Group seeks tax revenue options

Mar. 23, 2013 @ 05:03 AM

After approving a policy recommendation, the Compulsory Pooling Study Group of the N.C. Mining and Energy Commission (MEC) spent Friday morning at the Cooperative Extension in Lee County tackling new questions — primarily how to further define and regulate the pooling process, and how local governments might see tax income other than severance taxes on gas and property taxes on equipment.

The recommendation — which will now go before the full MEC, which is in charge of coming up with suggestions for state regulations on hydraulic fracturing and other oil and gas operations — reads: “No surface operations or disturbances to 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.”

After passing it, the group touched on a number of technical questions regarding compulsory pooling — the process through which a mineral rights owner can be forced to allow an energy company to drill if enough neighbors form a pool by signing leases with that company — such as how to form a pool, liability issues, types of lease options and cost and profit sharing.

Study group member John Humphrey, a property rights attorney, said more lease options would give leverage to mineral rights owners that could make negotiations with energy companies more balanced and could lead to stronger pools.

“I think you do want to build incentives for people to come together and figure it out,” he said. “... Each landowner’s interests are going to vary.”

Ray Covington, chairman of the study group, asked people with input on the terms and issues the group is studying to email him and Layla Cummings, a legal intern with the N.C. Department of Environment and Natural Resources who’s helping compile much of the group’s research.

Cummings’ email address is, and Covington’s is James Robinson, research and policy associate with Pittsboro-based Rural Advancement Foundation International (RAFI), has compiled a detailed flowchart covering compulsory pooling and other stages of the leasing process. That chart and other documents from Friday’s meeting can be found at

Jim Womack, MEC chairman and a Lee County commissioner, mentioned two potential ways to increase tax income — adding natural gas deposits to ad valorem property tax values and tweaking the present use value program, in which forest, horticulture, farming and conservation properties are taxed as though the land is used for horticulture/agriculture rather than their purported best use. However, Womack added that it won’t be possible until operations are under way.

“It’s not been proven that this stuff is economically viable for recovery, so there can’t be a value added to it (yet),” he said.

Womack said study group member Ted Feitshans, an attorney and economist at N.C. State University, brought present use taxes to his attention. However, Feitshans wasn’t present Friday, so the group decided to discuss it at the next meeting, set for 9 a.m. on April 12 at the Lee County branch of the N.C. Cooperative Extension at 2420 Tramway Road in Sanford.