Fracking: Leases Are Very Complex
Ted Feitshans has a four-page handout riddled with bullet points for landowners to consider before signing a mineral rights lease that would allow fracking on their property.
“The real bottom line is that you need an attorney to sort through it,” is the word from Feitshans, an attorney and Extension Service associate professor at N.C. State University. “The issues are so complex, and there’s not a lot known nationally about fracking and its effects.”
Fracking is currently illegal in North Carolina, but House Bill 242 calls for a study that would move the state closer to shale gas development.
Feitshans has made presentations in Chatham, Lee and Moore counties this year to help landowners evaluate leases offered them by gas companies.
The North Carolina Geological Survey has determined that the three counties could produce enough natural gas from shale in the Deep River basin to meet the state’s current level of energy demand for 40 years. The natural gas is closest to the surface in Lee County, which is where gas companies are focusing their efforts to secure mineral rights.
Jordan Treakle, a mineral rights coordinator for Rural Advancement Foundation International-USA (RAFI-USA) in Pittsboro, says landowners in Lee County have signed mineral rights leases covering a collective 9,400 acres.
“Gas companies started approaching landowners in January 2010, and the majority of the leasing took place that spring,” Treakle says. “There are no mineral rights leases on the books in Moore County, but that doesn’t mean leases haven’t been signed, because there is no timetable for recording them.”
Treakle notes that rural landowners and farmers in North Carolina’s 14 shale-bearing counties are not well-informed of the potential risks of fracking, and gas companies are not providing objective information about the benefits and drawbacks.
“There are a lot of predatory contracts out there,” he says.
Two Forms of Payment
Typically, gas companies offer two forms of compensation to landowners: a per-acre monetary figure up front and royalty payments once the natural gas starts flowing.
“The up-front payments we’re seeing in Lee County right now range from $1 per acre to $25 per acre,” Treakle says. “In states where fracking is currently being done, such as Pennsylvania and Louisiana, those payments can range from $2,000 to $5,000 per acre. The standard royalty payment is 12.5 percent.”
He adds that most gas companies are either sending a representative to knock on a landowner’s front door or mailing a contract that includes a check for the proposed up-front payment.
“Folks are not being adequately compensated for their resources,” Treakle says.
He adds that RAFI-USA has analyzed some of the leases in Lee County and found them to be lacking well beyond inadequate financial compensation.
For example, Treakle says, the leases:
-Require landowners to pay for future well pad construction, access roads and other development costs without being compensated for potential destruction to their property, or impacts on cropland, timber and water resources.
-Force landowners to allow gas companies to use millions of gallons of water from the family’s water well for drilling.
-Require the landowner to compensate neighbors for any environmental damages that may occur from drilling, such as contamination of well water or chemical spills.
-Deny landowners access to the American court system by requiring that all disputes be settled through arbitration.
“Those are some of our main concerns,” Treakle says. “We’re hoping to spread awareness about this issue so folks can make informed decisions about their property.”
Of all his bullet points, Feitshans places hiring a lawyer at No. 1 and offers alternatives for landowners who may not be able to afford it.
“At least talk to an attorney and see what kind of pricing they can offer,” he says. “Some attorneys might agree to deferred compensation that could be contingent upon a signed contract. There are creative ways to approach it. You can also call your local bar association and ask if there is an attorney willing to do pro bono work.”
Treakle agrees but adds that there are few attorneys in North Carolina who have experience with mineral rights leasing issues.
“We’ve only found a handful that have some understanding and expertise,” he says.
Feitshans also cautions landowners to determine whether fracking is compatible with other land uses on their property.
“You don’t want to lose your present use value benefits because you’ll be paying higher taxes on your property if you do,” he says. “There are several dozen programs that farmers participate in that they could lose if they sign a mineral rights lease that eventually leads to exploration and production.”
Finally, Feitshans rounds out his top three concerns by warning landowners to look “very, very carefully at water.”
“Ideally, don’t provide any water in your lease,” he says.
Taylor Williams, an agricultural extension agent in Moore County since 1998, says water is already hard to come by in northern Moore County, where the southern tip of the Deep River basin extends almost to Carthage.
“If it is true that fracking could impact those water supplies, this is something that I would want to study further,” Williams says. “It’s not a heavily populated portion of the county, but there are a lot of important farms in that area.”
Contact Ted M. Natt Jr. at email@example.com.
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