Sunday, June 28, 2009

Is the juice worth the squeeze?

When taking over as mayor of DISH, the first question that was asked by the local media outlets was to respond to the fact that our property values as a whole had decreased considerably from the past year. This is where small towns and cities get the bulk of their funding, through taxes on these property values. Therefore, if the taxable value goes down, naturally the revenue for the town does as well. Now I must say that I am opposed to unnecessary taxation, and therefore have done everything I can to make the taxes here the lowest in the area, and succeeded. However, the town has doubled in size over the last couple of years, yet the taxable value continued to drop. This baffled me how essentially the total value of the town drops every year, while were experiencing massive growth.

Not only did it baffle me, but it concerned me. As most small towns do, we use the county tax assessor’s office to perform the tax collection service for us, so they were my first call. When they explained the mineral values were the cause of this drop, and that was sixty percent of our tax base, I was again stunned. As you know we are located in the middle of the Barnett Shale, and have had a great deal of exploration in this area. So what would cause the values to continue to drop? This was also during the timeframe when natural gas prices were climbing to all time record highs.

As I investigated the source of the decline in my town it all started to become apparent. The property values not tied to minerals have continued to drop. I believe this is mostly due to the massive natural gas compressors, pipelines and metering stations. They have all but made the surface property here worthless; however, that does not account for the minerals which is over half of our taxable values. I then found that on average, each well drilled loses fifty percent of its production after the first year. That is a huge drop in production in only one year. So that tells me that the only way to maintain the same mineral value is to drill fifty percent more wells every year. So if you have ten wells this year, you would need to drill five more next year just to maintain the same production.

Many of the local cities have went on a sort of spending spree with the new found wealth from the natural gas minerals, and are now finding themselves in a financial crunch. The facts that I taught myself through this simple question from an intuitive reporter has made a world of difference on how I approached this problem here in DISH. We are frugal at best here, making the most of every dollar we get. We have cut the town debt in half, built a massive park, a library, repaved roads and performed substantial upgrades to town facilities and done this while lowering taxes and not dipping into the emergency fund we have in only two years.

To the real point, is what do minerals play into all of this? As previously mentioned we have over half of our tax dollars that come from the minerals, more specifically the revenue we received in 2007 was made up of 56% mineral values, in 2008 that number jumped to 64%. We have not gotten the completed numbers for 2009, but they will likely be similar. The dollar figures for this are 14, 500,000 in 2007 and 22,277,000 in 2008 in property values from mineral.

On the surface the benefit from this industry seems huge. We are a small town and they double our value. But I also compare this to the drug “heroin”, due to seeing the other towns which have gotten addicted to the drug and when the drug goes away, (when they price of natural gas goes down 75% as it has), they find themselves in a financial crisis. Also, most people do not take into account how much it costs to have this activity going on. I can only explain what goes on in DISH, TX, but will attempt to explain the drugs side affects.

First and foremost this exploration destroys roads, which are very expensive to maintain and replace. None of the existing roads were designed to withstand the constant pounding from an 80,000 pound waste-water truck. Nor were they designed to handle the larger equipment that is used to drill and refracture the wells. To build roads to handle this traffic can cost millions of dollars.

If the municipality owns the roads, they can force the companies to sign a road use agreement, which forces them to pitch in and help the roads. Most of the cities in the area have agreements like this in place. If they do not, then they are foolish, and are likely costing their taxpayers a great deal of money by not forcing the companies to pay. However, the drilling companies are going to take whatever measures they can to keep from paying damages to the roads. The City of Argyle found out the hard way when they were sued by XTO over road work.

Here in DISH many of the roads are not owned by the town. This is both good and bad; it is good because we don’t have to pay for the major upkeep of these roads. However, if we don’t own the road we don’t have much control either. For example, we have implemented a weight restriction on all of the roads that we do own, but we can not enforce this on roads that we do not own. Unfortunately, the county does not have the capability to force these companies to have road agreements and pay for what they destroy. Therefore, the replacement and repairs come from the general taxation, or bond elections, not directly from the gas companies. So as you might guess it is a juggling match for the counties to keep the roads drivable for the average vehicle.

