Learning Too Late of the Perils in Gas Well Leases

http://www.nytimes.com/2011/12/02/us/drilling-down-fighting-over-oil-and-gas-well-leases.html
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.

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.

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.

The leases — obtained through open records requests — are mostly from gas-rich areas in Texas, but also in Maryland, New York, Ohio, Pennsylvania and West Virginia.

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....
Thousands of landowners in Virginia, Pennsylvania and Texas have joined class action lawsuits claiming that they were paid less than they expected because gas companies deducted costs like hauling chemicals to the well site or transporting the gas to market.
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To be sure, many landowners have earned small fortunes from drilling leases. Last year, natural gas companies paid more than $1.6 billion in lease and bonus payments to Pennsylvania landowners, according to a report commissioned by the Marcellus Shale Coalition, an industry trade group. Chesapeake Energy, one of the largest natural gas companies, has paid more than $183.8 million in royalties in Texas this year, according to its Web site. Much of the money has gone to residents in rural areas where jobs are scarce and farmers and ranchers have struggled to stay afloat....
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At least eight states specifically require companies to compensate landowners for damage to their properties or to negotiate with them about where wells will be drilled, even if the lease does not provide those protections.
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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.
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In 2005, [Dave] Beinlich and his wife, Karen, signed a lease for $2 an acre per year for five years on 117 acres in Sullivan County in north-central Pennsylvania. They soon realized they had gotten far less money than their neighbors, so they planned on negotiating a new lease when theirs expired in 2010. A day before their lease term ended, no well had been drilled on their land, but the gas company parked a bulldozer nearby and started to survey an access road. A company official informed them that by moving equipment to the site, Chief Oil and Gas was preparing to drill and was therefore allowed to extend the lease indefinitely.

Lawyers say that drilling leases are not like other contracts. “You’re not buying a refrigerator or signing a car note,” said David McMahon, a lease lawyer in Charleston, W.Va., and co-founder of the West Virginia Surface Owners’ Rights Organization, adding that once a well is drilled, it can produce gas for decades, locking landowners into the lease terms. “With a gas lease, you’re permitting industrial activity in your backyard, and you’re starting a relationship that will affect the quality of living for you and your grandchildren for decades,” he said. Mr. McMahon and other lease lawyers say that unlike many contracts, oil and gas leases are covered by few consumer protection laws, in part because drilling has been most common in states with less regulation.
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“When it comes to negotiation skills and understanding of lease terms, there is a gaping inequality between the average landman and the average citizen sitting across the table,” said Chris Csikszentmihalyi, a researcher at the Massachusetts Institute of Technology who created a Web site last year called the Landman Report Card that allows landowners to review landmen’s professionalism and tactics.

Some lawyers also say that there are major differences between what drilling companies tell landowners and what they must disclose to investors.
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“It’s been one expense after another since our water went bad, and the company only has to cover part of it,” said Ronald Carter, 72, of Montrose, Pa. Mr. Carter and his wife, Jean, said they signed a lease in 2006 for a one-time fee of $25 per acre on their 75 acres and annual royalty payments of 12.5 percent. The Carters live on $3,500 a month, including the $1,500 per month they average in gas royalties. But they had to spend $7,000 to install a water purifier when their drinking supply became contaminated in 2009 after drilling near their property. The Carters joined a lawsuit with about a dozen neighbors ...
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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
The New York Times www.NYTimes.com
December 1, 2011

New report identifies how impacts of climate change to water supplies & waterways will affect U.S. cities - In record year for storms and drought, provides a resource for cities nationwide preparing for sea level rise, increased rain, flooding, drought and drinking water impacts

http://www.nrdc.org/media/2011/110727.asp
As the nation grapples with a record year for storms, drought and weather-related devastation, a new report released today by the Natural Resources Defense Council reveals climate change is leaving American cities open to a range of water-related vulnerabilities – from drought to sea level rise and increased rainfall – regardless of region or size. The report looks at how communities facing these new extremes are trying to protect their water supplies and waterways.

“This report makes clear that some of the first, most profound and far-reaching impacts of climate change are water-related, affecting the water we drink, fish, and swim in,” said Michelle Mehta, an attorney for NRDC’s Water Program and a principal author of the report. “In the future, we can expect increased violent storms, drought and rising seas, so communities nationwide, regardless of size, should get plans up and running to reduce their unique vulnerabilities and prepare for impacts.”

