Commentary by S. Tom Bond, Resident Farmer, Lewis County, WV (Part 1 of 3).
The people who conduct Shale Drilling have talked up advantages of their enterprise, but never mention costs to the land owners.
Look at property damage. A shale well or compressor next door cuts property values, sometimes to a little as one-third or even one-tenth. Why? No one wants to live near an industrial establishment with bright lights, noise, fumes and dust; nor do they want to live where nature is replaced by ugly pipes and paved lots, where the woods is replaced with scraggly grass, and the roads broken down with large trucks and racing pickups.
No one wants reduction of income potential by conversion of cropland to acreage graded to subsoil and paved with 12 to 18 inches of rock, connected with rights of way suitable for heavy trucks. No one wants his or her woodlot converted to pipeline rights of way. No one wants domestic animals sickened and killed, nor the wildlife habitat affected.
There are many ways property owners are abused by shale drilling. You can’t collect from insurance if the cause may be drilling waste. And in many areas farms and homes are not only reduced in value by a substantial amount, but a prospective borrower won’t be able to obtain a loan to buy if a drilling establishment is on or adjacent to the property. You really can’t blame the bank, can you? Or, the insurance company? Why should they pay for damage done as a by-product of drilling and removing natural gas or oil?
How can something happen so inconsistent with the spirit of free enterprise, where the state is supposed to protect the property interests of its hard working citizens? How can common notions of morality be so completely ignored in a free country? The answer is simple. It is the sophisticated way the oil and gas industry has built a legal structure so that its control has grown like compound interest. This began more than 120 years ago with the earliest leasing.
The early executives took not only what they needed to do well at that time, but tied up the resources forever. Instead of leasing just the “5th Sand,” their target, for example, they leased all oil and gas, whether they could use it then or not. This tied a succession of the lessors heirs to the corporation, even beyond the time they had no further attachment to other uses for the land.
The next step was a quantum leap: “separation of the oil and gas.” It became normal for persons moving on from the farm to keep the “oil and gas rights.” The tax was nominal to keep control of this asset, and the “royalty” was taxed the same as if the person still lived on the land. This is “manna from heaven” for these heirs of the original lessors. They don’t know the current surface owners, so why should they care about what happens to the land? In effect, this was an endorsement of the practice by the legislature, no doubt well understood by the oil and gas industry.
Where this has happened in the past, it is a headache for the lessee company to keep track of all the divided and subdivided interests. I have a minuscule interest in a lease given by my grandfather. He had a lot of kids and they had a lot of kids and they had a lot of kids. Royalty was evenly divided in each family, generation after generation. At this point the less kids one generation had the larger the portion of the royalty its descendants have. About one-third of the lines died out or are no longer traceable.
Guess who gets to use the royalty until a claimant shows up? Many of these interests are sold at the courthouse for unpaid taxes, with the result there is a class of speculator at tax sales gobbling up tiny fractions of any oil and gas rights available.
And when the oil and gas is separated, with no current landowner involved, guess how hard it is to get changes made to the lease. Either the promise of an increase in royalty, or the threat of plugging a well and stopping the royalty can produce almost any lease modification a company wants. It takes a highly principled heir of the original lessor, now insulated from the other uses of the land or personalities on it, to consider anything but his or her personal income. That much is history.
Next: Who owns the land? See also the WV Surface Owners Rights Organization.