One example of that is Eakin Cemetery Road, which goes through part of DISH, but is owned by the county. A pipeline was being installed in this area, and the equipment used in this process is massive. Please note that the pipelines must be included in the cost of this exploration, even though they contribute little to the towns or property owners, and take a lot in return. I will discuss how bad they hurt the towns later.

When this line went in the companies used Eakin Cemetery Road to access the route. They completely destroyed this road and virtually made in impassible for the average vehicle. You could literally see the grooves where the truck tires that hauled massive equipment went. The pavement was cracked and torn from this equipment and the pipeline companies did nothing to prevent or repair this. And though the county does work hard to keep the roads in reasonable shape, when something like this happens in takes a while to plan the repair; therefore, the citizens here were forced to drive on the impassible road for quite a while until repairs were made.

There is another impact that can be recognized quickly, and that is the affect that the exploration has directly on surface values. I am sure that there are some who believe the propaganda and are fine with having a well or pipeline in their front yard. However, regardless of what you may have heard, they are the exception not rule, especially if you have a small population of mineral owners in your community. The average person will not purchase the property right next to a well site or compressor, providing they are made aware of it. Unfortunately, most of the mineral owners in this area have kept the minerals and moved on to someplace else. However, when they have tried to sell their property with wells and pipelines on them, it has not been successful.

Although you may see a boost in your tax rolls for the short term, you will pay in the long run with the drop in property values. For a small growing community like DISH it especially provides an obstacle for quality growth. There have been four large tracts of property for sale in DISH for several years with no real interest in purchasing the property. If you do manage to get some interest in the property, it will likely be something like a pipeyard or something else that continues to devalue the surrounding property. So getting quality growth in an area that has a large amount of exploration proves to be a large hurdle if not impossible.

The above paragraph dealt with the exploration of the mineral, now we must consider the pipelines, and appurtenances to these pipelines, such as compressors or metering stations. These facilities have dealt us a very harsh blow without giving much in return. This is highlighted by a previous illustration of the pipeyard. The gentleman who unfortunately lives next door to this compressor site sold off a piece of property to a developer who built 18 homes that average around $200,000 each. However, after the compressors were there, he has not been able to give his property away. He was only able to lease some of it to a company that stores pipe. That is the best he can do now, and that in itself is very low quality growth and makes the area even less desirable.

Another illustration that has been used by me before is the gentleman who has had 63 acres for sale now for several years. He purchased the property as an investment, and now has three pipelines and an above ground valve. He can not give this property away. As he reaches retirement age his retirement has been stolen from him. This is no different than Enron or any other scandal, only it has been made legal thievery. There are two other pieces of property that have been for sale for several years, one of which is a large parcel of about 70 acres and the other is about 10 acres.

The above examples are heart wrenching when you look at how much it has cost the property owners, and only one of the above mentioned owners has any substantial mineral interest. Therefore, they others are merely victims of circumstance. However, as this gets to the point of whether this all is really worth it, I believe that if all of these property were sold and developed it would add somewhere around $20,000,000 in property values, which is more than the average in mineral values over the last few years. I also believe this is a very conservative estimation, it could be more.

So would you rather have homes than minerals? Homes in theory will increase in value over the long term while minerals will drop. Although, this has not been case the last couple of years, in the long term this has held true. Also, natural gas is a commodity, and its prices are much more volatile than housing. For example in the last couple of years the lowest price of natural gas is about 25% of the highest; therefore, you have seen a 75% drop in prices in a little over a year.

In DISH we have focused on overcoming the boom and trying to get quality development. We have worked with a number of developers to annex their property into the city. All three of the major annexations we have had since I became mayor, have been solely to protect them from the development of the minerals and total destruction of the surface values that accompany it. This is not saying that we do not allow drilling; we just force the companies to do it responsibly. We have a pad site that is right in the middle of one of these subdivisions and it really does not look that bad. It is lined with an eight foot concrete fence and most of the stuff inside including the tanks is not visible beyond the fence. However, the companies will only do this when they are forced too, they will not volunteer it.

