Appalachian Basin

The Truth Behind those “110,000 Leases” in NYT’s Latest Hit Piece

Although the New York Times has always had an ideological agenda, it once also had a reputation for at least delivering fact-filled stories that provided a reasonable basis for discerning readers to grasp the truth.  Today, the Times uses half-truths, carefully selected and artfully represented, to distort the truth in pursuit of its agenda (and, some might argue, its circulation shows it).

The Times’ recent addition to its Drilling Down series is an illustration of how a reporter with preconceived notions assembles a narrative, piece by piece, but fails to see the real story in the process.  Ian Urbina’s latest attempt to generate fodder for the professional anti-gas opposition completely ignores the way gas leasing has evolved in the last five years and how landowners are changing the way the industry does business.  Before I worked with Energy In Depth, I was deeply involved, as a landowner, in developing a gas lease for family, friends and neighbors, so let me tell you what I learned and it’s quite a bit different than what Urbina portrays.

The first thing that needs to be said on this issue is that Urbina’s database is highly selective.  It may not seem that way at first — given his archive numbers more than 111,000 leases.  It is important to realize, however, that over 100,000 of those leases come from a single county in Texas (Tarrant County) and the Lone Star State accounts for 91% of all leases examined.  West Virginia accounts for another 4%.  Both states have long histories with conventional natural gas development and, of course, their own unique laws addressing the subject.  Moreover, the leases examined in New York State (3% of the archive) are primarily from the Finger Lakes region and represent conventional gas well activity.  Pennsylvania leases, too, are primarily from Western Pennsylvania where such activity has been long-standing.  See the chart below for the details.

There are 33 states that produce natural gas in America, according to the Energy Information Administration.  Why did Urbina focus on Texas wells so heavily?  What kind of database is created when 9 out of 10 items sampled come from a single county in  a single state?  Perhaps it is a database that serves to fit one’s preconceived ideas.  Mineral interests constitute a separate fee estate in Texas, meaning they are owned apart from other rights in the land, plus there is an extensive body of statutory and case law that already addresses many of the issues that would typically be covered in a Pennsylvania or New York State lease, for example.

Regardless of Urbina’s intent, we know that mineral leasing in Texas is far different from Marcellus Shale leasing in Pennsylvania and New York.  It is revealing that over one-third (34%) of Urbina’s archive consists of leases are issued by a single company, Dale Resources (which specializes in urban development of the Barnett Shale where the issues are very different than in our neck of the woods), and 61% were from 2008 or earlier, before shale took off in a big way, and back when landowners were just beginning to organize in earnest and assert themselves in negotiating with industry to produce better leases for both sides.  Today, shale landowners are not only very organized but also highly knowledgeable about what needs to be included in a gas lease.  Additionally, the technology has changed dramatically in the interim with the advent of closed loop systems and vastly increased unit sizes, plus the states and other regulatory have imposed many regulations of their own that have rendered certain lease provisions superfluous.

Significantly, the word “addenda” appears exactly once in the main body of the Urbina article and that is only when he promotes a link to his lease archive — but never discusses their role until you “drill down” through his nested links.  Yet, anyone who has ever negotiated a gas lease knows the addenda are where the action is.  The basic lease is typically modified in major ways by the addenda negotiated by landowners.  Every gas company has a standard lease and many offer certain addenda up front at the beginning of negotiations — but is up to landowners, just as it is in every other contract negotiation, to secure the additional provisions they desire in the form of additional addenda.  As Jerry Simmons of the National Association of Royalty Owners points out on these pages, the landowners are doing just that.

I am pleased to say I am one of those landowners.  An associate and I negotiated multiple leases with multiple gas companies.  We produced a set of addenda for landholders in Damascus Township, Wayne County, Pennsylvania (site of Josh Fox’s summer home) as well as the nearby communities of Berlin and  Cherry Ridge Townships.  We are proud of what we accomplished with our leases.  We also admire what our friends and neighbors in the Northern Wayne Property Owners Alliance (NWPOA) and other groups were able to accomplish.  Here are some provisions from some of those leases, compared to the New York Times’ fretting:

NYT Claim: Fewer than half the leases require companies to compensate landowners for water contamination after drilling begins.

Berlin Group Lease: Lessee shall test Lessor’s domestic water supply (as to quality and quantity) prior to commencement of and following drilling operations on said land in order to ensure that said water supply is not adversely affected by said operations. In the event it is determined that said operations have adversely affected said water supply, then Lessee, at its own expense, shall take steps necessary to return said water supply to pre-drilling conditions.

NYT Claim: Only about half the documents have language that lawyers suggest should be included to require payment for damages to livestock or crops.

