Gas bonanza | Arkansas Blog

Gas bonanza

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A discussion yesterday about Chesapeake Energy's documentary-style TV campaign extolling the benefits of Fayetteville shale exploration included some comments about the money, through mineral lease and gas royalty payments, Arkansans are already receiving.

That discussion prompted a letter from a reader who lives in the heart of of the shale zone, north of Conway. I thought I'd share it.

Perhaps later today: I hope to pass along what I've found out about a letter and photos from another correspondent in the shale zone who complains that pipeline work was begun on his land without regulatory agency approval and was followed by belated erosion control for work that falls in a scenic river's watershed. The complainant must be misinformed because the Beebe administration has promised vigorous environmental enforcement in the shale zone.

LETTER FROM READER WHO LIVES NEAR THE FAULKNER-CLEBURNE COUNTY LINE

I noticed some comments on your blog today regarding natural gas royalty payments of $19K and $25K per month.  Indeed, there may be some already quite wealthy individuals receiving large payments.  However, the notion that there are poor people suddenly getting rich is highly improbable.  There are some who were not struggling to get by who now have a few extra dollars.  There are also mineral rights owners who have never lived in or even visited Arkansas who are getting payments.  There are "landmen" who swindled locals out of what small interests they may have owned who are getting royalty payments, too.

I think if you scan the production summaries available from the Oil and Gas Commission web site, you will see that there are very few wells producing a large enough volume of gas that would result in a $25K monthly check.  In fact, it appears to me that an individual would have to own all the mineral rights for a drilling unit (640 acres), and have better than the minimum 12.5% royalty in order to receive royalties that would average $25K a month (actual payments would vary each month
due to production changes and price received for gas).  Of course, if an individual or company owned all the rights for one or more drilling units, that would be a strong negotiating position for gaining a high royalty percentage.  Royalty payments are computed by dividing the mineral interest owned (in acres) by the size of the drilling unit (nominally 640 acres) and then multiplying the result by the amount received for the gas (minus compression, transportation, and tax costs among others) multiplied by the royalty percentage stated in the lease contract.  Since mineral interests were severed from surface interests,
especially during the Great Depression years and around 1970 to 1990, for a great many acres in Arkansas, there are few poor or even "middle class" people who own all the mineral interests for their land.  There are some wealthy individuals who do have sizable mineral holdings.  These people will become even wealthier.

I certainly have not seen the evidence of any great wealth that is bringing benefits to the rural area where I live.  If there are
individuals or groups getting rich from Arkansas natural gas royalties, I hope they will invest some of that money in providing adequate health services, better educational opportunities, clean, sustainable energy production, and economic assistance to those who reside in the areas being exploited.  Right now, It's still ten miles to the nearest grocery store.

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