Hydraulic Fracturing: Where Are We Now?

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Presented by Rural Advancement Foundation International (RAFI-USA) Research & Policy Associate James Robinson. May 21, 2013. …

Presented by Rural Advancement Foundation International (RAFI-USA) Research & Policy Associate James Robinson. May 21, 2013.

For more information about forced pooling and landowner rights visit: http://rafiusa.org/issues/landowner-rights-and-fracking/

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  • I work with the Rural Advancement Foundation International. We’ve been studying and educating landowners about hydraulic fracturing for about 3 years. Some organizations focus on the environmental impact of hydraulic fracturing or on energy issues. We have focused on helping landowners understand the risks involved in leasing their mineral rights and hydraulic fracturing. We also work to help landowners recognize predatory mineral rights leasing offers. When we saw that landowners were signing predatory leases several years ago, we recognized landowner rights education as a need within our community.I’m going to cover five subject that include 1) a brief overview of hydraulic fracturing, 2) North Carolina’s shale gas basin and leasing history, 3) current law and existing bills on hydraulic fracturing, 4) current state of the MEC and CPSG process, and 5) how to get involved with the MEC process.
  • Currently, the only leases that have been signed are in Lee Co. This includes about 80 leases covering about 9,000 acres.
  • This took place before hydraulic fracturing was legal in North Carolina. Oil and gas companies were acting in anticipation of new legislation.
  • Leasing happened before hydraulic fracturing was legal. In 2012, the legislature passed SB820 or SL 2012-143.
  • Finally, I’m going to cover compulsory pooling and the work of the compulsory pooling study group. This is the issue that RAFI has focused on most to date.
  • Forced pooling makes more sense as a landowner protection in the case of “loose gas.” Non-consenting landowners never have a well on or below their property.
  • Forced pooling makes less sense in the case of “tight gas.” You have to go and get the gas, which requires access to the subsurface.
  • Unlike North Carolina, these state and other states have additional regulations governing compulsory pooling.
  • The compulsory pooling study group is trying to answer those questions.
  • These are the questions that must be addressed by the compulsory pooling study group and added to North Carolina’s regulatory structure.