The report, “Thirsty for Answers: Preparing for the Water-related Impacts of Climate Change in American Cities,” found that climate change will impact water supplies and waterways in communities across the country, with geography often determining the specific effects. For the first time, this peer-reviewed report has compiled the results of more than 75 scientific studies, data generated by government agencies, and information gathered by other nonprofit organizations to analyze how the impacts of climate change on water supplies and waterways could affect 12 target cities: Boston, Massachusetts; Chicago, Illinois; Homer, Alaska; Los Angeles, California; Miami, Florida, and the Florida Keys; New Orleans, Louisiana; New York, New York; Norfolk, Virginia; Phoenix, Arizona; Wan Francisco, California; Seattle, Washington and St. Louis, Missouri.

The report provides a snapshot of projected climate change impacts in regions across the country: Rising sea levels threaten vital infrastructure and saltwater intrusion to freshwater supplies in cities on the East, West and Gulf Coasts. Severe storms in the Midwest and East Coast are likely to become more intense and more frequent, causing floods and erosion, and threatening drinking water quality. In the West, a combination of increased temperatures, decreased precipitation and less snowpack contributes to a future shortage of water supply for people and aquatic life. More specifically scientific studies reveal a range of possible impacts under various carbon emission scenarios:

• Rising Seas: Coastal cities examined in the report, such as Miami, Norfolk, New Orleans, Los Angeles, San Francisco and Seattle are threatened by flooding and storm surges due to rising sea levels. For example, data show the very existence of the Florida Keys is at stake, with 38 percent at risk of inundation in the most optimistic scenario. Conservative projections also suggests the California coast could see a 12- to 18-inch rise in sea levels and the coastline of Seattle a 3-to 22-inch rise relative to levels recorded in 2000.
  
  Saltwater intrusion also could become more common in coastal communities as a result of this sea level rise, threatening freshwater supplies, according to data compiled. In New York City, for example, saltwater is expected to journey farther up the Hudson and Delaware Rivers during high tides, two of the region’s major sources for freshwater supply. Also, the salinity problem already facing California’s Sacramento-San Joaquin River Delta is likely to increase, threatening the quality and reliability of the freshwater supply used by millions of Californians for drinking water as well as the region’s heavy agriculture industry.
  
  
•  Increased Storms and Flooding: Research finds the Midwest is expected to experience more frequent and intense storms, contributing to the type of recent heavy flooding along the Mississippi River. The frequency of very heavy rainfall in Chicago, for example, is expected to increase by 50 percent in the next 30 years, which without infrastructural improvements is likely to increase the number of combined sewer overflows (CSO) that send untreated sewage and storm water into the Chicago River and Lake Michigan.
  
  Increased rainfall along the Atlantic is predicted to cause significant flooding as a result of tropical storms and nor’easters. In New York City, 100-year floods could occur every 30 to 55 years by 2050. Such flooding increases the risk of damage to vital low-lying infrastructure in New York, as well as critical naval and civilian ports in Norfolk. Heavier rainfall in the Midwest is likely to cause increased stream flows due in part to saturated soils, threatening levees in cities like St. Louis.  
  

• A Drier West: The report describes rising temperatures, less rainfall and decreased snowpack in the U.S. West. As a result, without proper management, water supplies could be seriously threatened in regions such as Los Angeles, Seattle and Phoenix. Slight temperature changes could cause irregular stream flow patterns and lead to unseasonal snowpack melt outside of the dry season when the runoff is most needed, the data revealed. For example, the loss of spring snowpack in California’s Sierra Nevada mountain range is highly likely, and a worst case scenario estimates stream flows in Southern California decreasing by as much as 41 percent.
  
  Warmer air also could cause precipitation to fall as rain in areas where it traditionally has fallen as snow, such as in watersheds that supply the populations of Seattle and Phoenix, causing decreases and even disappearance of snowpack. Such a scenario would pose serious challenges for local water supply managers, particularly during the summer months, as they attempt to balance human demand for water with needs for water supplies for hydroelectricity and wildlife habitats.
  
  
• Decreased Water Quality: Data cited in the report point to the many negative effects rising carbon dioxide concentrations are having on water quality. For example, higher dissolved carbon dioxide concentrations, warmer water, and increased runoff could cause increased occurrences of harmful algal blooms in the Chesapeake Bay and around Seattle. The blooms can result in fish kills and cause shellfish to become contaminated with potent natural toxins, causing illness in humans who consume them.

Rising atmospheric carbon dioxide concentrations and warmer waters are detrimental to the health of the coral reefs off the coast of Miami and the Florida Keys, and acidification of the waters in Puget Sound near Seattle threatens shellfish, a vital contributor to the local economy.