So how about all those mineral owners who have gotten filthy rich? Here in DISH there have been some folks who have made a great deal of money on the minerals. However, most of them had lived here their while life, and had property handed down over the generations, otherwise they only have a small portion of the mineral rights. Therefore, there are only a few that are still alive that have a major portion of the mineral rights, and as previously stated most of them have moved away to someplace that they do not have to deal with the mess that is left behind.

This area was the beginning of the Barnett Shale, if I am not mistaken the first gas producing well in the Barnett Shale, was within 20 miles of DISH. Therefore, the minerals were purchased several years ago, and the leases were quite low in comparison to the massive leases signed last summer. The lease here is somewhere around 16% royalties with anywhere from $1,000 to $1,500 per acre, not the 25% and $25,000 per acre that have been publicized.

So what does the 16% royalty get you? From what I understand, for someone who owns four acres and has a quarter of the mineral rights, they average less than a $100 a month. Therefore, if you have one acre with 100% of the minerals you would get something similar. Therefore, unless you have a massive amount of land with 100% of the minerals, you are not going to get much money. If you are part of the lease, you must also consider the truck traffic, odor, noise, and you just might be fortunate enough to have a high pressure gas pipeline run through your front yard. All of these things accompany the hundred bucks a month. I do not have any mineral rights, if anyone has another illustration please add it to this posting.

So to the point of, is the juice worth the squeeze? From my perspective as a small town mayor and a property owner, I say no! Not in the manner in which it is being done in Texas. I think that with minor regulation it could both provide the natural resources that we need as well as not totally destroying the surface values and destroying the growth of these areas. For example, there is no process in Texas for the laying or routing of pipelines. The pipeline companies can literally put them anywhere they want without concern for surface owners and other natural resources. Municipalities do have some limited control over the placement of the wells, but not the pipelines.

The items that were discussed were only the things that are easily recognized. I am still learning the affects on air and water quality and to explore the possible health of affects of this exploration. Although I have recently learned that the companies with the compressor site have learned a loophole that allows them to virtually go without regulation in regards to the air emissions they produce. I will share more on this subject as I figure out the specifics. I have the documents; I just have not digested everything yet.

This also does not include the tens of thousands of dollars in legal fees it takes to offer the citizens some minor protection from these companies. Nor does it take into account the hundreds of hours of my time spent researching and campaigning for more regulation for no pay. So you must ask yourself; is the juice is worth the squeeze? I can support any statement that was made in this posting; therefore, if you have more specific questions, please let me know and I will clarify it for you. To those of you who have visited DISH, I doubt you have any questions in regards to the impact the Barnett Shale has had on us.

Tuesday, June 23, 2009

New Posts

I have been very busy and not able get much writing accomplished. I have several things to share and hopefully I can get some of it out this week. Keep looking, I think you will be interested in what I am going to share.

Monday, June 15, 2009

Denton Record Chronicle Article

Please see the below article written by Peggy Heinkel-Wolfe of the Denton Record Chronicle.

Pass, fail or erode

State legislative session ends with final decisions made on natural gas bills

08:10 AM CDT on Sunday, June 14, 2009
By Peggy Heinkel-Wolfe / Staff Writer

Nearly 60 pieces of legislation tied to natural gas drilling, production and distribution got some kind of hearing in either the state Senate’s Natural Resources Committee or the House’s Energy Resources Committee in the 81st legislative session. A handful of bills made it through and became law, beefing up inspection, safety and cleanup efforts, particularly for pipelines.
But other bills languished, including those that would have steered the industry toward “green” completions and sharing geological findings — as well as sorting out battles over property rights and municipal authority.

