New fracking board raises unforeseen ethics issues

Rules may not require members to disclose all of their own interests

jmurawski@newsobserver.comNovember 9, 2012 

Ray Covington and his family own more than 1,000 acres of timberland in Lee County, considered to be a natural gas-rich pay zone and prime fracking territory.

Six times wildcatters have come knocking with offers of money to lease the family’s “mineral rights” to drill and frack for natural gas. Six times the family refused, confident that they can get a better deal.

Covington is not just a property owner; he is also a member of the state’s new Mining & Energy Commission, which will oversee fracking in North Carolina. As a member of that important board, Covington will have to disclose any financial interests and conflict-of-interest that could potentially influence his decisions as a commissioner.

But it’s not clear whether Covington will have to disclose his potential financial gain from fracking. Such issues are not specifically mentioned on the state’s ethics disclosure form, unforeseen by North Carolina’s ethics rules because for the simple reason that there is no history of oil and gas exploration here.

“That’s an excellent question,” said Perry Newson, executive director of the N.C. Ethics Commission, which will meet Friday to decide whether the commission’s rules cover the fracking board. “There’s some weird issues going on here that were never dealt with before.”

Filling out the forms doesn’t clear up whether North Carolina requires disclosure of mineral rights, leases and other ways that commissioners could profit from fracking in the future. Other states long ago decided that these issues are potential ethical booby traps that must be disclosed.

In Texas, a state with more than a century of energy exploration, mineral rights holdings and lease contracts have to be listed by members of the Railroad Commission, the Lone Star State’s equivalent of the N.C. Mining & Energy Commission. Those disclosures would fall under real property interests, said Tim Sorrells, general counsel for the Texas Ethics Commission.

The N.C. Ethics Commission’s Statement of Financial Interest also requires listing real estate holdings, but it’s not clear whether that includes the underground drilling rights called “mineral rights,” Newson said.

The N.C. Mining & Energy Commission, created this past summer, is so new that it is not yet covered by state ethics rules.

The Ethics Commission is expected to rule Friday that the Mining & Energy Commission is subject to state ethics rules. After that, the Mining & Energy commissioners will have 60 days to file their statements of financial interest. The 9-page forms include disclosures about assets, liabilities and sources of income.

Newson said it’s inevitable that members of the Mining & Energy Commission will ask about disclosing personal details that are not specifically listed on the form pertaining to natural gas exploration. Ethics Commission legal staff are researching the issue to determine how best to advise the fracking commissioners.

“By all means, full disclosure is key to serving the public trust,” said Molly Diggins, director of the Sierra Club’s North Carolina branch. “It’s really just a best practice when so much is at stake – if they have a financial interest or benefit in the outcome of the rules they are writing.”

Covington and others on the Mining & Energy Commission have expressed support for fracking as a potential boon for landowners and a boost for the state’s economy. Covington is also a principal in N.C. Oil & Gas, a local group formed to represent the legal and financial interests of landowners in lease deals.

Covington, whose family owns land in five counties, isn’t waiting for the Ethics Commission to tell him what’s right and wrong. The Greensboro resident has already decided to come clean and says he’ll disclose his mineral rights whether he has to or not.

“I’d much rather give more information than less information, just so people have a better understanding,” Covington said.

The N.C. Mining & Energy Commission was created by the state legislature to write hundreds of rules governing standards for well-shaft integrity, chemical transport, wastewater disposal, property owner rights and other aspects of horizontal drilling and hydraulic fracturing, or fracking.

Once the fracking board completes its task, which could be two years from now, the legislature will vote on whether to allow energy companies to pull permits and begin drilling and fracking. North Carolina is believed to contain 1.7 trillion cubic feet of natural gas and oil, concentrated around Lee, Moore and Chatham counties.

James Womack, chairman of the Energy & Mining Commission, owns 3.1 acres in Sanford. He said he has nothing to hide.

“I’d welcome whatever it is they want us to disclose because I’m sure I’d have no problem doing it,” Womack said. “I would even go so far as to say, if they wanted to ask me, ‘Has anyone made you a [lease] offer, or do you have any contingent financial benefit from anything you’re doing?’ ”

For the record: Womack said wildcatters have not approached him about leasing his mineral rights for fracking.

Murawski: 919-829-8932

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