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.
Hydraulic Fracturing: Where are We Now? PowerPoint Presentation
Hydraulic Fracturing &
Where Are We Now?
James Robinson, Research & Policy Associate
Rural Advancement Foundation International
September 12, 2013
Leasing History in the Shale Gas
14 counties could be impacted by fracking
Over 9,000 farms on over 1.3 million acres of
Gas companies have targeted Lee County
Companies active in NC since 2006
Currently 80 active leases in Lee County covering
Leasing History: Predatory
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
Few landowner protections that limit financial risk and
legal liability for landowners
Current Law: Session Law
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”
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-
Chemical Disclosure Rule (Environmental Standards Committee
Prohibited Chemical Constituents (ESC)
Water Acquisition and Management Rule (Water and Waste
Well Construction Rules
Study groups will make recommendations to the legislature by October 2013
Full MEC regulations due to be complete in October 2014
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)
Compulsory Pooling: Conventional Oil
Migrates toward a
well on your
Landowner A Landowner B
Compulsory Pooling: Unconventional
Does not migrate
toward a well on a
horizontal drilling to
Landowner A Landowner B
Prevents environmental damage by minimizing wells
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
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
Possible drop in property value
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
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.
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)
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