Cities’ rights

This spring, more than 30 Barnett Shale cities signed a resolution asking the Legislature to limit the use of eminent domain by pipeline companies, many of which, they contended, did not fit the traditional definition of a public utility. Even some industry officials agreed the recent proliferation of gathering pipelines was becoming a concern.
The pipeline companies enlisted the help of Rep. Yvonne Gonzalez Toureilles, D-Alice, to introduce House Bill 4441. That bill would have transferred certain longstanding, local authority over pipelines and compression to the Texas Railroad Commission.
Many cities and environmental groups worked hard to defeat the bill, including the Oil and Gas Accountability Project, which sent out several legislative alerts in March urging its defeat, according to Jennifer Goldman, the group’s public health and toxics campaign director.
Dish Mayor Calvin Tillman had spearheaded the effort to get the problem solved, but had to shift gears after HB 4441 was introduced.
“I’d hoped we’d gain something in this session, but at least we didn’t lose anything either,” Tillman said.

HB 4441 died in committee.
“I managed that,” Tillman said, adding that he is focusing his attention on the next legislative session and is trying to work closer with the industry to solve the problem.

Davis’ defeats

Freshman Sen. Wendy Davis, D-Fort Worth, was perhaps the most ambitious among those representing the 19 counties of the Barnett Shale. Among the legislation she introduced, six bills took on some of the most pressing issues in natural gas drilling, production and delivery.
Of those that made it out of committee, one would have ensured that disposal wells be permitted only in the Ellenberger formation, protecting Texas groundwater by injecting drilling waste nearly 8,000 feet down. Another would have limited gas well venting, a rule that has not been updated since 1977, and would have helped with North Texas air quality.

Texas Commission on Environmental Quality officials recently affirmed the findings of a Southern Methodist University study funded by the Environmental Defense Fund: Barnett Shale drilling and refining activities contribute 200 tons of smog and greenhouse gases daily, doubling what is belched out by traffic each day.

But neither bill got any further traction because of problems with the House calendar.
“That ‘green completions’ was the most important legislation because we are a non-attainment area,” Davis said of the inability of the North Texas area to meet federal requirements for air pollution.
Another bill would have leveled the playing field between municipalities and energy companies when it comes to negotiating mineral leases. Currently, the law allows energy companies to lease minerals owned by cities at terms that are more favorable to the industry.

Legislative records show that when the bill went before the committee on May 5, the city of Fort Worth sent one representative to speak in favor of the bill. The Texas Municipal League also supported the bill. But the industry sent two representatives to speak against the bill and representatives from six major energy producers wrote against it, as well.

Another bill would have helped protect the rights of property owners in unincorporated areas. Currently, only cities are allowed to write rules that can require wells to be drilled away from homes, schools and businesses. Most have setbacks between 500 and 1,000 feet.
Despite the political popularity of such a measure, that bill also died in committee.
The University of North Texas Survey Research Center conducted a poll of Denton and Tarrant county residents last fall.

Given a scenario of a well proposed for 1,000 feet away from homes and businesses, 52 percent of those polled said they would favor drilling in their neighborhood, and 65 percent were in favor if they thought they shared in the mineral rights. However, at 500 feet, the mood shifted, and 72 percent opposed the prospect.
Even if respondents had the mineral rights for such a well, 59 percent would oppose a well that close. Given a scenario at 200 feet, 86 percent of respondents without rights, and 78 percent with rights, opposed the prospect. Paul Ruggiere, director of the study, said that a distance of 1,000 feet appeared to influence the favorability of a well.

Davis also sponsored a bill that would have required gas suppliers and the Texas Railroad Commission to report “Grade 1” leaks to local authorities, since those leaks present the greatest risk to the public. That bill also died in committee.

Davis said the problems had more to do with the House and its calendar, which got clogged after Democrats pushed to kill the voter identification bill. “These are major pieces of legislation that should have gotten through,” Davis said. “Four of them sailed through the Senate with no problem.”

Crownover’s victories

It took Rep. Myra Crownover, R-Lake Dallas, two sessions to get through legislation that closed loopholes that allowed some energy companies to abandon wells without properly plugging them and cleaning up the well site. HB 2259 awaits Gov. Rick Perry’s signature to become law.

