pooling laws more than 50 years ago. The statute was written in a way to provide “controlled” and “far less disruptive” drilling, according to the Colorado Oil and Gas Conservation Association.

The term “forced” is often used by critics of the practice. The COGCC and oil and gas industry representatives often refer to it as “statutory” pooling, or simply “pooling” to avoid the negative connotation.

With more people moving to Greeley, Evans, Windsor and northern Adams County in recent years, the practice is becoming increasingly common, said Matt Sura, an oil and gas attorney in Longmont.

“There is such a density of residential housing units there and many of those folks do own their mineral rights,” he said. “I’m seeing hundreds of people that are receiving these force-pooling letters — hundreds in each one of those neighborhoods, in each one of those cities.”

The contents of pooling applications aren’t public record, he added, which also makes it difficult to quantify the scope of the practice.

“A lot of these people are receiving notices from the oil and gas industry, saying that they’re going to be taking their mineral rights from them — taking a property right from them so the oil and gas industry can profit from it,” he said. “And that just strikes people as unfair.”

Colorado lawmakers passed several new rules around pooling last year. They require companies to send informational materials to mineral owners and give them longer time windows to make decisions.

Scott Prestige, spokesman for the Colorado Oil and Gas Association, said pooling is fundamental to the industry’s development, adding that SB 181’s proposed changes could be devastating.

“If you don’t have pooling, in some cases and in some ways, there’s a threat that it could shut down development in that area,” he said. “Because it’s a necessary piece of the puzzle in order to have effective oil and gas development.”

Prestige said it also makes drilling more economical, because it lets companies build fewer surface wells — and that frees up money.

“You’re able to build pipeline infrastructure that reduces truck traffic,” he said. “You’re able to invest in different lighting, noise and odor mitigations all because of those economies of scale, it helps create an opportunity for using the technologies that exist in today’s oil and gas industry.”