What might my community experience?

What do landowners who are approached about signing shale development leases need to know?

Landowners who own the mineral rights to their land stand to benefit from lease payments and royalties for the extraction of oil and gas. It is important to consider, however, the anticipated activities and potential impacts to your lands or property when negotiating a surface use agreement. 1  There are also potential liability and mortgage risks for owners to consider. 2  Several organizations offer guidance for landowners considering signing oil or gas leases or surface use agreements (see the resources section below).

With regard to property values in your community, the effect of energy development can be mixed. If you own the mineral rights on your property, the property values can be expected to increase. Studies suggest that regional property values tend to rise with development due to an influx of project workers and the economic boom, although this effect declines over time. 3 According to one study, whether properties in proximity to drilling sites increase or decrease in value depends on several factors, including their distance to the drilling site, whether they rely on well water or piped water, and if they are located in an area that has been previously permitted but not drilled. The value of homes in proximity to shale development sites has tended to increase overall, unless the home relied on well water, which indicates a perceived risk to the local water quality. 4 5

What are the implications of forced pooling laws?

Thirty-nine states have laws allowing for compulsory integration into a drilling unit, or forced pooling. 6 If a company controls a certain percentage of the acreage within a drilling unit, forced pooling allows the state to draw the remaining unleased properties into the unit, allocating a share of the royalties to the owners. 7 These laws were initially developed to promote efficient development of the mineral resources and prevent the drilling of too many wells in close proximity. They were also intended to keep a mineral owner’s resources from being extracted through a well on a neighboring property without compensation. 8 

If owners within a drilling unit do not wish to sign a lease, the operator can file a forced pooling application with the state. If approved by the state, mineral owners are then given a choice:  participate as a stakeholder in the development of the well or simply receive bonus and royalty payments. The operator usually accesses the minerals through horizontal drilling from a neighboring property. Forced pooling laws have most often been used in the longstanding oil and gas lands in the West; their usage in states in the newer shale plays is still to be determined. 9 10

What bonding and compensation requirements are there to protect landowner property and community infrastructure?

If the landowner and company negotiate a surface use agreement, this contractual agreement includes provisions for compensation of any damages. 11 Shale energy development is primarily regulated under state laws, which vary considerably. Some states have statutes requiring companies to attempt to negotiate compensation for potential damage with surface owners, as well as provisions incentivizing the companies to minimize damages. If no agreement is reached and property damages are not repaired, property owners might be able to take a complaint before the state agency or oil and gas commission, depending on the state. Alternatively, they can seek compensation through the court system. 

Most states require companies to post a bond, or a form of financial assurance, prior to drilling to cover the cost of plugging the well and reclaiming the site. This is done to ensure that there is funding to cover the costs if, for example, the company goes bankrupt before decommissioning the site.

With regard to community infrastructure, some municipalities and counties also have regulations relating to shale development. These regulations require companies to post bonds to cover any damages to local infrastructure; have permit and/or fee requirements; or have zoning ordinances restricting areas for development. In some states, local governments can require operators to enter road use agreements that specify conditions for local road and bridge improvements and maintenance, leading to improvements in local infrastructure. Costs can be shared or paid fully by the operator.

Notes:

  1. See Earthworks, “Oil and Gas at Your Door?” III-5–III-8 for a checklist of concerns and surface use agreement provisions to consider.
  2. Elisabeth N. Radow, “Homeowners and Gas Drilling Leases:  Boon or Bust?” New York State Bar Association Journal 83, no. 9 (November/December 2011), reprinted at http://cce.cornell.edu/EnergyClimateChange/NaturalGasDev/Documents/PDFs/NYSBA%20Journal%20nov-dec2011.pdf.
  3. Lucija Muehlenbachs, Elisheba Spiller, and Christopher Timmins, “The Housing Market Impacts of Shale Gas Development” Resources for the Future Discussion Paper 13–39 (Washington, DC:  December 2013), 1.
  4. Muehlenbachs, Spiller, and Timmins, “Housing Market Impacts,” 1.
  5. New York State Department of Environmental Conservation, High-Volume Hydraulic Fracturing in NYS: 2015 Final Supplemental Generic Environmental Impact Statement (SGEIS) Documents (Albany, New York:  April 2015), 6-253–6-254.
  6. Marie C. Baca, “Forced Pooling: When Landowners Can’t Say No to Drilling,” ProPublica (May 18, 2011).
  7. Baca, “Forced Pooling.”
  8. Mike Lee, “Nuns and Other Landowners Watching as Pa. Reschedules ‘Forced Pooling’ Case,” E&E News (July 23, 2014). 
  9. Lee, “Nuns and Other Landowners.”
  10. For a compilation of state laws on forced pooling, see Marie C Baca, “State Laws Can Compel Landowners to Accept Gas and Oil Drilling,” ProPublica (May 19, 2011). 
  11. For landowner tips, a checklist of issues to consider when negotiating an agreement, and a sample agreement, see Oil and Gas at Your Door? III-3–III-23.