Hydraulic Fracturing: Where Are We Now?
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The document discusses the current status of hydraulic fracturing in North Carolina, highlighting the impact on farmland and leasing practices that are unfavorable to landowners. It outlines the legislative framework governing fracking, including the 2012 session law and ongoing Senate Bill 76, as well as issues regarding compulsory pooling and the rights of landowners. Recommendations from the Rural Advancement Foundation International advocate for voluntary rather than forced pooling to protect landowner rights.
Hydraulic Fracturing: Where Are We Now?
- 1. Hydraulic Fracturing: Where Are We Now? James Robinson, Research & Policy Associate Rural Advancement Foundation International May 21st, 2013
- 3. North Carolina’s Shale Gas Basin
- 4. 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
- 5. Leasing History: Predatory Leasing NC leases offer landowners little compensation $2,000 - $15,000 per acre bonus payments in other regions $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
- 6. 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, and 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”
- 7. Current Legislation: Senate Bill 76 Passed the Senate Currently in the House, but no action has been taken on the bill Authorizes DENR to issue permits on or after March 1, 2015 (MEC regulations scheduled to be complete by October 2014) Repeals the Landman Registry Removes the State Geologist from the Mining and Energy Commission (MEC), among other MEC changes Authorizes “deep injection wells” to dispose of fracking fluids
- 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 Standards Committee) Water Acquisition and Management Rule (Water and Waste Management Committee) No rules have been finalized Study groups will make recommendations to the legislature by October 2013 Full MEC regulations due to be complete in October 2014
- 10. 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 a lease. Currently legal in North Carolina (G.S. § 113-393) (1945) This is normally done with small or irregular tracts for the purpose of having sufficient acreage to comply with spacing unit regulations.
- 11. Compulsory Pooling: Conventional Oil 11 Migrates toward a well on your neighbor’s land. Landowner A Landowner B
- 12. Compulsory Pooling: Unconventional Natural Gas 12 Does not migrate toward a well on a neighbor’s property and requires horizontal drilling to access. Landowner A Landowner B
- 13. 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
- 14. 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. Possible unintended consequences for the unleased landowner Possible drop in property value Mortgage impacts
- 15. 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 available 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)
- 16. 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. First Recommendation: “No surface operations or disturbances to the surface of the land shall occur on a tract pooled by an order without the written consent of or a written agreement with the owner of the tract that approves the operations or disturbances.”
- 17. CPSG: Next Recommendations May 31: Whether or not compulsory pooling should be legal, and under what circumstances if it is legal May 31: Penalties and compensation for compulsorily pooled unleased landowners May 31: Prerequisites for a compulsory pooling application
- 18. Compulsory Pooling: RAFI’s Recommendations RAFI supports voluntary pooling in North Carolina as a way for landowners to increase negotiating leverage. RAFI does not support forced pooling because it limits landowners’ ability to control their own property, can lead to pressure sales, and brings many legal unknowns to the compulsory pooled landowner. If forced pooling is retained in North Carolina, it should be closely regulated, only occur when more than a super-majority of landowners favor pooling, and provide very 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” 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/
- 20. Contact James Robinson with any questions. james@rafiusa.org 919-542-1396 ext. 209
Editor's Notes
- #2: 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.
- #4: Currently, the only leases that have been signed are in Lee Co. This includes about 80 leases covering about 9,000 acres.
- #6: This took place before hydraulic fracturing was legal in North Carolina. Oil and gas companies were acting in anticipation of new legislation.
- #7: Leasing happened before hydraulic fracturing was legal. In 2012, the legislature passed SB820 or SL 2012-143.
- #11: 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.
- #12: 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.
- #13: 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.
- #16: Unlike North Carolina, these state and other states have additional regulations governing compulsory pooling.
- #17: The compulsory pooling study group is trying to answer those questions.
- #18: These are the questions that must be addressed by the compulsory pooling study group and added to North Carolina’s regulatory structure.