Why Letting An Oil Company Frack In Your Backyard Is Actually An Awesome Idea


Photo: Chesapeake Energy

Sure, the evidence appears to be growing that fracking may pose an environmental hazard.But what if someone told you that you could make millions by letting an oil company frack your backyard?

Last year, states paid out more than $54 billion in royalties to landowners whose property was fracked for oil and gas, according to data from the National Association of Royalty Owners.

“There are millionaires being made everyday from North Dakota to Pennsylvania,” Jerry Simmons, director of the NARO, told us.

So how do you get a chunk of that change?

We spoke to Jerry, as well as Jackie Root, an NARO rep in Pennsylvania, and put together the nine things you must have in your pocket before you become an overnight millionaire.

You must own the mineral rights on your property

If you do not, you will probably earn nothing. It's not enough to own what's on the surface. If you're not sure, you'll have to go to your county's courthouse and make sure that your deed includes rights to whatever lies beneath your property. Root says that in Pennsylvania, the mineral rights trump surface rights, and a driller can begin digging directly on your property.

And you must own a lot of it

You will get an up-front lease bonus if you own mineral rights. But you'll only get a couple hundred dollars if you don't own enough acres (as in, hundreds) where a company wants to drill. Acres are calculated at the surface (don't worry, only in rare circumstances are there different owners for different layers beneath the surface).

And you gotta have deep, lasting reserves

It is possible to make thousands of dollars overnight in the first few weeks of a well's production. But wells that last for years are far rarer.

And the stuff's gotta be good

Dry natural gas is worth less than wet gas. Both are worth less than crude. Liquids are always more in demand than compressed natural gas.

And you gotta get a good royalty price

Last year's national average was 18.75 per cent of all revenues earned off a property. But that figure can be as much as 25 per cent and as low as 16 per cent, depending on your state, which sets royalty minimums.

And prices must be high

The average price wellhead price last year for natgas was a little more than $4, which will have gone down significantly this year. The wellhead price paid for oil last year was $94.88.

Root says while many companies will give you fair value for your bonus, others (she declined to name names) are notorious for 'playing hardball.' Plus, Simmons says the average landowner is an elderly widower.

And it helps to be organised

organisations like the NARO exist to leverage the buying power of communities sitting on hydrocarbons. It's much harder to negotiate with a driller if you're on your own and unprepared.

Finally, you have to check your mail

Simmons rejects the notion that oil or gas in your backyard is the equivalent of 'manna from heaven.' It's easy for people to get fleeced -- especially given the average age of royalty owners -- if they don't manage their assets.

Still have safety concerns? Read on to see why you should totally let a company drill in your backyard >

The EIA says that unless it's mismanaged, fracking fluid is not inherently dangerous

'If mismanaged, hydraulic fracturing fluid -- which may contain potentially hazardous chemicals -- can be released by spills, leaks, faulty well construction, or other exposure pathways. Any such releases can contaminate surrounding areas.'

Source: EIA

And the Environmental defence Fund says it's pretty easy to handle it properly

'Our analysis has led us to conclude that there are many ways to eliminate hazards and reduce risks from hydraulic fracturing and related 'unconventional' oil and gas production practices.'

Source: Environmental defence Fund

The British Geological survey says groundwater contamination is very unlikely for fracking 160 feet below the surface

'The distance between groundwater supplies around 40-50 metres below the surface and the deep sources of gas in the shale a mile or two underground, made it unlikely methane would leak into water as a result of fracking.'

Source: British Geological Survey

Some communities where shallow fracking has occurred have been living with methane in their water for decades

Wyoming has been the site of shallow fracking for many years. It is now the site of a controversial fracking study testing groundwater contamination, but we recently spoke with some residents there who said they don't mind that some of their water has methane in it.

'We have a ranch right outside the Pavillion well [where the tests are occurring, I've drank it for years,' resident Debbie Clymer told Business Insider. Pavillion is the site of an ongoing government study to see whether fracking has contaminated groundwater.

The British Geological Survey says fracking can cause earthquakes — but they're barely noticeable

'Although the process, which uses high-pressure liquid pumped deep underground to fracture shale rock and release gas, caused two earthquakes in Lancashire last year, they were too small to cause damage, they said.'

Source: British Geological Survey

Experts agree that natural gas is much cleaner than coal

'NRDC documents that toxic air pollution declined in the nation by 19% during 2010 and specifically identifies the use of more natural gas as a major reason. Gas up; pollution down.'

Source: Energy and environment expert John Hanger

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