Crownover’s assistant, Kevin Cruser, said the bill was a victory for property owners and the industry alike, since it distinguishes between the “good actors” and marginal operators.
“We’ve had positive feedback from the governor’s office,” Cruser said.
Two of Crownover’s other bills were folded into other legislation, including a law, effective Sept. 1, that beefs up pipeline inspections. The Texas Railroad Commission has faced increased scrutiny after failed compression fittings led to pipeline explosions that killed people in Wylie and McKinney.

Another bill Perry is expected to sign would allow pipeline companies to use public roadways.
But a fourth bill will have to wait for another session, Cruser said. With HB 2356, Crownover tried to shore up the requirement that drilling companies file their well logs with the railroad commission, information that could help production throughout a natural gas field.
The only other natural gas drilling-related bill Perry has signed so far is HB 472, which allows the railroad commission to use some of its oilfield clean-up money to decontaminate leaks and spills from pipelines.

Next session

Neither Tillman nor Cruser thought any of the legislative measures would be resuscitated in a special session, should the governor call one.

Gwen Lachelt, executive director of the Oil & Gas Accountability Project, which has been successful with regulatory reform in Colorado and New Mexico, said that her group has turned some of its focus toward Texas. The group is working with a statewide steering committee to determine what reforms are needed. “We’re doing a lot of research,” Lachelt said. “We’re developing a campaign reform package that should make a difference in the next couple of years.”

PEGGY HEINKEL-WOLFE can be reached at 940-566-6881. Her e-mail address is pheinkel-wolfe@dentonrc.com .

Wednesday, June 10, 2009

Aerial view of DISH, TX and the Barnett Shale

It is difficult to really illustrate just how massive the compressor site here in DISH is. But when you see it from the air it is sickening. Please watch the video below to see the site here as well as many others that are similar, and please ask yourself if you want this in your back yard, or better yet, would you wish this on anyone?

http://www.youtube.com/v/W3rXRgbLM68&hl=en&fs=1

Saturday, June 6, 2009

Energy Transfer News Article

Below is a news article regarding Energy Transfer from a couple of years back. I have not heard what came out of the allegations. If anyone has please leave a comment.

Thursday, July 26, 2007

Dallas-based Energy Transfer Partners under federal investigation
By Pegasus News wire

DALLAS — The U.S. Federal Energy Regulatory Commission said Thursday it has taken action against Energy Transfer Partners, a Dallas-based owner of pipeline assets. The company has 30 days to show that it did not violate commission rules by manipulating the wholesale natural gas market at the Houston Ship Channel hub on certain dates in 2003, 2004 and 2005. The agency has proposed more than $167 million in total penalties and disgorgement of unjust profits.

"We are not taking final action today," FERC Chairman Joseph Kelliher said at a press conference Thursday morning. "We're not making a final decision on guilt."

In a separate development, the Commodity Futures Trading Commission said Thursday that it also was taking action against Energy Transfer Partners and three of its subsidiaries for the same allegation: attempting to manipulate physical natural gas prices at the Houston Ship Channel delivery hub, in September and November 2005.

The CFTC also said it believes Energy Transfer Partners and its subsidiaries attempted to manipulate Houston Ship Channel monthly index prices of natural gas published by McGraw Hill Cos. unit Platts. The index appears in a publication called "Inside FERC's Gas Market Report."

The CFTC is seeking a permanent injunction against the defendants, as well as an award of civil penalties and "other remedial and ancillary relief as necessary," the agency said in a statement.

“We believe that our business transactions during the times covered by these proceedings were conducted in a lawful and responsible manner and that no laws or regulations were violated during the course of our business,” said former FERC Commissioner Jerry J. Langdon, now Chief Administrative and Compliance Officer for Energy Transfer Partners. “We will vigorously defend our position as the legal proceedings go forward.”

“Following what has been called ‘the storm of the century,’ Energy Transfer and all other market participants were confronted with uncertain market conditions,” said Langdon. “We believe these charges are misguided. The FERC asserts, despite record high prices at the time, that we should have achieved even higher prices in the wake of the hurricanes’ devastation and the significant disruptions in the natural gas market that followed. We believe that the FERC’s hindsight review of what prices should have been ignores the difficult market conditions buyers and sellers were dealing with at the time.”

Source: ETP, FERC