Transcript

  • 1. HydraulicFracturing: WhereAre We Now?James Robinson, Research & Policy AssociateRural Advancement Foundation InternationalMay 21st, 2013
  • 2. Hydraulic Fracturing Overview
  • 3. North Carolina’s Shale GasBasin
  • 4. Leasing History in the Shale GasBasin 14 counties could be impacted by fracking Over 9,000 farms on over 1.3 million acres offarmland Gas companies have targeted Lee County Companies active in NC since 2006 Currently 80 active leases in Lee County covering9,307 acres
  • 5. Leasing History: PredatoryLeasing NC leases offer landowners little compensation $2,000 - $15,000 per acre bonus payments in otherregions $1 - $20 bonus payments in North Carolina Minimum Royalty Payments of 12.5% Unreasonably long drilling phases Typical Primary drilling phase 3-5 years Primary drilling phases in NC leases 15-20 years, startdate unclear Few landowner protections that limit financial risk andlegal liability for landowners
  • 6. Current Law: Session Law2012-143 Passed in 2012 Legalized the processes involved in hydraulic fracturing but prohibitedpermits until regulations are in place Tasked the Mining and Energy Commission with creating the regulatorystructure to govern fracking and other development of gas and minerals. Established some landowner protections, including: "cooling off" periods after leases are signed minimum royalty payments, and a requirement for operators to post a bond sufficient to coverreclamation of a surface owners property 30 day notice for “land disturbing activities” “Registry of Landmen”
  • 7. Current Legislation: SenateBill 76 Passed the Senate Currently in the House, but no action has been taken onthe bill Authorizes DENR to issue permits on or after March1, 2015 (MEC regulations scheduled to be complete byOctober 2014) Repeals the Landman Registry Removes the State Geologist from the Mining andEnergy Commission (MEC), among other MEC changes Authorizes “deep injection wells” to dispose of frackingfluids
  • 8. Mining and Energy Commission:Structure
  • 9. Mining and Energy Commission:Current State of the Process MEC committees in rule drafting process Rules that pass committees are voted on by the full MEC Current draft rules: http://portal.ncdenr.org/web/mining-and-energy-commission/draft-rules Chemical Disclosure Rule (Environmental StandardsCommittee) Water Acquisition and Management Rule (Water and WasteManagement Committee) No rules have been finalized Study groups will make recommendations to the legislatureby October 2013 Full MEC regulations due to be complete in October 2014
  • 10. Compulsory Pooling: What isCompulsory (Forced) Pooling? Forced Pooling- Known as compulsory pooling inNorth Carolina, forced pooling is used to create adrilling unit by forcing non-consenting landownersinto a lease. Currently legal in North Carolina (G.S. § 113-393)(1945) This is normally done with small or irregular tracts forthe purpose of having sufficient acreage to complywith spacing unit regulations.
  • 11. Compulsory Pooling: Conventional Oil11Migrates toward awell on yourneighbor’s land.Landowner A Landowner B
  • 12. Compulsory Pooling: UnconventionalNatural Gas12Does not migratetoward a well on aneighbor’s propertyand requireshorizontal drilling toaccess.Landowner A Landowner B
  • 13. Compulsory Pooling:Rationale Prevents environmental damage by minimizing wells Maximizes recovery Makes development of minerals more economical for smallmineral rights owners who share in drilling cost with othermineral rights owners Makes development of minerals more economical for oil andgas companies
  • 14. Compulsory Pooling: What arethe arguments against it? Removes the right of individual property owners tocontrol their own mineral resource. Removes any incentive for the industry to negotiatewith small landowners in some circumstances. Possible unintended consequences for theunleased landowner Possible drop in property value Mortgage impacts
  • 15. Compulsory Pooling: How doother states deal with this issue? Approximately 40 states have laws authorizing compulsorypooling (including North Carolina) West Virginia- Pooling is not available in shallowwells, which includes the Marcellus Shale (West Virginia§22C-9-7) Ohio- Recommends a 90% voluntary acreage agreementto apply for a compulsory pooling order (Ohio DNR) Texas- An applicant must make a fair and reasonable offerto non-consenting landowners and the unit is dissolved if noproduction within 1 year (Texas Natural Resources CodeChapter 102)
  • 16. Compulsory PoolingStudy Group (CPSG) The CPSG is studying North Carolina’s current forcedpooling law and reporting needed regulatory changesor updates, including legislative proposals, by Oct1, 2013 to the Joint Legislative Commission on EnergyPolicy and the Environmental Review Commission. First Recommendation: “No surface operations ordisturbances to the surface of the land shall occur on atract pooled by an order without the written consent ofor a written agreement with the owner of the tract thatapproves the operations or disturbances.”
  • 17. CPSG: Next Recommendations May 31: Whether or not compulsory pooling shouldbe legal, and under what circumstances if it is legal May 31: Penalties and compensation forcompulsorily pooled unleased landowners May 31: Prerequisites for a compulsory poolingapplication
  • 18. Compulsory Pooling: RAFI’sRecommendations RAFI supports voluntary pooling in North Carolina as away for landowners to increase negotiating leverage. RAFI does not support forced pooling because it limitslandowners’ ability to control their own property, can leadto pressure sales, and brings many legal unknowns tothe compulsory pooled landowner. If forced pooling is retained in North Carolina, it shouldbe closely regulated, only occur when more than asuper-majority of landowners favor pooling, and providevery favorable terms to non-consenting landowners.
  • 19. How to Get Involved MEC Meetings: http://portal.ncdenr.org/web/mining-and-energy-commission/meeting-schedule Contact MEC Member:http://portal.ncdenr.org/web/mining-and-energy-commission/members-information DENR Shale Gas Listserv: email “subscribe” todenr.shale.gas-subscribe@lists.ncmail.net RAFI: http://rafiusa.org/issues/landowner-rights-and-fracking/get-involved/ RAFI Email List: http://rafiusa.org/subscribe/
  • 20. Contact James Robinsonwith any questions.james@rafiusa.org919-542-1396 ext. 209