Damascus Group Lease: The Lessee will remove unnecessary equipment and materials from the property and will plug all wells and reclaim all disturbed lands at the completion of the Lessee’s activities at the property.  The Lessee agrees to pay for all damage to roads, fences, improvements and growing crops caused by its operations hereunder, and will fill and level all pits and mounds, remove all board roads and board road materials, level and fill all ruts, and restore the surface of the ground to as near its original condition, including pre-drilling topsoil and vegetation, as is reasonably practical within a reasonable period of time after cessation of operations at each well location on the property. Additionally, the Lessee agrees to pay for the loss of crops or marketable timber on the property.  Notwithstanding anything herein to the contrary, the Lessee agrees that, prior to the removal of any marketable timber, an appraisal shall be conducted by a certified forester and Lessor shall pay Lessee the appraised value of the timber about to be removed.

NYT Claim: Most leases grant gas companies broad rights to decide where they can cut down trees, store chemicals, build roads and drill.

NWPOA Lease: It is understood that the intent of this oil and gas lease is to give Lessee the exclusive right to explore, drill, develop and produce oil and gas reserves from under the surface of the Leasehold and/or lands pooled or unitized therewith, and Lessee will want to develop the Leasehold, at appropriate surface locations taking into consideration of Lessee’s interpretation of the subsurface geology under the Leasehold and/or lands pooled or unitized therewith, as well as Lessee’s operational and commercial considerations.  Prior to commencement of operations on the Leasehold, Lessee shall give to the Lessor a plat, plan or schematic showing the approximate locations of its intended locations of surface facilities upon the Leasehold, including placement of well location(s), flow line(s), access road(s), seismic operations and any necessary structure(s) for production equipment, and said locations will be a minimum of five hundred (500) feet from any presently existing building or permanent structure, water well, water source or septic system on the Leasehold and shall not be closer without Lessor written permission. Every commercially reasonable effort will  be made to use existing roads on the Leasehold.  Both Lessor and Lessee will attempt to agree on the above said locations, such that they do not unreasonably interfere with Lessor’s use (including commercial use, such as, but limited to, summer and hunting camps, stone quarries, tree farms, and other farms) of the Leasehold, while at the same time facilitating Lessee’s need to economically and efficiently drill, develop and produce the potential oil and/or gas reserves thereunder.  Lessor shall not unreasonably withhold its concurrence.”

NYT Claim: Companies are also permitted to operate generators and spotlights through the night near homes during drilling.

Berlin Group Lease: Notwithstanding anything herein to the contrary, Lessee agrees, prior to entering the property to consult with the Lessor on the location of any drilling locations, roads, electric power and facilities, pipelines and appurtenant facilities, or any other equipment on the Lessor’s property. Lessee shall construct or install all well sites, access roads and pipeline right-of-ways in a manner which would minimize or reduce the intrusion to crop fields and any related soil erosion. Further, any related surface reclamation shall be done in a manner which restores said land as nearly to original contours including pre-drilling top soil and vegetation conditions as reasonably possible. Lessee shall promptly replace any fences and or structures removed by Lessee during its operations on said land and further, shall construct gates on all access roads on said land upon request by Lessor. Pipelines shall not be constructed on the leased premises except for those used to transport oil and/or gas from a well(s) drilled on leased premises or land pooled therewith. No well shall be drilled nearer than five hundred (500) feet of any house, barn, or other inhabitable structure. Lessee shall pay for damages caused by Lessee’s operations to growing crops and or raising animals on the land.

NYT Claim: Fewer than 20 percent of the more than 100,000 Texas leasing documents reviewed by The Times include such a (Pugh) clause (preventing the indefinite extension of leases without drilling taking place).

NWPOA Lease: If the Leasehold covered by this Lease covers more than fifty (50) net mineral acres but less than fifty percent (50%) of the Leasehold is included in a unit established by Lessee, this Lease shall automatically terminate after the expiration of the Primary Term as to that portion of the Leasehold outside the unit established by Lessee, provided however that this Lease shall continue in full force and effect as to such unpooled portion of the Leasehold as may be otherwise provided for herein.

What these lease provisions demonstrate is that organized landowners are able to achieve precisely what Mr. Urbina faults gas companies for not addressing.  Gas leasing is evolving along with industry technology.  The Times managed to obfuscate this development and the groundbreaking work of organizations such as NWPOA by creating a database where 9o% of the leases examined came from Tarrant County, home to the city of Fort Worth and over 1.8 million people, an area with a population density of nearly 2,100 persons per square mile – nothing at all like those areas of Pennsylvania and New York where Marcellus Shale development is taking place.

Imagine, for example, trying to impose a 500 feet setback in Fort Worth.  Is it any wonder such a distorted database doesn’t yield stronger evidence of such setbacks?  Yet, the Times would have us believe these are the patterns that typify Marcellus Shale leases.  Surprising?  No, not at all.  It is the Times, after all, the old Gray Lady where coloring the truth is now standard operating procedure.

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