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A few answers on fracking

Posted on July 26, 2012 by Staff

By Ellie Kinnaird

As legislators, we are sent newsletters, reports and background material on every agency, organization and college. I learn a great deal from this information that helps me to learn about the people of our state.

Last week I received an inquiry from a reader about fracking. I am sharing our staff’s answers. While this may be long, it is thorough and answers many questions about the new law.

When is the mining scheduled to start, according to Senate bill 820?

There is no date certain by which drilling for gas using the processes of horizontal drilling and hydraulic fracturing is scheduled to occur. Section 3.(d) of S.L. 2012-143/S820 prohibits the issuance of permits for these activities until the General Assembly has taken subsequent legislative action to allow issuance of such permits, in order to allow the newly created Mining and Energy Commission sufficient time to develop a modern regulatory program for the management of oil and gas exploration and development activities in the state.

What are the initial locations where the mining is going to take place?

A regulatory program is now under development, and drilling is not permitted at this time; however, information on the location of shale gas resources in the state, and thus potential drilling sites, is accessible at the Department of Environment and Natural Resources’ website at portal.ncdenr.org/web/guest/geologic-assessment. Of interest is a fact sheet titled, “Shale Gas Potential in Triassic Strata of the Deep River Basin, Lee and Chatham Counties, North Carolina with pipeline and infrastructure data,” which is accessible from that page.

What are the relevant studies necessary to determine the drilling sites?

As part of the modern regulatory program, S.L. 2012-143/S820 explicitly requires that the Mining and Energy Commission develop appropriate siting standards for wells and other gas-production infrastructure, such as storage pits and tanks, including appropriate setback requirements and identification of areas, such as flood plains, where oil and gas exploration and production activities should be prohibited. As to what studies are necessary to determine future drilling sites, the legislation required the department, in cooperation with a number of other entities, to conduct an extensive study of the potential development of shale gas in the state and make recommendations regarding the regulatory framework necessary for development of the resource. In response, the department issued a final report in May that is accessible at portal.ncdenr.org/web/guest/denr-study

Do the companies have to pay any fees/taxes to the state when they engage in fracking with the authorization of homeowners?

Under current law, the department is authorized to assess a tax not to exceed one-half mill ($0.0005) on each 1,000 cubic feet of gas produced from a gas well. All money collected must be used solely to pay the expenses and other costs connected with administration of the laws governing oil and gas exploration and development. In addition, any person desiring to drill an oil and gas well must pay a fee of $3,000 to the department, and any person desiring to abandon a well must pay a fee of $450 to the department. It also requires the Mining and Energy Commission, in conjunction with several other entities, to identify appropriate levels of funding and potential sources for that funding, including permit fees, bonds, taxes and impact fees, necessary to support local governments impacted by the industry and associated activities; address expected infrastructure impacts, including, but not limited to, repair of roads damaged by truck traffic and heavy equipment; cover any costs to the state for administering an oil and gas regulatory program, including remediation and reclamation of drilling sites when necessary due to abandonment or insolvency of an oil or gas operator or other responsible party; and respond to any other issues that the commission determines need to be addressed. Any recommendation concerning local impact fees shall be formulated to require that all such fees be used exclusively to address infrastructure impacts from the drilling operation for which a fee is imposed. A report on the results of this study is due to the General Assembly in 2013.

Are homeowners given any compensation for pooling? It is our understanding that once fracking begins with the consent of the homeowners, it expands for several miles underground. Are the landowners whose land is being fracked underground given any compensation for this activity?

This is a concept known as integration, or forced or compulsory pooling. Since 1945, the department has had the authority to require landowners to “integrate” their interests in an oil or gas pool and develop their lands in a drilling. Now the authority to require integration is with the newly created Mining and Energy Commission. Authority to require integration may only be exercised after notice and hearing, and those required to integrate their interests in a drilling unit are entitled under the statute to receive their ratable share of the production calculated at the market price in the field at the time of the production, less the reasonable expense of operating the well. SL. 2012-143/S820 requires a study of the state’s current law on the issue of integration or forced or compulsory pooling and other states’ laws on the matter, and a report is due to the General Assembly in 2013.

Following up on the last question, are these latter homeowners asked for permission (signed or verbal) before the fracking extends to the domains of their land?

Lawful extraction of oil and gas resources underlying an individual’s property may only occur through two means: (1) a voluntarily executed lease (or other conveyance) for oil and gas rights with that individual, or (2) through an order issued by the Mining and Energy Commission (formerly the department) that requires that individual to integrate his or her interest in a drilling unit, which, as I mentioned above, may only occur after notice and hearing. But through this process, landowners may be compelled to allow fracking on their property. 

I’m providing this information because there is a lot of interest. Based on the information available so far, I opposed the bill and continue to oppose fracking.

Ellie Kinnaird represents Orange and Person counties in the state senate.

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