Officials OK rule to force fracking on NC landowners

by John Murawski, News and Observer, August 29, 2013.

North Carolina landowners would be forced to sell the natural gas under their homes and farms – whether they want to or not – under a fracking recommendation approved Wednesday that’s expected to be enacted by the state legislature this fall.

The proposal by a state study group endorses a rarely used 1945 law that’s never been tried here on the kind of scale that would be required for shale gas exploration, or fracking. Thousands of property owners could potentially be affected in the state’s gas-rich midsection in Lee, Moore and Chatham counties.

The recommendation, dealing with one of the most emotional fracking issues, bypasses the N.C. Mining and Energy Commission, which holds regular public hearings on protecting the public and safeguarding the environment, and goes to the legislature.

“We are talking about a for-profit industry taking away personal freedoms with the blessing of the government,” Therese Vick, a community activist with the Blue Ridge Environmental Defense League, told the Compulsory Pooling Study Group. “Personal freedoms are seldom on the radar when the gas companies come to town.”

The panel does include four members of the Mining and Energy Commission, some of whom were deeply conflicted.

“I find it abhorrent personally that a simple majority of landowners could dictate what I can do with my land,” said James Womack, chairman of the Mining and Energy Commission and a member of the Lee County Board of Commissioners.

But Womack voted for the practice, called forced or compulsory pooling, saying there are compelling reasons to justify it. Forced pooling protects local residents from inadvertently having their gas sucked out without compensation and keeps neighbors from profiting from resources under someone else’s land.

It also makes fracking possible by preventing fracking opponents from exercising a unilateral veto on their neighbors’ right to sell their natural gas.

“The problem we have with the passion to protect private property is that you’re giving power to certain individuals to shut down the industry,” Womack said. “This is my district. There are a lot of folks out there who are still uncertain. They can make it so difficult that industry won’t come.”

Environmental upside touted

Study group member Ted Feitshans, a lawyer and agricultural extension specialist at N.C. State University, noted that forced pooling could have environmental upsides because it creates drilling units and divides the proceeds.

“Compulsory pooling reduces the number of wells and reduces the amount of infrastructure,” he said.

The Compulsory Pooling Study Group’s goal was to create a system that would encourage property owners to negotiate with energy companies on leases, royalties and indemnity terms associated with horizontal drilling and hydraulic fracturing under their land.

The study group recommended a host of safeguards for forced pools, saying those property owners should be given immunity from lawsuits over fracking accidents, injuries and other damage. Such protections could not be signed away by contract or lease, a safeguard against unscrupulous energy companies.

The study group also recommended that at least 90 percent of acreage of a drilling area be voluntarily leased before remaining property owners are forcibly pooled. The study group rejected a proposal to require that 95 percent of drilling unit be voluntarily leased, which would have been one of the strictest standards in the nation.

Legislature has final say

However, the state legislature is not bound by the recommendations and will be able to set its own standards, using other states as guides or relying on its own collective judgment. Arkansas requires just 1 percent of a drilling unit to be leased before neighbors are forced to participate, while Virginia requires 25 percent.

Pennsylvania and West Virginia, on the other hand, do not allow forced pooling in the Marcellus Shale region, one of the most intensively fracked regions in the world.

Forcing property owners into a drilling pool, typically 1 square mile from which shale gas would be extracted, raises another problem: How much should they be paid for their gas? Unlike their neighbors who voluntarily signed leases with royalty terms, people in compulsory pools never agreed to any terms.

The study group recommended that such property owners be given the option of accepting a standard royalty of 12.5 percent on the value of their prorated share of the gas for as long as the well produces gas.

Another option is to pay them a fraction of the value of the gas until the energy company recovers that property owner’s presumed share of the cost of drilling the well. After the well is paid for, the landowner would be paid the full value of their share.

It could take a forcibly pooled property owner months or even years to pay off the bill: Drilling a well roughly costs between $8,000 and $12,000 per acre in a 1-square mile drilling unit.