Compulsory pooling issue elicits questions, concerns

Jan. 11, 2013 @ 10:27 PM

No risk, no reward.

It’s a simple mantra that applies as easily to investing as it does to deciding whether or not to sign a lease with the energy companies that will likely be coming to Lee County en masse once hydraulic fracturing begins, according to state officials who visited Lee County on Friday morning.

The Compulsory Pooling Study Group of the N.C. Mining and Energy Commission [MEC] held a meeting at the McSwain Center on Tramway Road to disseminate information to the community and address questions and concerns from locals. For those who missed it, Study Group Chairman Ray Covington — a Lee County landowner himself — said he has tentatively scheduled another such meeting at the same place for Feb. 8. and that all the documents presented Friday will soon be available online at http://portal.ncdenr.org/web/mining-and-energy-commission.

Noting several times that most North Carolina laws governing compulsory, or forced, pooling were written in 1945 and haven’t been updated since, Covington and several experts and other commission members reiterated to the audience that they will be starting nearly from scratch while writing rules and, as such, they value input from those who will be affected.

“We need to make sure that the work we are going to be doing in the next six, seven months ensures that North Carolina has the best regulations in the country,” Covington said.

Forced pooling — in which landowners who don’t want to take part in drilling can be compelled to do so if enough of their neighbors sign leases with oil and gas companies — is governed by different rules depending on the state. North Carolina’s 1945 law, including all the regulations and guarantees given to property owners in such a situation, is a paltry three pages long.

Because there are almost no regulations in that law — except for the protection of surface water rights and a few other matters — owners who sign a lease and include the proper stipulations can get many guarantees. Those who own property that’s forced into a pool, and who don’t sign a lease, are given almost no rights.

Some of the perks that could be attained only through a lease (or improved regulations) include but aren’t limited to:

* A bonus payment per acre of land.

* Royalties for gas production higher than the minimum 12.5 percent, plus details on how the royalties were counted and the ability to audit the process.

* Access to a list of hazardous materials that will be used.

* Replacement of structures damaged by mining activity.

* Fair market value for damages to crops or timber.

* The ability to establish a buffer zone between drilling activity and water sources, livestock areas, etc.

* Advanced notice, or even consent, before a company can transfer the lease to another company.

* Renewal terms shorter than the standard 10 years.

* Tougher environmental regulations than are provided by the government.

With everything in that list — and much more — not guaranteed by current state law, presenter John Humphrey said there’s a clear disparity between the rights of energy companies and the rights of landowners.

“There are huge gaps in regulation. ... There’s an enormous need here, if there’s going to be pooling, that landowners get protection,” said Humphrey, a Sanford native and property attorney in the Washington, D.C., area. He said that even if the regulations the MEC comes up with aren’t what local landowners are hoping for, they can always get better deals through a lease, especially by joining forces to form a pool of their own in order to gain more bargaining power by controlling more acreage.

But like anything, there’s a downside. The leasing company could go bankrupt and leave owners strapped. Also, there are many people morally opposed to fracking — at least a dozen vocal ones showed up at Friday’s meeting, getting into spats with Covington and MEC Chairman Jim Womack, who is also a Lee County Commissioner — who might oppose their neighbors in such a venture. And in many states where forced pooling does occur, only those who consent and sign leases have to help pay drilling-related operating costs up front.

If there’s little or no gas to be found, there’s no way to recoup those costs through royalty payments. But if there is gas, lease-holders get paid back in part from shares of the royalties given to the non-consenting neighbors, so the money from the gas company’s royalties are pure profit. It remains to be seen if North Carolina will follow that precedent or not.

Some members of the audience wanted to expand the conversation beyond property rights and regulations, and into the realm of environmental regulations. They asked what would be done about fracking fluid from a neighbor’s property contaminating their water supply, for instance, which Womack said is a non-issue since government studies have never discovered such an instance.

“We will probably err on the side of caution, but we won’t write a rule based on speculation or conjecture,” he said. “We won’t write a bill that makes it so onerous on the drilling companies that they will never come here.”

And when critics cited reports of animals found poisoned near drilling sites, among other anecdotes, Womack again said the Environmental Protection Agency has never found proof of a well contaminated by hydraulic fracturing — and that he can only write laws based on science and not on unconfirmed beliefs, even if they’re held passionately.

“There are people who say they’ve been taken up in UFOs as well,” he said, eliciting shouts of outrage from the audience before Covington got the meeting focused back on landowner rights.

Finally, Covington said, he wants to hear from people both sides but has not yet been contacted by any skeptics or critics despite repeatedly asking for comments from the general public. He said anyone who wants to talk landowner rights can call him at (919) 775-5227 or (336) 312-3320 or can email him at raycovington@triad.rr.com.

The next local meeting of an MEC group will be Wednesday from 9-11 a.m. at Central Carolina Community College’s Emergency Operations Center, with a session of the Local Government Regulation Group, which is led by Sanford City Council member Charles Taylor.