The vast wealth of the Marcellus Shale is something beyond our state's collective experience and requires new thinking. Most importantly it means that our state needs to create and use our new wealth without making the same mistakes we made with coal.
The natural gas in the "active" Marcellus Shale areas is worth $80,000 -- an acre -- according to the U.S. Energy Information Administration. That is assuming a market price of $3 per MCF (1,000 cubic feet) and the current market is above $4 per MCF. In so-called "wet gas" areas the ethane and other liquid hydrocarbons that come with the gas are worth just as much as the gas. So that means that the gas in the land that produces Marcellus Shale gas is worth at least $80,000 -- and up to $160,000 -- an acre. One well pad with six of the new horizontal wells draining 640 acres is therefore worth $51 million to $102 million to the driller. (Contrast that with the conventional vertical wells that we are used to. A conventional gas well to the Big Injun Sandstone produces gas worth $15,000 an acre, and the Berea Sandstone is worth $9,000 an acre.)
The comic strip philosopher Charlie Brown said, "I love mankind; it's people I can't stand." The oil and gas industry is the opposite. I like almost everyone I meet in the industry, and they can do amazing things, but the industry as an entity, when corporate and industry dynamics kick in, is a monster. Make no mistake about it. If we as a state give away our wealth again, if we as a state let the oil and gas industry do to us what the coal industry has done to us in terms of land use and the environment, then the industry will take it and do it. The industry will run over top of us.
There is enough money in the ground to pay for environmental controls such as closed loop drilling, safe disposal of cuttings in the right kind of landfill, recycling and safe disposal of flowback, and containment of air emissions. There is enough money in the ground to escrow some of the income from the well so we know the well will get plugged when it is depleted, and not add to the 13,000 unplugged wells we already have. There is enough money to at least start to plug those wells that an irresponsible, monster industry now has left behind with no current owner. There is enough money to pay modern lease rates to mineral owners rather than send frack fluid into their land from neighbors without paying them, or threatening to do so in order to get unfair lease terms.
And most importantly to surface owners, there is enough money in the ground to pay surface owners the amount that the land is worth to the drillers to produce $51 million or more worth of gas from the pad on the surface owner's land, not what it was worth to the surface owner as a pasture before the driller showed up.
If a new divided, four-lane, controlled-access Corridor highway was put through a farmer's pasture, and an exit was placed for the lane on the edge of the pasture; and if Exxon came along and wanted to put in a fancy filling station and convenience store in the farmer's pasture; then how much money should the farmer be paid? Should the farmer be paid the amount of money it was worth to the seller/farmer as a pasture, or should the farmer be paid the amount of money it is worth to the buyer/Exxon, for a gas station?
Of course, a wise West Virginia farmer would insist on getting paid what it was worth to Exxon as a gas station. And if Exxon cannot satisfy the farmer on the preferred corner, there is surely a farmer on another corner of the intersection who will take the deal. Therefore, if XTO Energy, now owned by Exxon, wants to put a well pad in a farmer's field, Exxon should pay that farmer what the land is worth to Exxon, not to the farmer, or move on to another part of the 6 million acres of Marcellus Shale. That is how our free market economy is supposed to be allowed to work.
West Virginians need to understand the value of the gas and the value of their ownership of land when negotiating leases and making all the decisions they make regarding the Marcellus Shale.
Our courts need to rule that the huge, long-lasting surface disruption of the new shale drilling technology was not contemplated when old leases were signed or when the minerals were sold off from the surface a century ago -- or even five years ago. It is clear that your surface could not be used for a pipeline to transport gas produced from neighboring mineral tracts without paying you for that right. Our courts need to decide that, for the same reasons, the driller cannot use your land to construct a massive, long-lasting, well pad and impoundment to drill horizontally into a thousand plus acres of mineral tracts that do not underlie your property.
The Legislature needs to understand that in rejecting unfair pooling legislation, more than anything the industry demonstrates an arrogance and a sense of entitlement unlike that attributed to any other segment of our society.
As a state, as citizens, as judges and as legislators we need to understand this new wealth. We need to grow out of the company town mentality that our history has made part of our culture.
McMahon is a lawyer and a co-founder of the West Virginia Surface Owners Rights Organization.