Hydraulic Fracturing: Where are We Now? PowerPoint Presentation

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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 four subject that include 1) North Carolina’s shale gas basin and leasing history, 2) current law 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. In 2013 there were too bills that took action now to lift the moratorium on permits in 2015, rather than waiting until 2015 to see the final outcome of the MEC process.
  • 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 CPSG is studying what additional provisions are needed in North Carolina’s compulsory pooling law.
  • This is not a complete list of recommendations but are the ones that pertain most to protecting the rights of unleased landowners.

Transcript

  • 1. Hydraulic Fracturing & Landowner Rights: Where Are We Now? James Robinson, Research & Policy Associate Rural Advancement Foundation International September 12, 2013
  • 2. North Carolina’s Shale Gas Basin
  • 3. Leasing History in the Shale Gas Basin  14 counties could be impacted by fracking  Over 9,000 farms on over 1.3 million acres of farmland  Gas companies have targeted Lee County  Companies active in NC since 2006  Currently 80 active leases in Lee County covering 9,307 acres
  • 4. Leasing History: Predatory Leasing  NC leases offer landowners little compensation  Per acre bonus payment in other states up to $20,000  $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, start date unclear  Few landowner protections that limit financial risk and legal liability for landowners
  • 5. Current Law: Session Law 2012-143  Passed in 2012  Legalized the processes involved in hydraulic fracturing but prohibited permits until regulations are in place  Tasked the Mining and Energy Commission with creating the regulatory structure 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  a requirement for operators to post a bond sufficient to cover reclamation of a surface owner's property  30 day notice for “land disturbing activities”  “Registry of Landmen”
  • 6. Mining and Energy Commission: Structure
  • 7. Mining and Energy Commission: Current State of the Process  MEC committees in rule drafting process  Current draft rules: http://portal.ncdenr.org/web/mining-and-energy- commission/draft-rules  Chemical Disclosure Rule (Environmental Standards Committee ESC)  Prohibited Chemical Constituents (ESC)  Water Acquisition and Management Rule (Water and Waste Management Committee)  Well Construction Rules  Wellhead Standards  Study groups will make recommendations to the legislature by October 2013  Full MEC regulations due to be complete in October 2014
  • 8. Compulsory Pooling: What is Compulsory (Forced) Pooling?  Forced Pooling- Known as compulsory pooling in North Carolina, forced pooling is used to create a drilling unit by forcing non-consenting landowners into participating in a proposed drilling unit.  Currently legal in North Carolina (G.S. § 113-393) (1945)
  • 9. Compulsory Pooling: Conventional Oil 9 Migrates toward a well on your neighbor’s land. Landowner A Landowner B
  • 10. Compulsory Pooling: Unconventional Natural Gas 10 Does not migrate toward a well on a neighbor’s property and requires horizontal drilling to access. Landowner A Landowner B
  • 11. Compulsory Pooling: Rationale  Prevents environmental damage by minimizing wells  Maximizes recovery  Makes development of minerals more economical for small mineral rights owners who share in drilling cost with other mineral rights owners  Makes development of minerals more economical for oil and gas companies
  • 12. Compulsory Pooling: What are the arguments against it?  Removes the right of individual property owners to control their own mineral resource.  Removes any incentive for the industry to negotiate with small landowners in some circumstances.  Not necessary for drilling to take place. Pennsylvania and West Virginia do not allow this in the Marcellus Shale.  Possible unintended consequences for the unleased landowner  Possible drop in property value  Mortgage impacts
  • 13. Compulsory Pooling: How do other states deal with this issue?  Approximately 40 states have laws authorizing compulsory pooling (including North Carolina)  West Virginia- Pooling is not legal in shallow wells, which includes the Marcellus Shale (West Virginia §22C-9-7)  Ohio- Recommends a 90% voluntary acreage agreement to apply for a compulsory pooling order (Ohio DNR)  Texas- An applicant must make a fair and reasonable offer to non-consenting landowners and the unit is dissolved if no production within 1 year (Texas Natural Resources Code Chapter 102)
  • 14. Compulsory Pooling Study Group (CPSG)  The CPSG is studying North Carolina’s current forced pooling law and reporting needed regulatory changes or updates, including legislative proposals, by Oct 1, 2013 to the Joint Legislative Commission on Energy Policy and the Environmental Review Commission.
  • 15. CPSG: Key Recommendations for Dealing with Unleased Landowners  Recommendation 1: Compel unleased mineral interests into drilling unit after 90% of acreage in proposed drilling unit is leased and a “fair and reasonable” offer has been made to unleased mineral interest owners.  Recommendation 2: “Surface operations are prohibited without the express agreement of the unleased mineral interest owner subject to the pooling order.” (CPSG Draft Report)
  • 16. Continued…  Recommendation 3: “Unleased landowners… shall have absolute tort immunity from any action arising from any exploration or production activities on or near said owner’s property.” (CPSG Draft Report)  Recommendation 4: “The unleased landowner shall be entitled to indemnification for any injuries to his or her own property, person, person of a family member or guest, and other economic interests that are not merely speculative.” (CPSG Draft Report)  Additional recommendations included in the CPSG Draft Report
  • 17. 90% Acreage
  • 18. What about 80%?
  • 19. CPSG: Next Steps  Legislature will act on these recommendations. There is no timeline for acting on them.
  • 20. 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” to denr.shale.gas-subscribe@lists.ncmail.net  RAFI: http://rafiusa.org/issues/landowner-rights-and- fracking/get-involved/  RAFI Email List: http://rafiusa.org/subscribe/
  • 21. Contact James Robinson with any questions. james@rafiusa.org 919-542-1396 ext. 209