As fracking operations are exploding across the country, so is the promise of big money – in royalties and bonuses – for property owners who allow gas companies to drill on their land. Think (in concept only) “Beverly Hillbillies,” the 1960s TV sitcom featuring a backwoods family that moves to a lavish Beverly Hills mansion after striking oil in their backyard. It all worked out pretty well on TV, but for a growing number of real-life landowners in a growing number of states from New York to Colorado, the promise of quick, big payouts has ended in disaster.
New York Times reporters Ian Urbina and Jo Craven McGinty shed light on this fallout from the fracking boom in a recent piece entitled “Learning Too Late of the Perils in Gas Well Leases”:
After Scott Ely and his father talked with salesmen from an energy company about signing the lease allowing gas drilling on their land in northeastern Pennsylvania, he said he felt certain it required the company to leave the property as good as new.
So Mr. Ely said he was surprised several years later when the drilling company, Cabot Oil and Gas, informed them that rather than draining and hauling away the toxic drilling sludge stored in large waste ponds on the property, it would leave the waste, cover it with dirt and seed the area with grass. He knew that waste pond liners can leak, seeping contaminated waste.
And leak they did, poisoning the Elys’ drinking water.
As fracking operations take hold of rural America, there’s been a steep learning curve for many landowners who are getting their first look at the strong-arm, exploitative tactics of the oil and gas industry. In my 25 years of prosecuting oil companies for land contamination, I’ve seen plenty of one-sided lease agreements – and believe me, they never favor the landowner. More from the NYT report:
“I guess our terms should have been clearer” about requiring the company to remove the waste pits after drilling, said Mr. Ely, of Dimock, Pa., who sued Cabot after his drinking water from a separate property was contaminated. “We learned that the hard way.”
Americans have signed millions of leases allowing companies to drill for oil and natural gas on their land in recent years. But some of these landowners – often in rural areas, and eager for quick payouts – are finding out too late what is, and what is not, in the fine print.
One of the reasons we’re seeing so many bad leases is that most landowners don’t know what a good lease looks like, until it’s too late. From the Times:
…many landowners and lawyers say that gas companies are intentionally vague in their contracts and use high-pressure sales tactics on landowners.
“If you’ve never seen a good lease, or any lease, how are you supposed to know what terms to try to get in yours?” said Ron Stamets, a drilling proponent…
That’s where professional legal counsel can play a vital role.
What’s not in most of these natural gas leases is a requirement that frackers make redress if they contaminate a landowner’s drinking-water well. Consider this from the NYT report:
In Pennsylvania, Colorado and West Virginia, some landowners have had to spend hundreds of dollars a month to buy bottled water or maintain large tanks, known as water buffaloes, for drinking water in their front yards. They said they learned only after the fact that the leases did not require gas companies to pay for replacement drinking water if their wells were contaminated, and despite state regulations, not all costs were covered.
So many landowners have learned the hard way. But there are still many more ripe for exploitation, and fracking companies certainly aren’t above using a variety of heavy-handed methods to snatch up drilling rights as quickly and cheaply as possible. It’s like the new Wild West with gas companies strong-arming entire towns. More from the Times:
…[consumer] advocates…say that landowners’ eagerness to start earning royalties has made them vulnerable to deceptive tactics by landmen.
“We’re in town until tomorrow,” the landmen typically say, according to interviews with more than two dozen landowners in Ohio, Texas and Pennsylvania. “We have already signed up all your neighbors.”
The landmen then claim that if you do not sign right away you will miss out on easy income because other drillers will simply pull the gas from under your property using a well nearby.
Some landmen show up in poorer areas shortly before the holidays, offering cash on the spot for signing a lease. They might offer thousands of dollars per acre as a bonus to be paid shortly after the lease is signed. Royalties, which usually run between 12.5 percent and 20 percent of what the companies make for selling the gas, can mean tens of thousands of dollars per year for landowners.
The Times has poured over a mountain of these gas-well leases and identified systemic problems. And remember, millions of these same kind of leases have been signed in the last few years. Here’s a breakdown of what the Times found:
Energy company officials say that standard leases include language that protects landowners. But a review of more than 111,000 leases, addenda and related documents by The New York Times suggests otherwise:
¶ Fewer than half the leases require companies to compensate landowners for water contamination after drilling begins. And only about half the documents have language that lawyers suggest should be included to require payment for damages to livestock or crops.
¶ Most leases grant gas companies broad rights to decide where they can cut down trees, store chemicals, build roads and drill. Companies are also permitted to operate generators and spotlights through the night near homes during drilling.
¶ In the leases, drilling companies rarely describe to landowners the potential environmental and other risks that federal laws require them to disclose in filings to investors.
¶ Most leases are for three or five years, but at least two-thirds of those reviewed by The Times allow extensions without additional approval from landowners. If landowners have second thoughts about drilling on their land or want to negotiate for more money, they may be out of luck.
Out of luck, indeed. What I’ve learned over the years as an environmental attorney working in one of the most pro-business oil-producing states in the South, is that if you stand in between the oil and gas industry and its profits, you’re going to get run over. Landowners in fracking communities across the country are learning that hard lesson as the natural gas boom hits high gear.
Read the full NYT piece by Ian Urbina and Jo Craven McGinty: http://www.nytimes.com/2011/12/02/us/drilling-down-fighting-over-oil-and-gas-well-leases.html
Visit my law firm’s website to learn more about how landowners can protect themselves: http://www.smithstag.com/practice_areas/mineral_royalties
Get the latest news on fracking at: http://www.frackingofamerica.com/
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