The Wall Street Journal looks at landowners who are picking up cash in exchange for granting production companies the right to drill on their property. Some companies are targeting landowners in economically depressed areas, who find the leasing payments hard to refuse despite concerns about the impact of drilling (namely, water supplies and potential contamination):

In the current economic squeeze, financial opportunity is outweighing environmental issues for people swept up in a land grab by energy companies targeting gas reserves thousands of feet beneath people’s properties.

Companies eager to secure rights to drill into a deep stratum of shale known as the Marcellus deposit are paying as much as $2,500 an acre, or more, in some parts of the state, up from $25 an acre a year and a half ago, for five-year leases. Meanwhile, royalty rates, which are paid once production starts and could eventually lead to far greater income for mineral-rights owners, have risen to 18% of production revenue in some cases, compared with the state-mandated minimum of 12.5%.

In many cases, energy companies are targeting rural areas that have been depressed for years. “These payments are a real godsend to these people,” says Tim Considine, a professor of natural-resource economics at Pennsylvania State University…

The big environmental issue is water. Large amounts of pressurized water are needed to fracture rock thousands of feet underground. Once the rocks are free, the gas can flow to the wells. Not only will more of the state’s water be channeled to mining, but some people worry the process could also contaminate wells or parts of the state’s aquifer. Last month, officials at the Pennsylvania Department of Environmental Resources shut two new natural-gas wells in the absence of permits to extract water from local streams.

It’s a fascinating article; read the whole thing. And to learn more about Marcellus shale, click here.

Power Politics

July 3, 2008