Ritchie lawmaker pushing ‘forced pooling’ no stranger to gas industry

 

As the West Virginia Legislature prepares to take up the issue of forced pooling once again, the lawmaker at the center of that gas leasing legislation is expected to have at least six new gas wells drilled on his property.

Delegate Woody Ireland, R-Ritchie, has never been shy about sharing his experience as a land and mineral owner. In public meetings and interviews, the chairman of the House Energy Committee has often described himself as a cattle farmer who knows first hand what it’s like to negotiate with gas companies.

Now, as Ireland hopes to wrangle the controversial gas leasing law through the Legislature, public records show that Antero Resources, one of the state’s largest gas companies, intends to drill at least six new Marcellus gas wells on the edge of Ireland’s farm, adding to one existing horizontal well that was drilled through part of his minerals and completed in 2014.

The newly permitted gas wells don’t mean Ireland will benefit from the forced pooling law, which would require holdout mineral owners to sign a lease if 80 percent of the neighboring owners have already agreed to drill. All of his neighboring mineral owners have already signed with Antero.

“Whether this bill goes through or not, it’s not going to have a financial impact on me,” said Ireland, who filed the bill on Friday.

But the new wells would mean that Ireland can expect to receive additional royalty checks from Antero, a company involved in the pooling debate, once the wells are completed. Depending on gas prices, how much of Ireland’s acreage is included in each well and his agreed-upon royalty rate, Ireland could make tens of thousands or hundreds of thousands of dollars from the wells in a year.

If Antero drills the horizontal wells on his property, Ireland would own a significant share of the royalty profits from four of the wells that would run southeast through a large part of his mineral holdings.

Public records show that Ireland’s share of production from the well that was finished in 2014 equals roughly 1 cent for every dollar of gas produced from the well.

In six months in 2014, that well — the Ireland 1H — produced around 1.3 billion cubic feet of gas, according to state production data. There is no average price available for what producers were receiving for gas during those months.

Al Schopp, Antero’s regional senior vice president, said he couldn’t comment on Ireland’s leases or the newly permitted wells.

“Unfortunately, we are unable to discuss any particular wells, royalty owners, owner royalties per well or any details about specific wells,” Schopp said. “As a company, we have made it a policy that we don’t make any comment on our operations of any wells.”

The wells planned for Ireland’s property, which have been largely permitted by the state Department of Environmental Protection in the past year, illustrate Ireland’s direct participation in the development of the state’s gas resources and highlights his intimate knowledge of the industry.

Since 2011, Ireland’s financial disclosure reports with the state Ethics Commission show that at least 20 percent of his income has come from oil and gas exploration and development, including previous leases with Key Oil and the newer gas leases that Ireland signed with Antero in 2012. According to the secretary of state’s website, Ireland has not filed for reelection in 2016.

The bill Ireland is sponsoring for the second year in a row is meant to ensure that no mineral owner is stranded from a gas well, unable to profit from their property — like he stands to — just because a small minority of owners refuses to sign a lease.

At a time when the West Virginia state government is struggling with a significant budget shortfall, Ireland said the pooling bill would ensure that the state doesn’t waste valuable gas minerals and the severance taxes they can provide.

West Virginia is going to pay its bills from severance taxes on energy production, Ireland said, not from whitewater rafting.

“My focus in this thing is to try to do what’s right for all West Virginians,” he said.

Ireland said his mineral and land ownership is no different than many property owners in West Virginia.

Most of the gas under his farm is partially owned by other people, he said. Many of the mineral tracts in his area of the state have older conventional gas wells drilled through them already. And almost all of the minerals near his farm, including much of his own, have a confusing history of ownership that makes it more difficult for gas companies to lease enough mineral acreage to drill.

The lease that Ireland signed with Antero in 2012 also incorporates many of the same protections that he is proposing for unwilling property owners in his bill, including legal clauses requiring companies to negotiate for surface rights, banning deductions in royalty payments to cover “post production costs” and mandating unused acreage to be returned to the mineral owner.

People who took part in the stakeholder meetings that helped develop that legislation say Ireland’s lease terms are proof of the quality of the bill. Those stakeholders have publicly celebrated Ireland as the great mediator between the gas companies and the participating mineral owner’s associations.

“The fact that he has those in his own lease shows how important they are, especially the deductions,” said Thomas Huber, the vice president of the West Virginia Royalty Owners Association. “He definitely has our confidence. He has prioritized what real people go through in a lease negotiation.”

“He didn’t get any type of sweetheart deals,” he added. “They are good deals, but they are not special.”

The one detail where Ireland’s lease diverges from the bill is his royalty rate — the percentage of gas profits owed to participating mineral owners.

The lease that Ireland signed guarantees him an 18 percent share of every cubic foot of gas pulled from his minerals. The pooling bill would provide a minimum royalty rate of 12.5 percent for those who are forced in.

His 18 percent rate, Ireland said, was the result of negotiations with Antero, in which he actually gave up a higher royalty in order to get surface protections for his farm. “It all depends on how much leverage you have in any negotiation,” he said, adding that the size of his acreage gave him more pull with the company.

Tim Greene, a former DEP official who now operates his own consulting firm, Land and Mineral Management of Appalachia, said that is usually how negotiations work. Larger mineral owners hold more sway and smaller owners have less power.

Greene said he understands the need for pooling in West Virginia, but he said it will be the small mineral owners, not the people with hundreds of acres, who will be most strongly affected the pooling legislation.

“They are the ones most affected by this bill,” Greene said. “Mr. Ireland had the benefit of having leverage.”

Ireland said the bill clearly gives the unwilling property owners the opportunity to petition the Oil and Gas Conservation Commission, the state agency that handles pooling, in order to get a better royalty rate. He also believes the bill will prompt gas companies to settle with many holdout mineral owners before coming to the commission.

“What we have tried to do is instill upfront negotiations between mineral owners and the companies,” he said. “Going to the Oil and Gas Conservation Commission should be the last resort.”

Not everyone in the Legislature is satisfied with that setup, however.

The state’s Democratic party has come out solidly against the legislation this session, announcing their opposition to the bill in a press release. Those Democratic lawmakers, some of which had introduced similar legislation prior to 2015, helped kill the bill last session in a last-minute tie.

But it’s not just the other party that Ireland will have to convince. Several Republicans that believe in a more libertarian form of conservatism are also opposing the bill for the second year in a row.

“It’s a mammoth violation of private property,” said Pat McGeehan, R-Hancock. “It’s governmental price fixing and central planning. It completely removes free negotiation between the landowner and the gas companies.”

McGeehan, the chair of the House Liberty Caucus, can’t understand how some Republicans can vote to repeal the state’s prevailing wage for public construction projects but support a bill that allows a government agency to decide lease terms between mineral owners and gas drillers.

“There is a lack of vision and consistency in the Republican leadership. I just think it’s kind of ironic,” McGeehan said. “I am not going to question [Ireland’s] motivations, but in some respects, the legislators that are pushing this bill have become obsessed with getting it passed in any size, shape or form.”

Ireland, who has revised the bill over the past year, disagrees.

“Some people like to see the world as black and white,” Ireland said, “but people that have seen the sun and moon up at the same time know it’s not that simple.”

Ireland has tried to get as many people’s thoughts on the table as possible, he said, and that is what the bill currently represents.

“The world is one of compromise,” he said.

Reach Andrew Brown at andrew.brown@wvgazettemail.com, 304-348-4814, or follow @Andy_Ed_Brown on Twitter.