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They're getting to know the drill: Homeowners wooed by oil companies hoping to tap into mineral rights
(Dallas Morning News, The (KRT) Via Thomson Dialog NewsEdge) Mar. 27--Campaign workers fan out across neighborhoods, cluster in churches and set up in community halls.
They mail letters, post fliers and hold barbecues and town hall meetings. Next come the billboards, glossy color advertisements and TV spots.
All the activity resembles a well-orchestrated -- and well-funded -- election effort.
Only these tireless crews aren't selling a political candidate.
They're seeking permission to drill for natural gas under the homes and businesses of thousands of North Texans. The gas companies arrive with contracts -- and signing bonuses -- hoping to secure leases to rich underground minerals.
Called urban leasing, it's a new phenomenon in the already massive effort to bore into the underground natural gas field called the Barnett Shale.
The frenzied rush to lease as many mineral rights as possible began mostly west and north of Fort Worth, with sprawling ranches and large parcels often owned by an individual family.
But now that drilling has come to the big city, it's accompanied by a fierce competition for Fort Worth's densely populated neighborhoods, including downtown.
"This is totally unprecedented," said Don Young, an urban gas drilling opponent who questions the safety to residents and the environment. "Fort Worth is the only large city in America where this is going on."
Fort Worth has nearly 500 actively producing wells and 200 more in various stages of the permitting process. And those numbers are expected to climb.
Throughout the region, cities, school districts, the Dallas-Fort Worth International Airport and even country clubs already are earning money from mineral rights leases for the Barnett Shale, which spans 16 counties and is among the top onshore gas fields in the country, containing an estimated 26 trillion cubic feet of natural gas.
Until recently, established neighborhoods were not courted by gas companies because it was deemed too difficult to obtain the mass permission needed to drill a single well.
But companies now are contacting thousands of property owners in an ambitious undertaking that has land agents working seven days a week and many evenings, moving through neighborhoods with military precision. If they can't obtain gas leases through neighborhood association meetings and other gatherings, they go door to door on every street in every neighborhood near where they want to drill.
The goal is to get everyone in a targeted neighborhood to sign.
"Sometimes when I drive through these areas, I say, 'What are we doing?' " said Larry Dale, president of Dale Resources, one of the most active companies in urban leasing. "I can't believe we're taking it on. There is no road map for this. But we know that critical mass is important."
Dale Resources hopes to secure leases for drilling rights along the Trinity River and throughout East Fort Worth. So far, the company's 110 landmen -- the generic term for the men and women who do this leg work -- have secured 30,000 mineral leases.
State-of-the-art drilling technology makes it easier than ever to drill under established neighborhoods. Operators are staking out well sites up to a mile away and drilling horizontally underground to reach the gas under homes.
To obtain the drilling rights, the companies offer signing bonuses that start around $300 and promises of monthly royalty checks if gas is discovered. The monthly checks typically help with expenses but aren't enough to make anyone rich. The amount depends on the number of leases for a well, the amount of gas extracted and the life of a well. Homeowners could end up with very little if no gas is found, or they could earn several thousand dollars over the life of a productive well, which could be there for two years or 20 years or more.
Paying these signing bonuses plus the salaries for the landmen can be costly. Once up, a rig can cost $2.5 million to $5 million to operate. But all that money up front is worth the risk. The companies wouldn't be exerting this effort, one official said, if they weren't able to turn a hefty profit.
Neighbors' support
Dale Resources employees recently set up shop at East Meadows Baptist Church to get permission to drill from 1,850 homeowners in this East Fort Worth neighborhood just west of Cooks Lane.
Before interested homeowners arrive, a team has already completed a preliminary search of their property records. A folder created for each lot contains the property owner's name, land specifics, details of the signing bonus amount and a contract awaiting signature.
"This is a lot easier for us than knocking on doors," said David Buchanan, a Dale Resources spokesman. "We're trying to be as honest and accommodating as we can. That's the only way we can do it."
Bobbie and Robin Anderson showed up to get top dollar for their lease. Mrs. Anderson peppered a gas company employee with questions. "So is it like buying a car? Can you bargain?" she asked about the signing bonus.
People with larger lots have better success bargaining, she's told. Because there are so many lots in her neighborhood, everyone gets about the same amount.
After a few more questions, the satisfied couple sign leases for the two lots they own.
East Fort Worth resident Frances Friday said many people see no point in holding out.
"Sometimes you just have to take a leap of faith," she said.
In Fort Worth's Riverside neighborhood just east of downtown, for example, about 500 people signed leases on one recent rainy afternoon.
"The neighborhood support is important," Mr. Dale said. "They hold the ultimate card. We have to focus. If someone doesn't want us, we'll go somewhere else."
Experts liken the underground gas field to a sponge, where each hole can contain minerals. Companies with a large chunk of mineral leases in a neighborhood can drill around properties without leases -- they just have to stay at least 330 feet away when tapping the gas pockets underground. But if a property is in a key location for drilling, a company may make an extra effort to acquire the rights.
