Early speculators let drilling leases lapse as NC fracking prospects remain uncertain

jmurawski@newsobserver.comApril 8, 2014 

Four years after North Carolina’s initial fracking boomlet, less than half of Lee County’s drilling leases remain under contract as those legal agreements expire and are not being renewed.

Initial energy speculators are losing interest in North Carolina and moving on to surer prospects in other states where fracking is already underway.

Most recently, Whitmar Exploration walked away from drilling rights to 2,716 acres, according to filings made last week with the Lee County Register of Deeds.

Whitmar’s exploration manager, Kevin Brown, said the Denver-based company is losing patience with North Carolina’s glacial progress on fracking, which remains under moratorium.

“It was a speculative venture, and what we’ve learned is there’s no way to do exploration in North Carolina right now,” Brown said. “We paid out money, and we didn’t capitalize on it.”

Of the 6,910 acres contracted in 2010 for drilling rights, 3,650 have lapsed, leaving 3,260 acres under contract. More expirations are expected in the coming year.

In the original rush four years ago, scores of eager Lee County residents had signed leases, hoping for a monetary payoff if drillers struck natural gas under their properties. Now many of those property owners are in limbo – free to sign with other energy exploration companies or to opt out of the energy gamble.

Critics of fracking, warning of environmental damage in bucolic Lee County, hope to seize on the lull to dissuade neighbors from letting energy exploration companies drill on their land and suck out natural gas from shale rock formations below.

“Nobody in North Carolina should sign a lease now,” said Therese Vick, a community activist with the Blue Ridge Environmental Defense League. “It’s not safe. There are no protections right now.”

Fracking advocates say the recent lease cancellations will open the way for serious energy players to enter the market with intent to drill, replacing speculators who made blind wagers on North Carolina’s unproven gas reserves.

“It seemed a little early when they were out running around signing up landowners to leases,” said James Womack, a Lee County commissioner, “particularly in some of those areas where we weren’t even sure there were exploitable deposits.”

During the initial wave of leases in Lee County, “landmen,” the reps who go door-to-door encouraging locals to sign contracts allowing energy exploration, offered signing bonuses at a fraction of the money paid out in other states. That experience prompted public officials and activists to organize public seminars outlining the legal risks of signing leases without the advice of lawyers.

Because horizontal drilling and hydraulic fracturing remain illegal in North Carolina, companies that had signed drilling rights were forced to wait years until the state legislature approved safety regulations for shale gas exploration.

The safety regulations are being written by the N.C. Mining and Energy Commission and are on schedule to be delivered to state lawmakers in October. The legislature has the final word on which rules will be approved, rejected or modified, leaving the state of fracking regulation uncertain for now.

Waning commitment

The extent of the state’s shale gas resource is not certain, but the gas is known to be concentrated in Lee County, with potential in Moore and Chatham counties as well.

Lee County’s first drilling leases to lapse, representing 934 acres, were dumped in the fall of 2014. Those leases had been snapped up by Charlotte-based Tar Heel Natural Gas, which had seduced locals by mailing ready-to-sign contracts that included ready-to-cash checks as signing bonuses.

Company officials could not be reached for comment to explain their waning commitment.

Lease terms are confidential in this state, and the energy speculators have not disclosed the magnitude of their losses here.

Whitmar abandoned drilling rights to 2,716 acres in February. The company had inked that contract with J. Daniel Butler, a Sandy Pines timber grower who owns mineral rights in Lee County. Mineral rights refer to the legal right to access natural gas or other underground resources, even if the surface land is occupied by someone other than the mineral rights owner.

Brown, Whitmar’s exploration manager, said the renewal status of the remaining 3,260 acres will be decided as the expiration dates of those contracts approach. Most were signed for five-and 10-year terms, with the first expirations coming up in 2015.

Butler said his lease was canceled because he negotiated a 10-year contract with a provision requiring Whitmar to pay him an annual fee. “They did not make the annual payment,” Butler said.

Whitmar’s about-face was less surprising than the company’s early appetite for leases.

“We were all puzzled why Whitmar jumped prematurely into those leases in the first place,” said Womack, who is also chairman of the N.C. Mining & Energy Commission.

Others express interest

Butler, who also owns rights to two natural gas wells drilled years ago in Lee County, said he’s in contact with other energy developers who are interested to the drilling rights on his property.

“This opens up the property to more prospects wanting to look at it,” Butler said. “I know first-hand there’s interest. I know first-hand the gas is there.”

Inquiries are coming in from Triassic Energy Resources, the North Carolina subsidiary of Industry Petroleum, which is based in Dallas, Tex. The company expects to conduct seismic testing and to sink exploratory wells this year, said the company’s North Carolina representative Chris Emanuel, of The C.G. Emanuel Group, a lobbying shop in Raleigh.

Lee County residents are perplexed by the recent spate of lease cancellations. Some hope it sounds the death knell to fracking while others hope they can take advantage of their experience to sign better terms next time.

“There’s a lot of speculation,” said Ed Harris, a retired real-estate developer who owns 20 acres in Lee County. “Nobody really knows what it means.”

Harris said that he and his sister, who is also his next-door neighbor, own nearly 50 acres between them, and both are committed to preserving their idyllic lifestyles.

“Neither of us intends to lease to an oil and gas company,” Harris vowed. “I wouldn’t take a million dollars. I would tell them to get lost.”

Murawski: 919-829-8932

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