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Wednesday, August 28, 2013

Peter Sinclair: Fracking Fraying at the Edges

by Peter Sinclair, Climate Denial Crock of the Week, August 28, 2013

The little-questioned assumptions at the heart of the Business-as-usual model for energy development, are that “we are the Saudi Arabia of coal,” and there are “hundreds of years of natural gas” available for us to exploit.  I’ve posted recently on the slow fade of the coal industry,  and the “cheap natural gas” myth -- but the story continues.

The realization is slowly dawning that we need to develop greater efficiency and renewables, not because it would be nice and “green,” but because that is the only way to maintain our civilization.

Oil companies are hitting the brakes on a U.S. shale land grab that produced an abundance of cheap natural gas — and troubles for the industry. 
The spending slowdown by international companies including BHP Billiton Ltd. (BHP) and Royal Dutch Shell Plc (RDSA) comes amid a series of write-downs of oil and gas shale assets, caused by plunging prices and disappointing wells. The companies are turning instead to developing current projects, unable to justify buying more property while fields bought during the 2009-2012 flurry remain below their purchase price, according to analysts. 
The deal-making slump, which may last for years, threatens to slow oil and gas production growth as companies that built up debt during the rush for shale acreage can’t depend on asset sales to fund drilling programs. The decline has pushed acquisitions of North American energy assets in the first-half of the year to the lowest since 2004. 
“Their appetite has slowed,” said Stephen Trauber, Citigroup Inc.’s vice chairman and global head of energy investment banking, who specializes in large oil and gas acquisitions. “It hasn’t stopped, but it has slowed.” 
North American oil and gas deals, including shale assets, plunged 52% to $26 billion in the first 6 months from $54 billion in the year-ago period, according to data compiled by Bloomberg. During the drilling frenzy of 2009 through 2012, energy companies spent more than $461 billion buying North American oil and gas properties, the data show.
Grist reports on the impact fracking wells are having on real estate in heavily drilled areas.
When it comes to the real estate market in Bradford County, Penn., where 62,600 residents live above the Marcellus Shale, nothing is black and white, says Bob Benjamin, a local broker and certified appraiser. There aren’t exactly “fifty shades of grey,” he says, but residential mortgage lending here is an especially murky situation. 
When Benjamin fills out an appraisal for a lender, he has to note if there is a fracked well or an impoundment lake on or near the property. “I’m having to explain a lot of things when I give the appraisal to the lender,” he says. “They are asking questions about the well quite often.” 
And national lenders are becoming more cautious about underwriting mortgages for properties near fracking, even ones they would have routinely financed in the past, Benjamin says. 
That’s a real problem in Bradford County, where 93% of the acreage is now under lease to a gas company. 
Local banks are still lending because they have to if they want the business in the county, according to Benjamin, who has been involved in the area’s real estate market since 1980. But, he says, “The big boys, Wells Fargo and the other banks are probably pretty similar, they are going to protect their butt.” 
Lawyers, realtors, public officials, and environmental advocates from Pennsylvania to Arkansas to Colorado are noticing that banks and federal agencies are revisiting their lending policies to account for the potential impact of drilling on property values, and in some cases are refusing to finance property with or even just near drilling activity. 
Real estate experts say another problematic trend is that many homeowners insurance policies do not cover residential properties with a gas lease or gas well, yet all mortgage companies require homeowners insurance from their borrowers. 
“Well, that is a conflict,” says Greg May, vice president of residential mortgage lending at Ithaca, N.Y.-based Tompkins Trust Company.
And don’t count on  becoming a Jed Clampett-style millionaire off the gas lease on your back 40.

Don Feusner ran dairy cattle on his 370-acre slice of northern Pennsylvania until he could no longer turn a profit by farming. Then, at age 60, he sold all but a few Angus and aimed for a comfortable retirement on money from drilling his land for natural gas instead. 
It seemed promising. Two wells drilled on his lease hit as sweet a spot as the Marcellus shale could offer—tens of millions of cubic feet of natural gas gushed forth. Last December, he received a check for $8,506 for a month’s share of the gas.
Then one day in April, Feusner ripped open his royalty envelope to find that while his wells were still producing the same amount of gas, the gusher of cash had slowed. His eyes cascaded down the page to his monthly balance at the bottom: $1,690. 
Chesapeake Energy, the company that drilled his wells, was withholding almost 90% of Feusner’s share of the income to cover unspecified “gathering” expenses and it wasn’t explaining why. 
“They said you’re going to be a millionaire in a couple of years, but none of that has happened,” Feusner said. “I guess we’re expected to just take whatever they want to give us.”

An analysis of lease agreements, government documents and thousands of pages of court records shows that such underpayments are widespread. Thousands of landowners…are receiving far less than they expected based on the sales value of gas or oil produced on their property. In some cases, they are being paid virtually nothing at all. 
In many cases, lawyers and auditors who specialize in production accounting tell ProPublica energy companies are using complex accounting and business arrangements to skim profits off the sale of resources and increase the expenses charged to landowners. 

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