What Is Compulsory Pooling?
Compulsory pooling, also known as forced, statutory or mandatory pooling, forces landowners—who do not wish the mineral resources underneath their land to be extracted—to become part of a drilling unit. Although this process does not allow extraction companies surface access to the non-consenting landowner’s property, it does allow drilling to occur underneath their land, while compensating the owner for the extracted resource.
Solving Resource Disputes: Drilling Unitization and Pooling
Unitization and compulsory pooling laws are a response to state attempts to limit the number of oil and gas wells that may be drilled in an area to capture mineral resources. Historically, landowners and mineral extraction companies could drill as many wells on a parcel of land as they wished. Because the “rule of capture” governed natural resources, the first person or company to extract a mineral resource was entitled to collect exclusive profits on that resource. This meant that neighboring landowners often raced one another to extract the most oil or natural gas from a common pool underlying two properties, since the first to extract the resource was entitled to the profits. This practice also meant that, at times, landowners with mineral resources beneath the surface of their land had their share of the resource extracted by a neighboring landowner without compensation.
In order to prevent over-drilling, limit the number of wellheads on a parcel of land and protect the sub-surface mineral rights of neighboring landowners, many states have adopted minimum ownership requirements, mandating that oil and gas operators have control over a minimum amount of land before they can begin drilling operations. These mandatory unitization laws require the pooling of mineral interests into a drilling unit by the extraction company before resource extraction may occur (Figure 1). Mineral interests are “pooled” when extraction companies purchase or lease mineral rights from multiple landowners until the extraction companies own the rights to enough land to start drilling operations. Unitization laws are mandatory but do not force landowners who do not wish to extract minerals from their land to participate in the process. Rather, they require oil companies and consenting landowners to limit the amount of wells they drill.
Understanding the Lingo
Rule of Capture: The “rule of capture” originated in the early laws governing ownership rights of wild animals. According to these rules, the first person to bring a wild animal under their control by capturing, killing or mortally wounding the animal acquired ownership rights of that animal. Later, this rule was applied to the “capture” of natural resources. Sub-surface mineral rights in the U.S. generally belong to the owner of the surface land. When a common pool of oil or gas lies under the property of two or more neighboring landowners, the rule of capture applies unless it has been superseded by state statutes Accordingly, the first person to gain control over the resource (by extracting the resource from the ground) gains exclusive ownership over that resource. Pooling and unitization laws replace this common law tradition, thereby protecting the rights of landowners who are not the first to drill.
Drilling Unit: A “drilling unit” is a parcel of land of a specified size and shape upon which one well may be drilled into an underground pool or reservoir.
Pooling: During the pooling process, extraction companies purchase or lease mineral rights from multiple landowners and ‘pool’ them to form a drilling unit upon which they can legally place a drill rig.