HOUSE BILL TO PROVIDE COALBED METHANE FORCED POOLING

Oct. 14, 1991
Rep. Phil Sharp (D-Ind.), chairman of the House energy and power subcommittee, has filed a bill in Congress to provide a forced pooling mechanism for coalbed methane. "The major barrier to coalbed methane recovery is the issue of who owns the methane," Sharp said.

Rep. Phil Sharp (D-Ind.), chairman of the House energy and power subcommittee, has filed a bill in Congress to provide a forced pooling mechanism for coalbed methane.

"The major barrier to coalbed methane recovery is the issue of who owns the methane," Sharp said.

The bill would provide a forced pooling mechanism, modeled after a statute recently passed in Virginia, for encouraging development and resolving ownership questions at the same time. It also seeks to protect the rights of coal owners or operators to ensure coalbed methane development is consistent with mine safety and production of the value of the coal resource.

OWNERSHIP DISPUTE

An explanation of the bill said where mineral rights are severed, it is not clear who owns the coalbed methane, because it was not seen as a recoverable resource at the time and thus not treated explicitly in the lease.

Coal owners argue they own the methane because it is in the coal. They point out that for years they have been allowed to vent the gas to produce their coal without claims by oil and gas lessees.

The latter argue they own the methane because it is a gas.

While they accept the right of the coal owner to vent the gas, they note this is consistent with the rights of any mineral owner to infringe in a reasonable manner on another's resource to produce their own and does not indicate the coal owner owns the gas.

Owners of surface rights argue that since they were unaware of the resource when they sold the mineral rights, they did not intend to lease it and thus retain the rights.

WHAT THE BILL WOULD DO

Using the Virginia approach, Sharp's bill would require forced pooling of the rights. A developer could proceed with a project if he set aside a share of the revenue, typically one eighth, as payment for the owner of the resource.

The bill explanation said, "This approach creates a system that closely resembles what would likely result from protracted negotiations over ownership, namely that the developer will receive seven eighths of the profit and the resource owner will receive the one eighth royalty that is typically paid.

"While the project is developed, the various ownership claimants can argue about who should be paid the one eighth royalty. In fact, development of the resource and creation of the (royalty) fund provides an incentive for claimants to step forward and negotiate.

"in states without such provisions, development does not proceed, no money is directly at stake, and there is little incentive for possible owners to negotiate.

"Moreover, by setting up this fund, developers cannot be accused of 'willful trespass' if it is determined they do not own the resource. Further, this approach does not legislate ownership and thus provides the case by case determination of property rights required under the Constitution.

"Because of the relationship between coalbed methane development and coal mining and the fact that the method of methane recovery can affect the mineability of the coal, it is necessary to combine the forced pooling provisions with some protection for the coal owners.

"Coal owners are given the right to object to proposed coalbed methane projects that would affect their coal reserves. Projects cannot be developed if it is shown that development would affect mine safety or coal mineability."

The federal law would not apply in states like Virginia and Alabama, which have enacted their own approaches to encourage coalbed methane development. Sharp's subcommittee is expected to consider the bill this session.

Copyright 1991 Oil & Gas Journal. All Rights Reserved.