Steve Smith, vice president of operations for Harding Co., which is securing leases for Exxon, says he gets more phone calls from people wanting drilling under their property than calls of complaint.
He said the company works to educate property owners early in the process.
"It serves no purpose to run over a community," Mr. Smith said. "I just try to tell people that we're trying to do the best job that we can in the best environment that we can."
In the historic Oakhurst neighborhood north of downtown, most residents united on the leasing process. Landmen secured leases on all but 60 of the 705 properties.
"We provided information, but we never tried to influence anyone," said Libby Willis, president of the Oakhurst Neighborhood Association. "Since the well site is on the other side of I-35W from us, many of the homeowners felt that we would be protected."
In addition to signing bonuses and the prospect of future royalty checks for each homeowner, Dale Resources gave $25,000 to the association for neighborhood improvements.
Drilling began around Christmas near Mercado Juarez, a popular north side Mexican restaurant.
Points to consider
Some say that residents aren't considering the unwelcome noise, pollution and other safety concerns that drilling could bring.
"No one would allow a chemical plant next to homes or elementary schools, but they will allow this. I don't get it," Mr. Young said.
Opponents are also concerned about the long-term effects on property values, water quality and overall quality of life.
"What we're seeing happening is very disturbing," said Mr. Young, founder of Fort Worth Citizens Against Neighborhood Drilling Ordinance, or FWcanDo, a group that fought for tighter restrictions on drilling. "It is greed on the part of the operators and on the part of property owners who are willing to trade neighborhood integrity for such a small amount of money."
Mr. Young and other opponents understand cities can do little to prevent drilling, but they can control factors such as the buffer that separates wells from homes, schools and churches. They can also set standards for noise levels, landscaping and upkeep at well sites.
Diane Wood was among the minority in her Oakhurst neighborhood. She said no amount of pressure would convince her to sign a mineral lease.
"I think people are being sucked into the promise of royalties, and they are being deceived about the effect on the environment," she said. "Time will tell, and I hope we don't all pay an enormous price."
Riverside resident Phyllis Allen understands why many of her neighbors signed but said she just couldn't.
"I know $300 buys a lot of groceries and gifts at Christmastime," she said of the signing bonus. "But I personally don't think it's right.
"I'm afraid we're letting good judgment get away from us," she said. "I'm afraid there is going to be too many wells, and I worry about what Fort Worth is going to look like and be like a few years down the line."
Paving the way
The contracts for mineral rights signed in recent months won't translate into drilling rigs in those neighborhoods for more than a year.
But those who gave the OK a year or two ago paved the way for the towering derricks that now sit in the Trinity River bottoms near downtown Fort Worth and near the Fort Worth Stockyards -- in plain view of drivers on Interstate 35W.
Tom Edwards, a gas drilling inspector for the city, said he received a lot of calls when those derricks appeared.
"People aren't used to seeing this in Fort Worth -- they think that is something that goes on out in prairies of West Texas," he said. "Five years ago, drilling in Fort Worth would be unheard of, but now it's a reality that will stay that way until the price of gas drops."
A few high-profile incidents related to gas drilling and pipeline construction in other cities have prompted some fears that the same could occur in urban areas.
A fatal drilling accident in Forest Hill in southern Tarrant County last April convinced Fort Worth officials to extend the buffer between new gas drilling sites and protected properties, such as homes, from 300 feet to 600 feet. Most suburban North Texas cities require at least that distance.
Earlier this month, a backhoe operator laying pipeline in Parker County struck a gas pipeline, igniting a blast and a plume of smoke that could be seen 30 miles away. No one was injured.
Fort Worth is in a unique position because so much of the natural gas drilling is within city limits. The city hired its first gas drilling inspector in 2002, the year that Fort Worth's drilling ordinance took effect. The drilling inspection division is part of the development department.
"We have a good ordinance in Fort Worth that protects people and property," Mr. Edwards said. "We haven't had any situations we can't deal with."
Many area suburban drilling ordinances are modeled on Fort Worth's. The city also took the lead in suggesting that local lawyers hold workshops for residents trying to sort out questions about mineral leases.
Bob West, a partner and head of the real estate/oil and gas practice group at Whitaker, Chalk, Swindle & Sawyer, said he advises neighborhood groups in his sessions to work together and take their time with the gas company proposals.
"I tell them all to have patience in the process," he said. "Most people seem more inclined to sign a lease. They want the check. They want the money."
Lawyers suggest that residents pay close attention to the length of the lease. Mr. West said the initial term can vary widely from lease to lease. He said the term covers the amount of time a drilling company has to actively explore for gas.
He cautioned that some companies consider building a road enough activity. And some companies want a five-year lease for such speculative activity. But he said residents should strive for fewer years, aiming to force the most activity over the shortest period of time.
"Ideally, you want the drilling activity itself to start during that period of time," Mr. West said. If the drilling is successful, the lease will continue as long as the well is producing gas.