The compiled local data are cause for concern, and the report describes various steps these cities are taking to become more resilient to the effects of climate change, providing examples of steps that communities across the country should consider.
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The complete report is available online from NRDC at: http://www.nrdc.org/water/thirstyforanswers.asp.

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More frequent flooding episodes associated with storm events, exacerbated by sea level rise, would adversely affect major transportation arteries, including highways and rail and air transportation, and the viability of waterfront structures.... Increased flooding would also affect streets, basements, sewer systems,  communications equipment, and electrical support facilities such as relays, wiring, and switches associated with fiber-optic cable. In total, by 2070 the greater New York City metro area is projected to have $1.7  trillion to $2.1 trillion in property at risk from coastal flooding due to storm surges and damage from high  winds.
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If current growth and land use practices remain unchanged while relative sea levels rise 3.3 feet (1 meter) by the end of the century, a 100-year storm surge could cost the city of  Boston about $36 billion (in year 2000 dollars) in damages to residential, commercial, and industrial structures and in emergency response costs. Homes built in the area’s 100-and 500-year floodplains could see flood damage of $7,000 to $18,000 each. Over the course of the 21st century, river flooding could affect twice as many properties at twice the overall cost of past floods.
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Miami is no stranger to severe weather, particularly hurricanes: Hurricane Andrew caused $26.5 billion in damage in 1992, and Hurricane Wilma caused more than $1 billion in damage in 2005.
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To counter the impacts of beach erosion, sand renourishment may have to occur more frequently. However, this labor-intensive process comes at a price: Between 1976 and 1981, a beach renourishment project that  replenished a 10-mile stretch of beach to a width of about 100 feet cost $64 million.
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Greater Miami currently has more than $400 billion in property value at risk from coastal flooding, and that value could rise to $3.5 trillion by 2070.
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Sea level rise (estimates for the region are 3 to 5 feet, or 0.9 to 1.5 meters, by 21003) delivers a one-two punch to the Keys, owing to their low elevation (an average of 4 to 7 feet, or 1.2 to 2.1 meters, above current sea level) and their high water-to-land ratio (any point on land is within 4 miles of water). Estimates of the potential loss of land area in the Keys range from 38 percent (at a value of $11 billion) to 92 percent ($35 billion).
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Rising seas will likely wipe out a significant portion of the coastal wetlands in the Mississippi River Deltaic  Plain, where wetland loss rates are already among the highest in the world. Mississippi River flood-protection levees, some in place since the 18th century, rob the surrounding wetlands of replenishing seasonal sediments that would help counteract natural and man-made subsidence and erosion. Additional human activities such as the dredging of ship channels, oil and gas production, and the siting of industrial facilities exacerbate wetland loss. Wetland vegetation thrives in shallow waters but cannot survive as water depth and salinity increase. Wetlands without vegetation lose their ability to damp the energy of storm surges and waves, thus increasing the likelihood of flooding further inland in places—like metropolitan New Orleans—that have historically depended on these wetlands for protection.

Without inputs of sediment, an additional 3,900 to 5,200 square miles of wetlands will be under water by the end of the 21st century. If the impacts of relative sea level rise on wetlands are not checked, metropolitan New Orleans could eventually sit on land almost completely surrounded by the open waters of the Gulf of Mexico.  Loss of Louisiana’s coastal wetlands not only would be a loss of natural flood protection but would impact the vast array of plants and animals that they support, many of which are tied to economic activity including fishing, timber, agriculture, tourism, and recreation. The combined value of infrastructure and biological productivity associated with Louisiana’s wetlands exceeds $100 billion.
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The Pacific Institute report also details facilities and property at risk from a 100-year flood with a 55-inch sea level rise in San Francisco.... The current replacement value of buildings and contents vulnerable to a 100-year flood in counties in the San Francisco Bay Area is $31 billion; with a 55-inch rise in sea level that figure more than doubles, to $64 billion.
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In the Bay Area counties, a total of more than 640 miles of new levees, raised levees, or seawalls, at a cost of almost $5.3 billion (in 2000 dollars), would be needed to protect against flooding in the event of a 55-inch rise in sea level. Maintaining these additional structures would require annual expenses on the order of a tenth of the capital cost. While armoring the coastline would save lives and property, it disrupts natural processes that are also of value.
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Natural Resources Defense Council (NRDC) www.NRDC.org
Press Release dated July 26, 2011 (pre Irene)