Long-Awaited Forced Pooling Legislation: Senator Marble’s Bill Gives “Sweetheart Deal” to Industry and Rep. Gray’s Bill Is In Draft Form

On Wednesday, April 11, SB 18-230 Modify Laws Drilling Units Pooling Orders was heard in the Senate Committee on Agriculture, Natural Resources, & Energy, as sponsored by Sen. Vicki Marble (R-Broomfield/Weld) and Rep. Lori Saine (R- Weld).  Attorney Matt Sura, who represents many Broomfield mineral owners regarding the Extraction projects, distributed handouts estimating that the average Broomfield constituent of Senator Marble would lose close to $19,000 over the project lifetime given Sen. Marble’s bill provision of raising the operator production recovery allowance from 200% to 300%.  He invited the Senators to have legislative services check his math.  Sen. Matt Jones (D-Boulder) called it a “sweetheart deal for industry.”  Wildgrass mineral owner Jean Lim (author) testified that not once during the Marble/Saine Summer Energy Summits was it mentioned that any proposed legislation would require taking more money from mineral owners and giving it to industry.  Despite these objections, SB 18-230 passed the Committee on a party line vote 6-5.

The bill did have a few helpful provisions for mineral owners.  It provided immunity from liability for mineral owners who are forced pooled.  Under current Colorado law, force pooled mineral owners would be liable for costs associated with explosions, fires, releases, and spills.  It also extended the required notice time from 35 to 60 days.  The operator would also be required to send a brochure that fully explains the very confusing forced pooling laws.

It did not include any provisions to require operators to negotiate in good faith nor did it require transparency, reporting by the industry on the terms offered to mineral owners before they are force pooled.  It also did not try to change the threshold before forced pooling can be permitted by the State of Colorado.  Colorado remains unique compared to the rest of the states as the Colorado law says that as long as only one mineral owner in a spacing unit signs a lease, the rest are subject to force pooling if they do not sign a lease offer for their mineral rights.  Some mineral owner advocates would like to see that raised to at least 51%.  During the hearing, Sen. Jones referred to Colorado force pooling as “corporate condemnation or eminent domain of personal property.”  Current Colorado law only gives forced pooled mineral owners a 12 1/2% royalty rate when market rates are close to 20%.

Attorney Jaime Jost testified for industry in support of SB 18-230, as did Neil Ray of CAMRO (Colorado Alliance of Mineral Owners), whose organization states that it represents mineral owners.  Attorney Jost stated that the industry needed the increased recovery percentage to cover well costs.  Attorney Sura countered that industry was always certain now by the time they drilled a multiwell horizontal pad that they were not going to come up dry and that they would make a profit.

Department of Natural Resources Doug Wilsack represented the State COGCC in testifying.  He said that they were neutral on the bill, but that he had been aware of the need for immunity and longer notice.  However, he stated that the increase in the industry recovery allowance was a “newer piece” and they would look into Matt Sura’s numbers which countered the need for it.

In the closing comments of Sen. Rhonda Fields (D-Arapahoe), she asked if Sen. Marble thought it was a conflict of interest for her to be sponsoring legislation related to oil and gas given her recent ethics violation. Committee Chair Sen. Jerry Sonnenberg (R-Weld) hesitated, but he finally said there was a place to bring that up if Sen. Fields wanted to do so and this was not the place.  The vote was then taken, with a 6-5 party line vote moving it to the Senate floor.

Rep. Matt Gray (D- Broomfield) has been drafting a bill with a large number of provisions and no increase in the industry recovery allowance.  He is studying his options based on Sen. Marble’s bill and the looming termination of the State Legislative Session on May 9.

There is about a 2 week delay in the posting of Senate Committee hearings, but the audio should be available here at some point.

You can write Sen. Marble about SB 18-230 at vicki.marble.senate@state.co.us

You can write Rep. Gray to encourage him to bring his draft legislation to a hearing at matt@matthewgray.us