A new issue to watch for is wording about "transportation costs" or "post production expenses," Mr. West said. That language allows the gas company to charge the homeowner for a portion of the cost of transporting the gas through a pipeline. Mr. West said homeowners should strive to pay none of those expenses.
Mineral leases also don't typically address anything on the surface because the process occurs so far underground that it should not cause such problems as shifting foundations or sinkholes.
Mr. Young said the rush to drill in and around Fort Worth's hospital district has made for some tense community meetings. Some residents in established neighborhoods such as Fairmount, Ryan Place and Mistletoe Heights and others near Texas Christian University have reported being hurried into a decision.
And a potential rig along Eighth Avenue in the Berkeley neighborhood has drawn fierce opposition, city officials said.
Some neighborhoods are banding together, even hiring attorneys, to negotiate gas lease terms as a group. Doing so gives them more room to negotiate, they say, and it helps protect them against intimidation.
There is virtually no place to turn for any questionable leasing tactics. The Texas Railroad Commission oversees the oil and gas business, but it doesn't get involved with individual mineral leases.
State Rep. Marc Veasey, D-Fort Worth, was so concerned that he filed a bill in January to license landmen through the Texas Real Estate Commission. The bill is pending.
"People don't know what to ask about these gas contracts," said Mr. Veasey, who lives in East Fort Worth. "And that lack of knowledge is exploited. People fear they will be missing out if they don't sign."
Safety, vigilance
Fort Worth Mayor Mike Moncrief said he expects gas companies in the city to "deal with residents in an honest and transparent" manner.
"Our folks deserve accurate, timely and simplified information," he said. "It's only fair that they have good information to make informed decisions.
"The more wells that are drilled, the more we will maintain our vigilance. We will not compromise neighborhood safety."
How much drilling will eventually pan out in Fort Worth and surrounding areas is still unclear. Operators usually wait until they've signed enough leases before seeking a permit to drill.
But the potential is there to sustain long-term growth in the drilling industry.
"This is a major gas field, and the economic benefits will be enormous," said Ray Perryman, president of a Waco-based financial and economic analysis firm that is working on a soon-to-be-released study of the Barnett Shale.
He cited job creation, tax base growth and productivity among the benefits for the region.
As for how long the drilling activity will last?
"This field will go on for years," Mr. Dale said. "Thirty years, minimum."
QUESTIONS AND CONCERNS
Gas company officials say the most common questions from residents considering leasing their mineral rights are:
--How will drilling affect my property?
--What happens if I sell my property?
--How much money am I going to get with the signing bonus and royalties?
The answers vary depending on several factors, including the size of the property, its proximity to the well site and the number of other leases required for that well. Experts recommend residents consult with a lawyer before leasing their mineral rights.
TOP CONCERNS
Don Young, founder of Fort Worth Citizens Against Neighborhood Drilling Ordinance, or FWcanDo, which fought for tighter restrictions on drilling in the city, lists the following concerns for residential natural gas drilling:
--Safety, which includes the possibility of accidents and blowouts
--Property marketability, including the possibility of diminished real estate values near rigs
--Environmental concerns, including air pollution, soil contamination, water pollution, loss of green space and diminished water supply
--Compromised neighborhood integrity, including noise, trash and overall disturbance from drilling activity
--Lack of oversight regarding unscrupulous mineral leasing, drilling and maintenance
TOP BENEFITS
Officials with Dale Resources, one of the most active companies involved with residential drilling in North Texas, list the following benefits of residential natural gas drilling:
--Allowing an energy company to produce natural gas helps reduce the nation's dependence on foreign energy sources and allows us to continue to turn on the lights and heat our homes.
--Mineral owners have a right to have their minerals developed by an energy company and share in the income from production.
--Royalty income paid to mineral owners that is saved, spent and invested provides a financial catalyst for economic growth and development.
--Natural gas drilling generates ad valorem taxes -- taxes paid to municipalities, counties, hospital districts, school districts, and local water districts. They resurface in the form of improved schools, parks and green space, libraries and other quality-of-life ways.
--Mineral leasing and gas drilling have a tremendous impact on jobs -- thousands of new jobs in North Texas can be attributed to the energy industry.
FW'S DRILLING RULES
Some provisions of Fort Worth's gas drilling ordinance:
--The ordinance requires a 600-foot setback from any protected use such as an existing home, school, church, hospital, public building or park without waivers from property owners or City Council approval. The 600-foot setback can be closer if the City Council approves or if property owners waive the setback requirement.
--Drillers are required to measure ambient noise levels before drilling and then install controls that prevent noise from rising above these levels by more than five decibels during the day and three decibels at night.
--Closed-loop mud systems, which eliminate open mud pits, must be used on wells that are within 600 feet of a home or other protected use.
--Fencing and landscaping that provide security and blend with surrounding uses must be used.
SOURCE: City of Fort Worth
Copyright (c) 2007, The Dallas Morning News
Distributed by McClatchy-Tribune Business News.
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