Compulsory Pooling Process in Michigan

On March 14, 2013, Gallagher Law Firm attorney Kate Barnaby joined William Horn, Susan Sadler, Susan Topp, Amy VanDyke, Daniel Pulter, and Kevin Schumacher in presenting topics at HalfMoon Seminar's Legal and Regulatory Issues in Oil and Gas Seminar in Lansing, Michigan.

Presentations covered a range of topics including governmental approvals, regulatory updates, recent litigation, and negotiating oil and gas leases.

Kate Barnaby discussed the compulsory pooling process in Michigan. Compulsory pooling brings together small, separately owned tracts of land for the purpose of drilling a single well for primary production on a spacing unit in order to prevent waste.

In the early days of oil and gas production, developers drilled as many oil and gas wells as they possibly could on the properties that they owned or leased. As a result, more wells were drilled than necessary and many oil and gas resources were wasted. This caused many oil and gas producing states to enact legislation to try and address these wasteful practices beginning in the 1920s and 1930s. These ordinances place limits on the property that may be drilled, but still afford property owners an option to pursue in order to access their mineral resources. Some of the requirements involve limitations on surface and market waste.

Some landowners are against The Compulsory Pooling Process because they believe forced pooling is just another tactic by the oil and gas industry to get mineral owners to accept a less than fair lease. These landowners worry that they will lose control over what might happen to their property and that forced pooling will allow deductions to be taken from their royalty revenues. While these concerns are valid, pooling may be accomplished by way of a voluntary agreement between the parties or by the supervisor of wells in a manner which will enable each owner to receive a just and equitable share of the oil and/or gas produced.

The Supervisor of Wells may require the pooling of tracts or mineral interests within a drilling unit when the owners of the tracts or mineral interests have not agreed, or do not agree, upon the pooling of the interests to form full drilling units pursuant to the rules set forth in this
statute and the applicable spacing orders.

An applicant must comply with all requirements of the statute when making a petition to the Supervisor of Wells for a permit. Once the petition is received, and if the petition meets all of the requirements, the Supervisor of Wells will prepare and furnish a Notice of Hearing to the petitioner that will include instructions for publication and service of the notice. All those with interest in the land must receive notice of the hearing, and it must be published in an industry publication and a newspaper with circulation in the county. Any interest party can participate in the hearing of submit an answer in writing.

As a result of the hearing, the Supervisor of Wells will issue a final decision. The nature and terms of the order will vary depending on the situation. If an owner does not agree, they may appeal to the Director of the DEQ.

Kate Barnaby will be presenting Common Title Issues in the Oil & Gas Industry at the International Right of Way General Meeting in Lansing, Michigan on May 2013.

Categories: Oil and Gas