Wednesday, July 06, 2011

Economic Development Or Economic Exploitation

Judge Jones further emphasized that the oil companies “wield significant, if not exclusive, power in the drafting of oil and gas leases” and that “a determination that Plaintiffs had repudiated their leases via the filing of these actions further tips the balance in favor of the oil companies” and “would likely dissuade lessors from bringing potentially meritorious actions.
Report on March 11, 2011 ruling on class action suit brought against Oil and Gas companies by lessors in Pennsylvania, Federal District Court, Middle District of Pennsylvania, Judge John E. Jones III writing for the court.

Nothing more clearly states the tangled issues of economic development, the promise of vast sums of money involved, and the disparate power of the various stakeholders in the pursuit of retrieving the natural gas in the Marcellus Shale in Pennsylvania than this summary report.

According to an on-line fact sheet of the Wilkes-Barre, PA News Leader, between January of 2008 and mid-2009, the asking price per acre for drilling leases went from $100 to as much as $2000 an acre. Over and above the asking price, however, lease terms in Pennsylvania are also dictated by a Pennsylvania statue, known as the Guaranteed Minimum Royalty Act of 1979 (.pdf), that mandates a minimum royalty for lessors on oil and natural gas extracted on privately held land of one-eighth the value extracted. In another class-action suit decision, in federal District Court in Erie, PA, Range Resources was found to have used unlawful accounting methods to determine royalty payments to lessors.
A class action settlement has been reached in a class action lawsuit against Range Resources (“Range Resources” or “Defendant”) in federal district court in Erie, Pennsylvania (styled Frederick v. Range Resources), alleging, among other things, that Range Resources unlawfully reduced natural gas lease royalty payments of certain property owners above Marcellus Shale by using the point-of-sale volume of gas as opposed to the volume of gas collected at the wellhead and by allegedly deducting marketing costs and management fees, according to a Range Resources Marcellus Shale natural gas lease royalty class action lawsuit settlement news report.

The Range Resources Marcellus Shale natural gas lease royalty class action lawsuit settlement reportedly provides, among other things, for a cap on the amount of costs that can be deducted by Range Resources prior to calculation of Marcellus Shale natural gas lease royalties in the future.
Similar such suits are cropping up across Pennsylvania under the terms of the Guaranteed Royalties Act.

Legal action isn't restricted to Pennsylvania, however. In New York, there is a class-action suit brought against Chesapeake Energy by landowners in New York. A moratorium on horizontal-drilling hydraulic fracturing in New York State, and Chesapeake is insisting that the leases, due to expire soon, should be extended.
According to, Chesapeake Energy is one of several energy companies that have sent letters to landowners in the New York Southern Tier with whom it has leases asserting that the state’s fracking moratorium constitutes a “force majeure” — or an unforeseen event that hinders the terms of the contract — and that the leases are being extended. Some of those property owners expected their leases to run out this year. Now, approximately 300 have joined two class action lawsuits Chesapeake’s force majeure claims.
An issue with even more potential impact than the money involved in gas drilling leases is jobs. According to a February, 2011 story in the Wilkes-Barre, PA News Leader, Chesapeake Energy is extending a commitment to hiring local workers, but the pace is slow-going.
When Chesapeake’s first rigs began arriving in Bradford County about two years ago, the company had 38 local employees, according to David Fisher, the company’s vice president of drilling services.

“And when I say local, I mean Pennsylvania, New York, Ohio, West Virginia, working in this Northern District for Chesapeake. As of today, we have 225,” Fisher said.

One of the company’s goals is to see those numbers increase, especially for Pennsylvanians. And, he emphasized on Thursday before a tour of a subsidiary Nomac Drilling’s new employee training and housing facility near Sayre, the jobs are life- and family-sustaining.

It’s possible that someone new to the industry with a high school diploma but no prior experience can complete the training program and start working in the region on drill rigs making between $55,000 and $60,000 a year, Fisher said.

“What we’re trying to do as much as anything else through our training and through our presence here, is to build careers, not just jobs,” he said.


Retired Bradford County Sheriff Steve Evans, who went to work for Chesapeake as senior security officer in February, said he believes the training and housing facility is “living proof” that Chesapeake is “a company that really cares about minimizing the impact of a major, major operation – the harvesting of Marcellus Shale.”

“This is a substantial financial commitment to the community. We have housing issues here. There’s not enough housing. So this company invested a great amount of resources in building a very nice part of our community,” Evans said.

And, he said, the men and women who work for TriCorps Security at the facility are current or retired law enforcement officers from the local community.

“I know their personal stories, folks. I know that this has been a real blessing. Law enforcement officers don’t get paid a tremendous amount of money, and Chesapeake/Nomac has had no problem providing professional law enforcement officers, in exchange for their efforts, financial means to help their families in these trying times,” Evans said.
Money for land. Money for gas. The prospect of careers in a field that pays well. The lure away from public service to private security. All of these are very real, and very promising opportunities for a region of the country that has been seeking investment in development. The kinds of opportunities the gas boom is offering land-owners, communities, and individuals are very real and very attractive. The various law suits in both New York and Pennsylvania involve land owners seeking better terms, and legally-calculated returns for leasing their property for natural gas development.

Yet, what is the cost hidden behind the billions of dollar signs? As I indicated yesterday, there have already been a host of environmental and safety issues in the gas fields. Pennsylvania's Republican governor is attempting to address concerns in what can only be called a unique administrative manner.
Approval of enforcement actions and punishments aimed at Marcellus Shale drilling operators must now go through top officials in the Department of Environmental Protection in a change that the agency said Wednesday is aimed at improving its consistency in handling the rapidly growing industry.


"We need to make sure we are consistent and that we make our best effort to be the most effective regulator of this industry, which will benefit all Pennsylvanians," [Katy] Gresh {PA DEP Spokeswoman] said.

Gov. Tom Corbett, whose successful campaign last year received sizable donations from members of the natural gas industry, has said he wants to make Pennsylvania the Texas of the natural gas boom. Pennsylvania is the largest natural gas state not to tax the activity, and Corbett is against imposing a new tax on it.
As questions about the potential environmental hazards of hydraulic fracturing mount; as accidents across the state pour toxins in to water ways and water sheds, and as neighboring New York is poised to reopen private lands for natural gas exploration and extraction, the push and pull of the various issues and questions has yet to be addressed systematically. Both PA's Republican Governor and New York's Democratic Governor see the potential benefits from the investment in economically stressed areas. While New York placed a moratorium on hydraulic fracturing, there is every indication that moratorium will be lifted soon. What is left unaddressed in the potential cost of the environmental damage.

All those dollar signs are silencing a host of uncomfortable questions that have not yet even been asked, let alone answered. Good jobs, better roads, financial security are all attractive goals, worthy of state support. At the same time, protecting our natural resources from undue and unnecessary damage, even destruction, is also a worthy goal, offering the grim possibility that all the money made today may end up being needed to pay the cost of cleaning up the mess that will, most assuredly, be left behind.

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